While we have argued previously that looking at NYSE margin debt in isolation is quite meaningless for two simple reasons: i) in the New Normal hedge funds and algos, not retail and certainly not traders on “lit” venues like the NYSE but instead in dark pools, are the marginal traders, and ii) the relevant trading leverage is obtained from the “shadow banking” and repo markets, not plain vanilla margin debt from exchange clerks, monthly NYSE trading stats do provide some sense of just how levered the individual investor is, and what it may portend for the market should there be a selloff. Which is why we were not surprised to see that based on August data, the trend has continued: while NYSE margin debt rose once again, from $460 billion to $463 billion, just shy of the record set in February when it hit $466 billion and well above the previous bubble peak, it is the investor “Net Worth”, or Net Free Credit as some call it: the difference of total free credit + cash balances and margin debt, that for the second consecutive month sank to a fresh record low of ($183) billion.
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