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.
With margin debt, investors pledge securities, typically stocks or bonds, to obtain a loan from their brokerage firms. The money doesn’t have to be used to buy more investments, though it often is. The gauge tends to climb—and pull back—along with broader stock market gauges, which have been rising to fresh records in the wake of November’s presidential election
Rising levels of margin debt are generally considered to be a measure of investor confidence. Investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against.
But experts say a steep rise can indicate that investors are losing sight of market risks and betting that stocks can only go up. Margin debt has a history of peaking right before financial collapses like the ones in 2000 and 2008. When stocks move lower, investors who are buying with borrowed money often must pull out of the market, exacerbating the decline.
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%...
Other measures of sentiment and positioning have pulled back recently, raising questions about whether buyers are starting to bolt from the market. Investors pulled $8.9 billion from funds that invest in U.S. equities during the week through March 22, the largest outflow in 38 weeks, having piled more than $32 billion into the space this year, according to Bank of America Merrill Lynch data.
In recent months, the growth rate of commercial and industrial loans, as tracked by the Federal Reserve’s weekly H.8 report on assets and liability of U.S. banks, has been on the decline.
This is viewed by many as a negative development in an economy where lending and borrowing activity serve as proxies for the economy’s overall health...
“Despite the strong gain in confidence among small businesses (as suggested by the NFIB small business optimism survey), there has been a slowing in loans over the past several months. The story of post-election small business optimism leading to greater investment is not (yet) playing out in the data.”
We are witnessing the demise of the world’s two largest economic power blocks, the US and EU. Given deteriorating economic conditions on both sides of the Atlantic, which have been playing out for many years but were so far largely kept hidden from view by unprecedented issuance of debt, the demise should come as no surprise.
The debt levels are not just unprecedented, they would until recently have been unimaginable. When the conditions for today’s debt orgasm were first created in the second half of the 20th century, people had yet to wrap their minds around the opportunities and possibilities that were coming on offer. Once they did, they ran with it like so many lemmings.
The reason why economies are now faltering invites an interesting discussion. Energy availability certainly plays a role, or rather the energy cost of energy, but we might want to reserve a relatively larger role for the idea, and the subsequent practice, of trying to run entire societies on debt (instead of labor and resources)....
Record low interest rates have become the only way that private banks can create new money, and stay alive (because at higher rates hardly anybody can afford a mortgage). It’s of course not just the banks that are kept alive, it’s the entire economy. Without the ZIRP rates, the mortgages they lure people into, and the housing bubbles this creates, the amount of money circulating in our economies would shrink so much and so fast the whole shebang would fall to bits.
That’s right: the survival of our economies today depends one on one on the existence of housing bubbles. No bubble means no money creation means no functioning economy...
What we should do in the short term is lower private debt levels (drastically, jubilee style), and temporarily raise public debt to encourage economic activity, aim for more and better jobs. But we’re doing the exact opposite: austerity measures are geared towards lowering public debt, while they cut the consumer spending power that makes up 60-70% of our economies. Meanwhile, housing bubbles raise private debt through the -grossly overpriced- roof.
US Secretary of State Rex Tillerson says the fate of President Bashar al-Assad is up to the Syrian people to decide.
"I think the longer term status of President Assad will be decided by the Syrian people," Tillerson told a joint press conference with Turkish Foreign Minister Mevlut Cavusoglu in Ankara on Thursday.
The remarks are a significant departure from the position of the former US government, which made any resolution of the Syria crisis conditional on President Assad stepping down