Margin Debt Hits New Record High But Analysts Say "Don’t Worry"

Tyler Durden's picture

Authored by Mike Shedlock via Mish Talk,

The Wall Street Journal reports Margin Debt Hit an All-Time High in February. Given that Margin debt has a history of peaking right before financial collapses this seems like a warning to me but analysts say it’s different this time.

Margin debt climbed to a record high in February, a fresh sign of bullishness for flummoxed investors trying to navigate the political and economic crosscurrents driving markets.


The amount investors borrowed against their brokerage accounts climbed to $528.2 billion in February, according to the most recent data available from the New York Stock Exchange, released Wednesday. That is up 2.9% from $513.3 billion in January, which had been the first margin debt record in nearly two years.


Before January, the previous record high for margin debt was $505 billion in the spring of 2015. Margin debt then started falling, months ahead of a summer swoon that sent major indexes down more than 10%.

Analysts Say Don’t Worry

MarketWatch reports Record Margin Debt May Be a Red Flag, but Analysts Say Don’t Worry.

The latest warning sign — following underperformance by small-cap stocks, record inflows into exchange-traded funds and high levels of political uncertainty — is margin debt, which is seen as a measure of speculation and just broke a record that has stood for nearly two years.


Don’t worry.


According to the most recent data available from NYSE, margin debt hit a record of $513.28 billion at the end of January, topping a previous record of $507.15 billion that had held since April 2015. Margin debt refers to the money that investors borrow to buy stocks, and high levels of it, in periods of market volatility, and can lead to sharper declines. Records preceded both the dot-com market crash and the financial crisis.


However, expecting a similar correction because debt is at a record now would be “naïve,” said Jeff Mortimer, director of investment strategy for BNY Mellon Wealth Management.


“This isn’t a signal to me that markets are reaching an exuberant level like they did in the 1920s or 1990s, when speculation was rampant,” he said. “What our clients are doing is borrowing against the portfolios because interest rates are so low. They’re not leveraging up because they see the market exploding to the upside; they’re using leverage because they can pay it off at any time.”

Borrowing Against Portfolios

Don’t worry, clients are just borrowing against their portfolios because rates are low. Allegedly, they can pay this back anytime.

Excuse me for asking, but what if they spent the money?

Consumer Confidence a Leading Indicator of Market Tops?

In response to Consumer Confidence Strongest Since December 2000: A Strong Contrarian Indicator? I received an interesting chart from Doug Short at Advisor Perspectives.


Once again, here is a chart from John Hussman to which I added vertical bars.


For now, I am sticking with consumer sentiment as a coincident, not leading indicator unless the markets make a fresh set of highs.

Hussman Tweeted, and I strongly agree, Multi-year highs in consumer confidence are less a sign of forthcoming consumer spending as a sign of forthcoming investor losses.”

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orangegeek's picture

chart porn - markets roll when yellen leaves

besnook's picture

oh, yea. this time it really is different from all the other times we said it was different this time. this time it really is different. trust us. we know.

Oliver Klozoff's picture

In other news LULU took a major dump today.


I sometimes miss Robotrader's graphic postings, whatever happened to him anyways?

Giant Meteor's picture

LuLu took a dump today? I thought that was yesterday!


Robotrader I think must have moved on to greener pasteurs , or he is here now on this thread under an assumed new identity.

Heh Robo! 

kahplunk's picture

they’re using leverage because they can pay it off at any time


NugginFuts's picture

Because I ALWAYS jack up my credit card when I could easily pay cash. You know, cause paying interest ROCKS!

scintillator9's picture

I thought that doing so was to take advantage of the airline miles / cash back bonus / and other "rewards".

Besides, I found you can find happiness in slavery......

City_Of_Champyinz's picture

Ya, that line is pure insanity.  If they are not using the money to speculate, then the author is right to ask 'What if they spent it?'.  If they spent it and don't have the liquid cash to repay the loan, then here comes the avalanch of forced selling to cover. 

Giant Meteor's picture

Good faith and credit ..

Papa's got to buy a brand new pair of shoes ..

or roller skates ...

Zarbo's picture

I had a college professor that also owned a garage.  He said he could predict recessions/crashes based on when his customers switched from cash and checks to credit cards.  This looks like one of those indicators to me. He picked 2001 and 2009 pretty accurately.

CHoward's picture

I wasn't going to worry anyways - it's not my money or neck on the line.  Fuck 'em. 

HRH Feant's picture
HRH Feant (not verified) Mar 30, 2017 6:06 PM

Nothing wakes you up more than getting a margin call. Cash in 72 hours (or less?) How many folks don't have the cash on hand to cough up? Very dangerous game. Reminds me of 2000.

4Xleverage's picture

They are coming. Just like when the bears onZH had theirs and disappeared.

squid's picture

Cash in 72 hours?

They call you at 1000 and ask that the funds be in by 1100 else they liquidate to balance the account out.


72 hours? Try 1 hour.



dlfield's picture

"...they’re using leverage because they can pay it off at any time.”

Well, until the music stops, and there are no chairs.


Okay wait. Is Zerohedge posting a bullish article of sorts?  Huh.  After five years of being perma bears and the Dow  tripling NOW they decide to go bullish. I just find this rather amusing. 


The analysts you guys have been discussing from Goldman who went to Shepwave have been doing a really good job. Granted I have only been really following them for a couple months now, but so far so good.   For example this week I have profited on the long and short sides of hte markets. SO THANKS ZEROHEDGE for that heads up.  


It will be interesting to see if ZH continues to be bullish. That could be a contrarian indicator. 

hedgesofnight's picture

Shepwavers all over the place today on ZH.  You guys had a good week too?  

Md4's picture

"Margin debt climbed to a record high in February, a fresh sign of bullishness for flummoxed investors trying to navigate the political and economic crosscurrents driving markets."

Pure obscession hoping it can get out just in time.

Hasn't been an actual investor on Wall Street in quite some time...

4Xleverage's picture

Exactly. Bit ZH has been trying to call a top for a while.

Redrum's picture

No margin calls here.

My 8 ball says look for the sell off when they hit 2380.50. Bottom near 2302.25.

It could take weeks.