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Margin Debt Increases By 30% In 2009, Currently At $231 Billion

Tyler Durden's picture




 

The NYSE's most recent disclosure of margin debt indicates a surge in trading in margin accounts, where total debt shot up to $231 billion as of December, up $58 billion from February or 30%, and also an increase of 4.5% from November. This is an indication that "animal spirits" have surged by about the same amount as the broader market since the market lows: in other words, speculation is now rampant, and, to make things even better, is very much on margin, or leveraged. And we all know what happens when levered speculative bets turn out not quite as expected. For those who may be confused, Dow Jones provides a useful primer of how a margin call feedback loop tend to make things ugly, fast.

A potential pitfall for those trading "on margin" is a sharp decline in stock prices, which can expose investors to margin calls, requiring them to post additional collateral lest their brokers sell their securities to cover the debt. A wave of margin calls can worsen selling pressure on stocks and was seen as partly to blame for the market's woes in the fall and winter of 2008-09.

But why worry - just like in 2006, every sellside (and in many cases, buyside) model now crashes if you plug in negative growth. At that point, coupled with a blue screen of death, the best outcome is to just reboot the computer and head to the nearest pub for a beer or seventeen. In the meantime, all problems will just resolve themselves on their own: especially if you have $100 trillion in discount window borrowings collateralized with recently defaulted securities from AIG's worthless portfolio. Oh, sorry, the Fed said ML III is worth at least par. So yes, all is good - Go back to drinking.

 

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Wed, 01/27/2010 - 15:18 | 208072 BaronG
BaronG's picture

I love the sarcasm and brilliant humor! Always enjoy laughing at work

Wed, 01/27/2010 - 16:30 | 208190 VegasBD
VegasBD's picture

I love the alcohol references.

Its a prime reason why this 1.75 on my desk is near empty.

And why it gets opened before noon sometimes (west coast)

Wed, 01/27/2010 - 15:26 | 208089 the grateful un...
the grateful unemployed's picture

short sellers are automatically on margin, so how do these numbers break down?

Wed, 01/27/2010 - 15:26 | 208090 the grateful un...
the grateful unemployed's picture

short sellers are automatically on margin, so how do these numbers break down?

Wed, 01/27/2010 - 15:33 | 208104 Anonymous
Anonymous's picture

How about that January Indicator, eh? Anyone? Anyone?

Wed, 01/27/2010 - 16:05 | 208151 peaceful
peaceful's picture

td,

I hear your taxes will pick up the bar tab

Wed, 01/27/2010 - 16:36 | 208199 Anonymous
Anonymous's picture

I was going to post a wity and insightful comment. But this Romer lady from the WH just came on CNBC and started talking. Now I'm going to be ill. Be right back. I need to go puke.

Wed, 01/27/2010 - 16:42 | 208209 20smoney
20smoney's picture

1.75 it is!

Wed, 01/27/2010 - 17:51 | 208308 Anonymous
Anonymous's picture

Get out yer stink bids...

Wed, 01/27/2010 - 17:55 | 208315 D.M. Ryan
D.M. Ryan's picture

Get out yer stink bids...

Wed, 01/27/2010 - 17:57 | 208322 Ripped Chunk
Ripped Chunk's picture

What does a $200 billion door slamming sound like?

Wed, 01/27/2010 - 18:36 | 208383 deadhead
deadhead's picture

Thanks for the update Tyler.

 

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