Margin debt is a crummy
predictor of a stock market crash.
But after it starts spiking, it has a bone-chilling habit of peaking
right around the time stocks crash. In the last fifteen years, it spiked
three times: during the final throes of the bubbles that started
imploding in 2000 and 2007; and
now.
In February, margin debt
jumped by $14.5 billion to
a new all-time crazy record of $465.7 billion. In the last seven
months, it soared $82.8 billion. It’s now 22% above the prior all-time
crazy record of $381.4 billion set in July 2007, during the glorious
moments before the whole construct came tumbling down.
Are we there yet?
Margin debt started spiking in January 1999 and in March 2000 hit a record of $278.5 billion, or
2.66% of GDP.
That very month, stocks began their epic collapse, which, after 28
months of cliff dives and sucker rallies, left the S&P 500 down 45%
and the Nasdaq nearly 80%!
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