Huh? What is “margin debt”? Well, let Zero Hedge explain:
It is not just the stock market that is at the highest levels since Lehman. Probably just as importantly, NYSE margin debt has surged to $269 billion, an increase of $13 billion from the prior month, and the highest since September 2008 when it was at $299 billion, and subsequently tumbled as investors rushed to get out of all margined positions…
This is a sign of optimism – but also a sign of “all in”. In other words, everything that can get in there to push stock prices higher is already in there. Trouble is, for stocks to keep rising there has to be a continual increase in buying. If everyone who has a mind to be in stocks is already there, and buying on margin as much as they can, then we’re at a peak. Where to from here? Flat or down – with down being the more likely of the two. But not necessarily right away…there is still some wiggle room for a bit more increase in margin debt and thus a bit more run-up in stock prices…and then, once we’re really maxed out, it might still be a while before everyone understands its time to bail out.
We’ll have to see what and when on the event which will trigger a sell off – sovereign default in Europe, further monetary tightening in China as they try (in vain, it will prove) to reign in inflation; further rise in US unemployment as the holiday sales bloom fades; further rise in foreclosures and bankruptcies as house values continue to drop (and they are continuing to drop). Lots of things can happen – the thing to remember is that there is no really good way out of this. No matter how it happens, bad events will come. Some can be worse than others, but none will be comfortable for an already weak US economy. I hope for the softest landing possible, but I fear we’re really in for it thanks to massive spending by Treasury and massive printing by the Federal Reserve. Fake money and government debt are never good things…
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