13 ms·

Margin debt surges to record high

219 points by pera 1y ago

rogerkirkness 1y ago
My Michael Burry senses are 'go to cash and don't come back' at this point.
- FrustratedMonky 1y ago
  Or the old adage "If your grandma is asking how to setup a margin account, you've already missed the bubble, get out".
  - pavlov 1y ago
    Grandma wants AI stocks, taxi drivers rave about crypto, and Warren Buffett has been selling more than ever. But “this time it’s different” because… AGI…?
    - ksherlock 1y ago
      The Federal Reserve will lower interest rates to keep that big, beautiful bubble. Donald Trump thinks interests should be 1%. There are 2 FRB governors (jockeying for a new chair) that have publicly called for lower interest rates. One FRB member (Adriana Kugler) unexpectedly resigned a couple weeks ago and will be replaced by the WH economist. Just yesterday, the guy who was found liable in court for financial fraud demanded an FRB (Lisa Cook) resign after being accused of mortgage fraud. Do you suppose somebody in the WH is digging up dirt? And of course, weekly rants, accusations of fraud, and musings of firing JPo.
- hughw 1y ago
  But according to the chart there could be 500 or more S&P points before the top. you're leaving money on the table!
  - bluGill 1y ago
    The question is how deep will the crash be. If the S&P goes up those 500 points and then crashes by 300 you are better off staying in. OTOH, if the S&P goes up those 500 points and then crashes by 5000 (I didn't bother looking up the value, so I don't know if that is possible) you are not out much by getting out today.
- BenoitEssiambre 1y ago
  Though maybe avoid USD or USD bonds while the gov is trying to get rid of Fed independence.
  - Ekaros 1y ago
    At this point I have no idea what would be proper hedge bet... Certainly not crypto. Maybe gold is least insane, but I somewhat doubt even that.
    - wina 1y ago
      gold is overvalued too!
    - lm28469 1y ago
      What if we just stopped being so greedy and just bought/invested in what we actually need instead of playing silly games ? Find a plot of land, build a house, &c. a safe space for your kids and their kids. I know people stressing 24/7 about their money, diversifying their crypto shitcoins into pokemon card collections, buying watches or old apple computers in the hope they'll be able to sell them for more to the next sucker, buying and selling defense company stocks secretly hoping more poor souls will get annihilated in Ukraine or Gaza because it's good for their $$$. They're loaded like never before but I've never seen them so tired and miserable, I bet they don't even know why they want more money, hairless apes seem to like when numbers are getting bigger And on top of that if shit truly hits the fan the vast majority of these will be completely useless.
      - roboror 1y ago
        Because unless you are very lucky you simply will not be able to retire, or at worst just run out of money with no healthcare or shelter. If everyone you know stressing about money would actually be fine if they stopped stressing they are all very privileged. That's not reality for most people. This is not a silly game, and it's frankly ridiculous for your advice to be "find plot of land, build a house."
- eqmvii 1y ago
  Many people (including Michael Burry) have had this feeling over and over since 2008, and were basically always wrong! Markets are tricky beasts to predict.
  - stogot 1y ago
    Ya I listen to this space a lot. 2015, 2016, 2018 and 2020 were a blur of “I’m cashing out and moving my 401k to money market” on several podcasts because of impending doom
    - JKCalhoun 1y ago
      It sucks because eventually they're right (and the rest of us were still laughing at the earlier podcasts).
      - deleted 1y ago
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  - derf_ 1y ago
    To plagiarize Howard Marks, when you try to time the market, you have to be right twice: both on when to get out and when to get back in. Even being right once is incredibly hard. Or, to quote Peter Lynch: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves."
  - baxtr 1y ago
    The problem is Tina! There Is No Alternative - Gold? Dead asset - Cash? Good luck with inflation - Bitcoin? My ass… So what else can you do as a rational investor than to invest most of your cash into an S&P500 or World fund?
    - mhh__ 1y ago
      Golds been rallying really aggressively recently
- JKCalhoun 1y ago
  Thank god there is no inflation or, you know, your cash would start to wither as well. Perhaps investments in undeveloped real estate....
  - Fade_Dance 1y ago
    A risk free rate of 4% really isn't that bad for cash (which is why there are trillions sitting in money market funds right now). If you have Tbills with a bit of duration you're also long economic weakness due to having locked in yields, which offsets the inflation spike risk to some degree (or more than compensates for it from another perspective).
    - JumpCrisscross 1y ago
      > you're also long economic weakness due to having locked in yield You’re more precisely short rates.
- dheera 1y ago
  Michael Burry is selection bias. Everyone who predicted a massive crash when a crash didn't happen did not become famous.
  - y-curious 1y ago
    Yeah, and it's the worst dealing with these people. My dad is like this, he's heavily in bonds because "a recession is coming" for the last 5 years. When it does happen, he will be "right" even though the opportunity cost for holding this belief is huge.
    - ncr100 1y ago
      There are a number of "Chief Analysts" who are saying "A Correction is Coming" in ~2-3 years. Soooo, yes there will always be future recessions, annnnd "professional experts" are saying it's coming sooner rather than later based upon the amount of over-inflated investments in less-well-run companies as they chase the profitability of the more-well-run companies.
- infecto 1y ago
  What in particular about margin makes you want to go into cash?
- deleted 1y ago
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- throw0101a 1y ago
  > My Michael Burry senses are 'go to cash and don't come back' at this point. And when do you get back in? Sitting in cash, waiting for the dip, is a losing strategy (even if you knew when the dip will occur, which you don't): * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co... Simply put in a little from every pay cheque. If you think things are too wild, invest in an ("all-in-one") asset allocation fund that is not 100% stocks (e.g., fixed 80/20, 60/40): * https://investor.vanguard.com/investment-products/mutual-funds/all-in-one-funds https://investor.vanguard.com/investment-products/mutual-fun... * https://www.ishares.com/us/products/239729/ishares-aggressive-allocation-etf https://www.ishares.com/us/products/239729/ishares-aggressiv... * https://investor.vanguard.com/investment-products/mutual-funds/profile/vasgx#portfolio-composition https://investor.vanguard.com/investment-products/mutual-fun... * https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-80-equity-fund-accumulation-shares/overview https://www.vanguardinvestor.co.uk/investments/vanguard-life... * https://www.vanguard.ca/en/product/etf/asset-allocation/9579/vanguard-growth-etf-portfolio https://www.vanguard.ca/en/product/etf/asset-allocation/9579... * https://www.blackrock.com/ca/investors/en/products/239447/ishares-balanced-growth-coreportfoliotm-fund https://www.blackrock.com/ca/investors/en/products/239447/is... or a target date fund (which increases bonds as you approach your retirement date).
  - rogerkirkness 1y ago
    I am all in cash outside of startup shares. I think it makes sense to be in the market, but compared to 2008, there is way more government fiscal issues, way more concentration of profit growth (e.g. only the top 10 companies have had profit growth in the last 3 years). Way more risk is in the system.
    - throw0101a 1y ago
      > I am all in cash outside of startup shares. Completely (retirement and 'regular' brokerage)? What criteria (if any) will you use to get out of cash and start buying again?
jjice 1y ago
I'm sure trading on margin is for some reason actually a positive concept for the economy at large for reasons I can't understand, but god damn does it feel like a bad idea to see huge spikes of debt to prop up what already feels like an absurdly out of balance market. I don't know how to actually tell if the market is overvalued, but man when I see Palantir has a PE of like 500, Tesla almost 200, and Apple is like 35, I can't help but think there too much hype. But I have literally no idea. Macroeconomics is way out of my wheelhouse, and I'm usually wrong. Here's to an index fund...
- mathgradthrow 1y ago
  when people are botroing like crazy, it means that interest rates are too low.
- prasadjoglekar 1y ago
  The index fund itself is mostly Tesla, FB, Google etc..at this point. 35% +/- in my quick check
  - JKCalhoun 1y ago
    I assume you mean an S&P500 tied index fund? I asked "a friend": • Meta (META) ~3.1 % • Alphabet (GOOGL + GOOG) ~3.8 % • Tesla (TSLA) ~1.6 % So just under 9%. Significant, I suppose, for just 3 of 500 stocks. EDIT: since "etc." was mentioned, I thought I'd toss in some of the other top stocks in the S&P500: • Apple Inc. (AAPL) ~6.7 % • Microsoft Corp. (MSFT). ~6.6 % • NVIDIA Corp. (NVDA) ~6.0 % Amazon.com Inc. (AMZN) ~3.8 % Another 20% or so. So the above seven stocks comprise about 30% of the S&P500 (Apple, Microsoft and NVIDIA are the "Big 3" at about 20% when combined).
    - RickJWagner 1y ago
      Assume a market weighted index fund, not an equal weighted index fund.
      - JKCalhoun 1y ago
JKCalhoun 1y ago
The lines on the graph seem to be too close in lockstep for me to see anything causal or predictive in them. The graph simply says to me: "More money has been invested in the market over time, the market has generally been worth more over time."
- FollowingTheDao 1y ago
  You would have to look at that graph starting before 1971 when Nixon took us off the gold standard. when he did that it allowed the US to boroow more money based on nothing. The myth is that "More money has been invested in the market over time", when in fact more debt has been invested in the market.
  - lesuorac 1y ago
    I'm not sure that's exactly accurate. The US was borrowing based on nothing and eventually people figured that out and wanted to trade the nothing for gold which prompted the US to "fix the glitch" and stop gold redemption. It's not like leaving the gold standard caused us to borrow based on nothing; we already decided to do that.
  - immibis 1y ago
    Debt is money. Literally - the same contract that's a debt to one party is an asset to the other. And money is just any sufficiently liquid asset.
- mitthrowaway2 1y ago
  Money doesn't get invested in the market; when you put money into the market, someone else takes it out, because you're trading assets. What can happen is that the price of those assets goes up when more people have money that they want to invest, because the price has to rise to the point where there are as many sellers as buyers. So the market price can grow up, but there's no vault of money tied up in the market. However, there can be money created by the market, because people and companies can borrow money while using the value of the assets they own as collateral. This borrowing does cause new money to appear from thin air, which means that the market is a source of money, not a sink. As this borrowed money increases the money supply just like physical money-printing would, the price of assets tends to rise along with it, as much of that borrowed money gets put towards buying those assets, increasing the number of buyers, and someone has to be convinced to sell. This creates an unstable feedback loop of rising borrowing against rising asset prices causing higher asset prices, and it can of course operate in the reverse mode as well, where falling asset prices result in loans being called in, causing the money supply to shrink, pushing asset prices down even further. (This crash is not a necessary outcome; if the assets correspond to productive investments and real growth, this results in abundance which can in various ways allow those debts to be held or paid off without falling asset prices.)
koolba 1y ago
These raw numbers are meaningless to compare. If anything it should show margin debt as a fraction of total assets (or total market size as a proxy).
- atq2119 1y ago
  The other thing is that whenever I see graphs like that spanning decades but not using a logarithmic scale, I can't help but roll my eyes a bit. We may well be approaching a dotcom moment, but this kind of graph automatically exaggerates what's happening more recently.
- haginile 1y ago
  From our library - expressed as percentages of gdp or market cap: https://x.com/augurinfinity/status/1958564629040251267?s=46 https://x.com/augurinfinity/status/1958564629040251267?s=46
  - koolba 1y ago
    The divergence is very interesting!
FollowingTheDao 1y ago
Is anyone here wondering like me why we did not have a recession in 2021? Was it the COVID checks they sent out? Might be a good thing to do in the next recession... But this current state of margin debt, I do not like at all. That with the reduction of new home construction.
- lm28469 1y ago
  > Might be a good thing to do in the next recession... The magic money we sent out is the cause of a lot of the problem we're facing now though, it's not like you can print magic money every 5-10 years to extinguish systemic problems
  - JKCalhoun 1y ago
    > The magic money we sent out is the cause of a lot of the problem we're facing now though So, inflation.
  - FollowingTheDao 1y ago
    The banks and corporations have been getting the "magic money" since 1971. The moment we give it directly to the people evryone is concerned about inflation. This mindset is sad. Do you know that banks in the last 15 years have been getting free money and then lending to people at rates from 5 to 29%? Does that not make you mad?
    - lm28469 1y ago
      We're talking about the same magic money... people got almost non of it even during covid, it mostly went to companies
- dgfitz 1y ago
  We have been kicking the can down the road since 2008, and made it worse with all those covid checks. The irrational/solvent saying has never been more true, and it has been irrational for almost 20 years because we never paid the piper.
- 1y ago
KaiserPro 1y ago
I mean it looks bad™ but looking at graphs I can't divine a reliable signal The only thing thats almost clear is that as you get closer to now, margin debt is more closely correlated to S&P growth. In terms of lead/lag, its not that reliable.
jstummbillig 1y ago
What an exceptionally well written/structured article.
the_real_cher 1y ago
As long as the government can infinitely print money with zero consequences stonks will perpetually go up.
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nkurz 1y ago
This article is from a month ago and based on June numbers. July numbers are now available from FINRA. Total margin debt continued to increase from June to July, but by a much smaller percentage than the May to June: Jul-25 $1,022,548 Jun-25 $1,007,961 May-25 $920,960 https://www.finra.org/rules-guidance/key-topics/margin-accounts/margin-statistics https://www.finra.org/rules-guidance/key-topics/margin-accou...
nabla9 1y ago
> On the flip side, trading with margin debt can also exacerbate losses because if a stock's value were to depreciate, the investor may face a margin call and would need to come up with additional cash to reach the minimum requirement. That's just the flip side for individual investor. There is also collective risk. The worst comes when there are too many investors with margin debt and they start to get margin calls at the same time. This causes prices to drop and it triggers even more margin calls, starting an avalanche where stock prices drop just from forced sells.
- bboygravity 1y ago
  The main issue are not household investors, the main systemic risks are in overleveraged hedge funds and banks (and a completely corrupted SEC and FINRA, with essentially 0 policing). See Archegos Capital, Evergrande in China, 2008 financial crisis, Citadel (the hedge fund) with assets almost equal to "securities sold not yet purchased", etc. Then there's just tons of crime like JP Morgan making 10 billy by spoofing gold prices and then paying a 1 billion fee to pay off the complicit regulator and be able to "keep playing". It'll pop, the question of course is when? Ponzi's can go on for decades before something breaks.
  - Fade_Dance 1y ago
    Hedge Fund net exposure readings are available in Prime Broker reports. Currently, institutional net exposure isn't that high on a historical lookback. They've essentially been forced to chase since April (the market movement since then has essentially been a large front-run until recently). They are at high gross exposures though, so their contribution to the risk landscape has been, well, what we've seen in the past few days with a huge rotation/unwind under the hood, with mild net selling but large amounts of reshuffling. Bank balance sheets are conservative currently. >It'll pop, the question of course is when? Ponzi's can go on for decades before something breaks. Tautological. Broken clock right twice a day, etc etc. We had a massive collapse in March 2020, and in 2022 when the banking system was pseudo-nationalized/backstopped. If you're still waiting for "the collapse", it begs the question about how one was positioned for those events. Frankly, I saw many people cruise right through 2022 without ever switching to bullish, even when Meta was single digit forward PE and such. As someone who was managing a portfolio that heavily deployed after the Fed backstopped the banking system, I clearly remember that this moment (which was one of the best moments to buy in the last decade, and offered a long list of ludicrously low valuations, especially on the fringes ex: I was buying Chinese companies for less than half of the valuation of the cash on their balance sheet, with the actual business with PE under 5 included for free), retail and institutional sentiment readings were the most pessimistic since the Great Depression. Likewise, stepping away from the AI bubble there is a long list of extremely low valuations in the current market (companies with PE under 8, buying back 15% of its shares every year, for example, or energy companies sub-10 PE with conservative balance sheet management, which has been a huge positive shift in the industry, yet everyone wants AI stocks at 300x forward earnings).
ajross 1y ago
Am I confused here? The implication of the headline is that the market is over-leveraged (and thus presumably unstable). The numbers in the chart show the opposite: the debt-to-market-value ratio is very clearly below its long term trend. I mean, yes, the debt is at a "record high". But so is the market's value!
lenerdenator 1y ago
There's a reason someone wants the Fed to drop rates: we're now in the stage where the only way the rich stay rich is if we just pile more cheap debt on top of the debt we already have.
mamonster 1y ago
At IB you can get margin interest rates of like 6% I think? SP500 total return is like 9.5% already this year, 25 and 26% in 2024/2023. You get paid to borrow like crazy. Exactly why Dave Ramsey is the worst financial youtuber of the 10s: When rates are close to 0, you only need a 1% return to pay the carry. You should be borrowing like crazy.
- Lionga 1y ago
  Have fun when the AI bubble pops and SP500 has a negative 20% return and you are `borrowing like crazy' at 6% interest if you dont get margin called.
  - mamonster 1y ago
    And if it doesn't pop? I mean I don't even disagree with there being massive bubble risks, but like my comment was more aimed at the fact that high margin debt doesn't mean anything without knowing the return of the asset you buy with debt and the debt cost. Let's not even get into the fact that in jurisdictions with wealth taxes and interest deductions from income levering up actually "cuts" your tax bill.
- thinkingtoilet 1y ago
  >You should be borrowing like crazy. Right up until the moment you shouldn't. And for utlra-wealthy people, corporations, and VC firms they can weather that storm. You can't.
- kevstev 1y ago
  Yeah back when margin rates were close to 1% it made a ton of sense to use margin. I was pretty cautious with it but bought a bunch of blue chip dividend stocks- altria, vz, etc at 1% rates and collected 5% dividends. For awhile I could even deduct the margin interest from my income. At a 6% rate though, this is very risky. Your hurdle rate is just below the average market return rate. There are better ways to gamble on the market if that's what you want to do-UPRO and TQQQ come to mind, as well as options.
aredox 1y ago
Honestly, if you don't cash in right now, you are playing with fire. We are on our way for a big correction.
- ramesh31 1y ago
  >Honestly, if you don't cash in right now, you are playing with fire. We are on our way for a big correction. Says everyone always. I've watched my cash savings inflate away like crazy over the last few years. Basically anyone who doesn't hold real assets is screwed at this point.
  - Fade_Dance 1y ago
    Cash parked in money markets (which is just a click away) hasn't done that badly. Getting 4-5% has kept pace with inflation for the most part. Especially now, with economic risks to the downside/slower growth arguably growing, cash doesn't look that bad (until rates are lowered, which will put investors in a pickle, and probably force them modestly out the bond duration curve). Obviously inflation (or more specifically stagflation) risks are clear grey swans as well though, so some exposure to gold (or CTA trend following, which performs well in stagflation) is probably a prudent addition to a diversified asset mix looking to protect against the known risks. And as a benefit, gold and CTA are fairly decent black swan hedges as well (but it's a bit pointless to try and protect against black swans, which are unpredictable by definition).
    - ramesh31 1y ago
      >Cash parked in money markets (which is just a click away) hasn't done that badly. Getting 4-5% has kept pace with inflation for the most part. This sounds good on paper until you realize that inflation numbers like core CPI are tied almost entirely to consumptive costs. For anyone saving cash with the hope of buying assets like a home at some point, you're watching that move further and further away every day. So you're left to either deal with the stress of taking part in the madness of this market, or watch your chances of ever owning anything slip away.
boringg 1y ago
It would be interesting to see the portion on Nvidia. How many calls on next weeks earnings?
aeternum 1y ago
Somewhat misleading to use a percentage in the article headline when only the absolute amount reached an all-time high. While the absolute dollar value of margin debt is at an all time high, margin debt as a percent of total stock market value is still significantly below historic levels.
- frankus 1y ago
  I had the same thought, with what looks like a ZIRP bump pre-2021 finally normalizing to where it tracks the stock market much more closely.
alphazard 1y ago
We are having an emperor's clothes moment with regards to the value of the dollar. Not that fiat money is arbitrary and therefore without value (I think this is a bad argument), but because the US government is not paying its debts in real terms. It always pays in nominal terms (and probably always will), but it doesn't pay in real terms. Dollar holders cover the gap. If the dollar inflates away, then you need to grow just to break even. And it's advantageous to have debt denominated in a devaluing thing (in this case dollars). Now every retail investor, and really everyone with an internet connection knows what's going on and are trying to take action accordingly.
- cosmicgadget 1y ago
  How is inflation an emperor's clothes moment?
  - alphazard 1y ago
    Inflation is felt immediately as change in price of things that one frequently buys. Everyone can empirically determine if they are experiencing inflation without consulting the news or any authority. And the basket that an authority uses to determine the "official" inflation numbers is less representative of its impact on an individual than their personal basket. Then there is the outlook on inflation, which most lay people were not thinking about until recently. Most people think of longer term inflation as "economy good" or "economy bad", and often falsify their true outlook, instead signaling a political allegiance. In 2025, Trump is in office, so Democrats might signal "inflation go up, economy bad", and they would have signaled "inflation go down, economy good" when Biden was in Office a year ago. The reverse is true of Republicans. Now, everyone expects inflation to continue and even accelerate in the long term. And people are worried enough to take action in the form of more loans, more investments on margin, holding less dollars, etc. And now everyone knows that everyone else is doing this, which is the "emperors clothes moment". People are much less likely to be taken seriously if they express that inflation will mostly be a function of who is in office, rather than an inevitability of the American political system. If someone you cared about expected there to be no inflation, you might become concerned for their ability to financially plan. So now we all know, and we know that everyone else knows, and we aren't trying to hide our outlook on inflation in conversation because it's now worse to look stupid on this topic than miss a signalling opportunity. TLDR: what was once a low consequence signalling opportunity, is now part of serious financial planning.
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phendrenad2 1y ago
Everyone is trying to be Huge Stinnes: https://www.wealthplaybook.ca/post/who-was-hugo-the-inflation-king-of-1920-s-germany-stinnes https://www.wealthplaybook.ca/post/who-was-hugo-the-inflatio...
xhrpost 1y ago
As an absolute number, yes. Remember though that a lot of money was printed in the last few years. Comparing against GDP[1] or Currency in Circulation[2] the levels are still elevated but not at records, yet. [1]: https://www.gurufocus.com/economic_indicators/4266/finra-investor-margin-debt-relative-to-gdp https://www.gurufocus.com/economic_indicators/4266/finra-inv... [2]: https://en.macromicro.me/collections/34/us-stock-relative/89294/sp500-finra https://en.macromicro.me/collections/34/us-stock-relative/89...
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morneejewellery 1y ago
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phoenixhaber 1y ago
The best investment advice that I believe I ever had is to take a basket of goods and rebalance them. My father uses a collection of bonds and stocks and if the valuation shifts he sells high and buys low once a quarter to rebalance the percentage risk he wants in the overall market. Ideally the best markets to get into now are probably healthcare which is about to have a raft of medicines, energy which is going to be the shovels that everyone needs to power the AI. Transportation is always a good bet and shorting palantir to go long Exxon might be worthwhile so long as you don't do so on margin. Margin is generally bad. Having a basket of commodities tided inversley to margin would probably be a good idea. Buying currencies and holding as an inverse proportion of the margin in their stock markets?
- charlieyu1 1y ago
  The problem with your strategy is that alternatives are often very underperforming
  - phoenixhaber 1y ago
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adrr 1y ago
What was the margin debt that cause black Tuesday and was the genesis to the great depression? It was at record highs as well, 10% of the total market cap of all stocks.
- deleted 1y ago
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throwaway-blaze 1y ago
A lot of margin is people borrowing against holdings instead of selling to generate cash (and tax liability). These Securities-backed lines of credit appear as margin on these kinds of reports...
AbstractH24 1y ago
The fact that these logarithmic makes it hard to make meaningful comparisons to past cycles. There's no question that economies are cyclical. The only question is where we are in the cycle.

219 points by pera 1y ago

rogerkirkness 1y ago

My Michael Burry senses are 'go to cash and don't come back' at this point.

FrustratedMonky 1y ago
Or the old adage "If your grandma is asking how to setup a margin account, you've already missed the bubble, get out".
- pavlov 1y ago
  Grandma wants AI stocks, taxi drivers rave about crypto, and Warren Buffett has been selling more than ever. But “this time it’s different” because… AGI…?
  - ksherlock 1y ago
    The Federal Reserve will lower interest rates to keep that big, beautiful bubble. Donald Trump thinks interests should be 1%. There are 2 FRB governors (jockeying for a new chair) that have publicly called for lower interest rates. One FRB member (Adriana Kugler) unexpectedly resigned a couple weeks ago and will be replaced by the WH economist. Just yesterday, the guy who was found liable in court for financial fraud demanded an FRB (Lisa Cook) resign after being accused of mortgage fraud. Do you suppose somebody in the WH is digging up dirt? And of course, weekly rants, accusations of fraud, and musings of firing JPo.
hughw 1y ago
But according to the chart there could be 500 or more S&P points before the top. you're leaving money on the table!
- bluGill 1y ago
  The question is how deep will the crash be. If the S&P goes up those 500 points and then crashes by 300 you are better off staying in. OTOH, if the S&P goes up those 500 points and then crashes by 5000 (I didn't bother looking up the value, so I don't know if that is possible) you are not out much by getting out today.
BenoitEssiambre 1y ago
Though maybe avoid USD or USD bonds while the gov is trying to get rid of Fed independence.
- Ekaros 1y ago
  At this point I have no idea what would be proper hedge bet... Certainly not crypto. Maybe gold is least insane, but I somewhat doubt even that.
  - wina 1y ago
    gold is overvalued too!
  - lm28469 1y ago
    What if we just stopped being so greedy and just bought/invested in what we actually need instead of playing silly games ? Find a plot of land, build a house, &c. a safe space for your kids and their kids. I know people stressing 24/7 about their money, diversifying their crypto shitcoins into pokemon card collections, buying watches or old apple computers in the hope they'll be able to sell them for more to the next sucker, buying and selling defense company stocks secretly hoping more poor souls will get annihilated in Ukraine or Gaza because it's good for their $$$. They're loaded like never before but I've never seen them so tired and miserable, I bet they don't even know why they want more money, hairless apes seem to like when numbers are getting bigger And on top of that if shit truly hits the fan the vast majority of these will be completely useless.
    - roboror 1y ago
      Because unless you are very lucky you simply will not be able to retire, or at worst just run out of money with no healthcare or shelter. If everyone you know stressing about money would actually be fine if they stopped stressing they are all very privileged. That's not reality for most people. This is not a silly game, and it's frankly ridiculous for your advice to be "find plot of land, build a house."
eqmvii 1y ago
Many people (including Michael Burry) have had this feeling over and over since 2008, and were basically always wrong! Markets are tricky beasts to predict.
- stogot 1y ago
  Ya I listen to this space a lot. 2015, 2016, 2018 and 2020 were a blur of “I’m cashing out and moving my 401k to money market” on several podcasts because of impending doom
  - JKCalhoun 1y ago
    It sucks because eventually they're right (and the rest of us were still laughing at the earlier podcasts).
    - deleted 1y ago
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- derf_ 1y ago
  To plagiarize Howard Marks, when you try to time the market, you have to be right twice: both on when to get out and when to get back in. Even being right once is incredibly hard. Or, to quote Peter Lynch: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves."
- baxtr 1y ago
  The problem is Tina! There Is No Alternative - Gold? Dead asset - Cash? Good luck with inflation - Bitcoin? My ass… So what else can you do as a rational investor than to invest most of your cash into an S&P500 or World fund?
  - mhh__ 1y ago
    Golds been rallying really aggressively recently
JKCalhoun 1y ago
Thank god there is no inflation or, you know, your cash would start to wither as well. Perhaps investments in undeveloped real estate....
- Fade_Dance 1y ago
  A risk free rate of 4% really isn't that bad for cash (which is why there are trillions sitting in money market funds right now). If you have Tbills with a bit of duration you're also long economic weakness due to having locked in yields, which offsets the inflation spike risk to some degree (or more than compensates for it from another perspective).
  - JumpCrisscross 1y ago
    > you're also long economic weakness due to having locked in yield You’re more precisely short rates.
dheera 1y ago
Michael Burry is selection bias. Everyone who predicted a massive crash when a crash didn't happen did not become famous.
- y-curious 1y ago
  Yeah, and it's the worst dealing with these people. My dad is like this, he's heavily in bonds because "a recession is coming" for the last 5 years. When it does happen, he will be "right" even though the opportunity cost for holding this belief is huge.
  - ncr100 1y ago
    There are a number of "Chief Analysts" who are saying "A Correction is Coming" in ~2-3 years. Soooo, yes there will always be future recessions, annnnd "professional experts" are saying it's coming sooner rather than later based upon the amount of over-inflated investments in less-well-run companies as they chase the profitability of the more-well-run companies.
infecto 1y ago
What in particular about margin makes you want to go into cash?
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throw0101a 1y ago
> My Michael Burry senses are 'go to cash and don't come back' at this point. And when do you get back in? Sitting in cash, waiting for the dip, is a losing strategy (even if you knew when the dip will occur, which you don't): * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co... Simply put in a little from every pay cheque. If you think things are too wild, invest in an ("all-in-one") asset allocation fund that is not 100% stocks (e.g., fixed 80/20, 60/40): * https://investor.vanguard.com/investment-products/mutual-funds/all-in-one-funds https://investor.vanguard.com/investment-products/mutual-fun... * https://www.ishares.com/us/products/239729/ishares-aggressive-allocation-etf https://www.ishares.com/us/products/239729/ishares-aggressiv... * https://investor.vanguard.com/investment-products/mutual-funds/profile/vasgx#portfolio-composition https://investor.vanguard.com/investment-products/mutual-fun... * https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-80-equity-fund-accumulation-shares/overview https://www.vanguardinvestor.co.uk/investments/vanguard-life... * https://www.vanguard.ca/en/product/etf/asset-allocation/9579/vanguard-growth-etf-portfolio https://www.vanguard.ca/en/product/etf/asset-allocation/9579... * https://www.blackrock.com/ca/investors/en/products/239447/ishares-balanced-growth-coreportfoliotm-fund https://www.blackrock.com/ca/investors/en/products/239447/is... or a target date fund (which increases bonds as you approach your retirement date).
- rogerkirkness 1y ago
  I am all in cash outside of startup shares. I think it makes sense to be in the market, but compared to 2008, there is way more government fiscal issues, way more concentration of profit growth (e.g. only the top 10 companies have had profit growth in the last 3 years). Way more risk is in the system.
  - throw0101a 1y ago
    > I am all in cash outside of startup shares. Completely (retirement and 'regular' brokerage)? What criteria (if any) will you use to get out of cash and start buying again?

jjice 1y ago

I'm sure trading on margin is for some reason actually a positive concept for the economy at large for reasons I can't understand, but god damn does it feel like a bad idea to see huge spikes of debt to prop up what already feels like an absurdly out of balance market. I don't know how to actually tell if the market is overvalued, but man when I see Palantir has a PE of like 500, Tesla almost 200, and Apple is like 35, I can't help but think there too much hype. But I have literally no idea. Macroeconomics is way out of my wheelhouse, and I'm usually wrong. Here's to an index fund...

mathgradthrow 1y ago
when people are botroing like crazy, it means that interest rates are too low.
prasadjoglekar 1y ago
The index fund itself is mostly Tesla, FB, Google etc..at this point. 35% +/- in my quick check
- JKCalhoun 1y ago
  I assume you mean an S&P500 tied index fund? I asked "a friend": • Meta (META) ~3.1 % • Alphabet (GOOGL + GOOG) ~3.8 % • Tesla (TSLA) ~1.6 % So just under 9%. Significant, I suppose, for just 3 of 500 stocks. EDIT: since "etc." was mentioned, I thought I'd toss in some of the other top stocks in the S&P500: • Apple Inc. (AAPL) ~6.7 % • Microsoft Corp. (MSFT). ~6.6 % • NVIDIA Corp. (NVDA) ~6.0 % Amazon.com Inc. (AMZN) ~3.8 % Another 20% or so. So the above seven stocks comprise about 30% of the S&P500 (Apple, Microsoft and NVIDIA are the "Big 3" at about 20% when combined).
  - RickJWagner 1y ago
    Assume a market weighted index fund, not an equal weighted index fund.
    - JKCalhoun 1y ago

JKCalhoun 1y ago

The lines on the graph seem to be too close in lockstep for me to see anything causal or predictive in them. The graph simply says to me: "More money has been invested in the market over time, the market has generally been worth more over time."

FollowingTheDao 1y ago
You would have to look at that graph starting before 1971 when Nixon took us off the gold standard. when he did that it allowed the US to boroow more money based on nothing. The myth is that "More money has been invested in the market over time", when in fact more debt has been invested in the market.
- lesuorac 1y ago
  I'm not sure that's exactly accurate. The US was borrowing based on nothing and eventually people figured that out and wanted to trade the nothing for gold which prompted the US to "fix the glitch" and stop gold redemption. It's not like leaving the gold standard caused us to borrow based on nothing; we already decided to do that.
- immibis 1y ago
  Debt is money. Literally - the same contract that's a debt to one party is an asset to the other. And money is just any sufficiently liquid asset.
mitthrowaway2 1y ago
Money doesn't get invested in the market; when you put money into the market, someone else takes it out, because you're trading assets. What can happen is that the price of those assets goes up when more people have money that they want to invest, because the price has to rise to the point where there are as many sellers as buyers. So the market price can grow up, but there's no vault of money tied up in the market. However, there can be money created by the market, because people and companies can borrow money while using the value of the assets they own as collateral. This borrowing does cause new money to appear from thin air, which means that the market is a source of money, not a sink. As this borrowed money increases the money supply just like physical money-printing would, the price of assets tends to rise along with it, as much of that borrowed money gets put towards buying those assets, increasing the number of buyers, and someone has to be convinced to sell. This creates an unstable feedback loop of rising borrowing against rising asset prices causing higher asset prices, and it can of course operate in the reverse mode as well, where falling asset prices result in loans being called in, causing the money supply to shrink, pushing asset prices down even further. (This crash is not a necessary outcome; if the assets correspond to productive investments and real growth, this results in abundance which can in various ways allow those debts to be held or paid off without falling asset prices.)

koolba 1y ago

These raw numbers are meaningless to compare. If anything it should show margin debt as a fraction of total assets (or total market size as a proxy).

atq2119 1y ago
The other thing is that whenever I see graphs like that spanning decades but not using a logarithmic scale, I can't help but roll my eyes a bit. We may well be approaching a dotcom moment, but this kind of graph automatically exaggerates what's happening more recently.
haginile 1y ago
From our library - expressed as percentages of gdp or market cap: https://x.com/augurinfinity/status/1958564629040251267?s=46 https://x.com/augurinfinity/status/1958564629040251267?s=46
- koolba 1y ago
  The divergence is very interesting!

FollowingTheDao 1y ago

Is anyone here wondering like me why we did not have a recession in 2021? Was it the COVID checks they sent out? Might be a good thing to do in the next recession... But this current state of margin debt, I do not like at all. That with the reduction of new home construction.

lm28469 1y ago
> Might be a good thing to do in the next recession... The magic money we sent out is the cause of a lot of the problem we're facing now though, it's not like you can print magic money every 5-10 years to extinguish systemic problems
- JKCalhoun 1y ago
  > The magic money we sent out is the cause of a lot of the problem we're facing now though So, inflation.
- FollowingTheDao 1y ago
  The banks and corporations have been getting the "magic money" since 1971. The moment we give it directly to the people evryone is concerned about inflation. This mindset is sad. Do you know that banks in the last 15 years have been getting free money and then lending to people at rates from 5 to 29%? Does that not make you mad?
  - lm28469 1y ago
    We're talking about the same magic money... people got almost non of it even during covid, it mostly went to companies
dgfitz 1y ago
We have been kicking the can down the road since 2008, and made it worse with all those covid checks. The irrational/solvent saying has never been more true, and it has been irrational for almost 20 years because we never paid the piper.
1y ago

KaiserPro 1y ago

I mean it looks bad™ but looking at graphs I can't divine a reliable signal The only thing thats almost clear is that as you get closer to now, margin debt is more closely correlated to S&P growth. In terms of lead/lag, its not that reliable.

jstummbillig 1y ago

What an exceptionally well written/structured article.

the_real_cher 1y ago

As long as the government can infinitely print money with zero consequences stonks will perpetually go up.

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nkurz 1y ago

This article is from a month ago and based on June numbers. July numbers are now available from FINRA. Total margin debt continued to increase from June to July, but by a much smaller percentage than the May to June: Jul-25 $1,022,548 Jun-25 $1,007,961 May-25 $920,960 https://www.finra.org/rules-guidance/key-topics/margin-accounts/margin-statistics https://www.finra.org/rules-guidance/key-topics/margin-accou...

nabla9 1y ago

> On the flip side, trading with margin debt can also exacerbate losses because if a stock's value were to depreciate, the investor may face a margin call and would need to come up with additional cash to reach the minimum requirement. That's just the flip side for individual investor. There is also collective risk. The worst comes when there are too many investors with margin debt and they start to get margin calls at the same time. This causes prices to drop and it triggers even more margin calls, starting an avalanche where stock prices drop just from forced sells.

bboygravity 1y ago
The main issue are not household investors, the main systemic risks are in overleveraged hedge funds and banks (and a completely corrupted SEC and FINRA, with essentially 0 policing). See Archegos Capital, Evergrande in China, 2008 financial crisis, Citadel (the hedge fund) with assets almost equal to "securities sold not yet purchased", etc. Then there's just tons of crime like JP Morgan making 10 billy by spoofing gold prices and then paying a 1 billion fee to pay off the complicit regulator and be able to "keep playing". It'll pop, the question of course is when? Ponzi's can go on for decades before something breaks.
- Fade_Dance 1y ago
  Hedge Fund net exposure readings are available in Prime Broker reports. Currently, institutional net exposure isn't that high on a historical lookback. They've essentially been forced to chase since April (the market movement since then has essentially been a large front-run until recently). They are at high gross exposures though, so their contribution to the risk landscape has been, well, what we've seen in the past few days with a huge rotation/unwind under the hood, with mild net selling but large amounts of reshuffling. Bank balance sheets are conservative currently. >It'll pop, the question of course is when? Ponzi's can go on for decades before something breaks. Tautological. Broken clock right twice a day, etc etc. We had a massive collapse in March 2020, and in 2022 when the banking system was pseudo-nationalized/backstopped. If you're still waiting for "the collapse", it begs the question about how one was positioned for those events. Frankly, I saw many people cruise right through 2022 without ever switching to bullish, even when Meta was single digit forward PE and such. As someone who was managing a portfolio that heavily deployed after the Fed backstopped the banking system, I clearly remember that this moment (which was one of the best moments to buy in the last decade, and offered a long list of ludicrously low valuations, especially on the fringes ex: I was buying Chinese companies for less than half of the valuation of the cash on their balance sheet, with the actual business with PE under 5 included for free), retail and institutional sentiment readings were the most pessimistic since the Great Depression. Likewise, stepping away from the AI bubble there is a long list of extremely low valuations in the current market (companies with PE under 8, buying back 15% of its shares every year, for example, or energy companies sub-10 PE with conservative balance sheet management, which has been a huge positive shift in the industry, yet everyone wants AI stocks at 300x forward earnings).

ajross 1y ago

Am I confused here? The implication of the headline is that the market is over-leveraged (and thus presumably unstable). The numbers in the chart show the opposite: the debt-to-market-value ratio is very clearly below its long term trend. I mean, yes, the debt is at a "record high". But so is the market's value!

lenerdenator 1y ago

There's a reason someone wants the Fed to drop rates: we're now in the stage where the only way the rich stay rich is if we just pile more cheap debt on top of the debt we already have.

mamonster 1y ago

At IB you can get margin interest rates of like 6% I think? SP500 total return is like 9.5% already this year, 25 and 26% in 2024/2023. You get paid to borrow like crazy. Exactly why Dave Ramsey is the worst financial youtuber of the 10s: When rates are close to 0, you only need a 1% return to pay the carry. You should be borrowing like crazy.

Lionga 1y ago
Have fun when the AI bubble pops and SP500 has a negative 20% return and you are `borrowing like crazy' at 6% interest if you dont get margin called.
- mamonster 1y ago
  And if it doesn't pop? I mean I don't even disagree with there being massive bubble risks, but like my comment was more aimed at the fact that high margin debt doesn't mean anything without knowing the return of the asset you buy with debt and the debt cost. Let's not even get into the fact that in jurisdictions with wealth taxes and interest deductions from income levering up actually "cuts" your tax bill.
thinkingtoilet 1y ago
>You should be borrowing like crazy. Right up until the moment you shouldn't. And for utlra-wealthy people, corporations, and VC firms they can weather that storm. You can't.
kevstev 1y ago
Yeah back when margin rates were close to 1% it made a ton of sense to use margin. I was pretty cautious with it but bought a bunch of blue chip dividend stocks- altria, vz, etc at 1% rates and collected 5% dividends. For awhile I could even deduct the margin interest from my income. At a 6% rate though, this is very risky. Your hurdle rate is just below the average market return rate. There are better ways to gamble on the market if that's what you want to do-UPRO and TQQQ come to mind, as well as options.

aredox 1y ago

Honestly, if you don't cash in right now, you are playing with fire. We are on our way for a big correction.

ramesh31 1y ago
>Honestly, if you don't cash in right now, you are playing with fire. We are on our way for a big correction. Says everyone always. I've watched my cash savings inflate away like crazy over the last few years. Basically anyone who doesn't hold real assets is screwed at this point.
- Fade_Dance 1y ago
  Cash parked in money markets (which is just a click away) hasn't done that badly. Getting 4-5% has kept pace with inflation for the most part. Especially now, with economic risks to the downside/slower growth arguably growing, cash doesn't look that bad (until rates are lowered, which will put investors in a pickle, and probably force them modestly out the bond duration curve). Obviously inflation (or more specifically stagflation) risks are clear grey swans as well though, so some exposure to gold (or CTA trend following, which performs well in stagflation) is probably a prudent addition to a diversified asset mix looking to protect against the known risks. And as a benefit, gold and CTA are fairly decent black swan hedges as well (but it's a bit pointless to try and protect against black swans, which are unpredictable by definition).
  - ramesh31 1y ago
    >Cash parked in money markets (which is just a click away) hasn't done that badly. Getting 4-5% has kept pace with inflation for the most part. This sounds good on paper until you realize that inflation numbers like core CPI are tied almost entirely to consumptive costs. For anyone saving cash with the hope of buying assets like a home at some point, you're watching that move further and further away every day. So you're left to either deal with the stress of taking part in the madness of this market, or watch your chances of ever owning anything slip away.

boringg 1y ago

It would be interesting to see the portion on Nvidia. How many calls on next weeks earnings?

aeternum 1y ago

Somewhat misleading to use a percentage in the article headline when only the absolute amount reached an all-time high. While the absolute dollar value of margin debt is at an all time high, margin debt as a percent of total stock market value is still significantly below historic levels.

frankus 1y ago
I had the same thought, with what looks like a ZIRP bump pre-2021 finally normalizing to where it tracks the stock market much more closely.

alphazard 1y ago

We are having an emperor's clothes moment with regards to the value of the dollar. Not that fiat money is arbitrary and therefore without value (I think this is a bad argument), but because the US government is not paying its debts in real terms. It always pays in nominal terms (and probably always will), but it doesn't pay in real terms. Dollar holders cover the gap. If the dollar inflates away, then you need to grow just to break even. And it's advantageous to have debt denominated in a devaluing thing (in this case dollars). Now every retail investor, and really everyone with an internet connection knows what's going on and are trying to take action accordingly.

cosmicgadget 1y ago
How is inflation an emperor's clothes moment?
- alphazard 1y ago
  Inflation is felt immediately as change in price of things that one frequently buys. Everyone can empirically determine if they are experiencing inflation without consulting the news or any authority. And the basket that an authority uses to determine the "official" inflation numbers is less representative of its impact on an individual than their personal basket. Then there is the outlook on inflation, which most lay people were not thinking about until recently. Most people think of longer term inflation as "economy good" or "economy bad", and often falsify their true outlook, instead signaling a political allegiance. In 2025, Trump is in office, so Democrats might signal "inflation go up, economy bad", and they would have signaled "inflation go down, economy good" when Biden was in Office a year ago. The reverse is true of Republicans. Now, everyone expects inflation to continue and even accelerate in the long term. And people are worried enough to take action in the form of more loans, more investments on margin, holding less dollars, etc. And now everyone knows that everyone else is doing this, which is the "emperors clothes moment". People are much less likely to be taken seriously if they express that inflation will mostly be a function of who is in office, rather than an inevitability of the American political system. If someone you cared about expected there to be no inflation, you might become concerned for their ability to financially plan. So now we all know, and we know that everyone else knows, and we aren't trying to hide our outlook on inflation in conversation because it's now worse to look stupid on this topic than miss a signalling opportunity. TLDR: what was once a low consequence signalling opportunity, is now part of serious financial planning.

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phendrenad2 1y ago

Everyone is trying to be Huge Stinnes: https://www.wealthplaybook.ca/post/who-was-hugo-the-inflation-king-of-1920-s-germany-stinnes https://www.wealthplaybook.ca/post/who-was-hugo-the-inflatio...

xhrpost 1y ago

As an absolute number, yes. Remember though that a lot of money was printed in the last few years. Comparing against GDP[1] or Currency in Circulation[2] the levels are still elevated but not at records, yet. [1]: https://www.gurufocus.com/economic_indicators/4266/finra-investor-margin-debt-relative-to-gdp https://www.gurufocus.com/economic_indicators/4266/finra-inv... [2]: https://en.macromicro.me/collections/34/us-stock-relative/89294/sp500-finra https://en.macromicro.me/collections/34/us-stock-relative/89...

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morneejewellery 1y ago

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phoenixhaber 1y ago

The best investment advice that I believe I ever had is to take a basket of goods and rebalance them. My father uses a collection of bonds and stocks and if the valuation shifts he sells high and buys low once a quarter to rebalance the percentage risk he wants in the overall market. Ideally the best markets to get into now are probably healthcare which is about to have a raft of medicines, energy which is going to be the shovels that everyone needs to power the AI. Transportation is always a good bet and shorting palantir to go long Exxon might be worthwhile so long as you don't do so on margin. Margin is generally bad. Having a basket of commodities tided inversley to margin would probably be a good idea. Buying currencies and holding as an inverse proportion of the margin in their stock markets?

charlieyu1 1y ago
The problem with your strategy is that alternatives are often very underperforming
- phoenixhaber 1y ago
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adrr 1y ago

What was the margin debt that cause black Tuesday and was the genesis to the great depression? It was at record highs as well, 10% of the total market cap of all stocks.

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throwaway-blaze 1y ago

A lot of margin is people borrowing against holdings instead of selling to generate cash (and tax liability). These Securities-backed lines of credit appear as margin on these kinds of reports...

AbstractH24 1y ago

The fact that these logarithmic makes it hard to make meaningful comparisons to past cycles. There's no question that economies are cyclical. The only question is where we are in the cycle.