25 May 1999, Event:
1st MoM change in NYSE margin debt > 10%
“Soaring margin debt seen bad for Internet stocks.”
“Soaring margin debt is likely
to trigger a debacle in Internet stocks", Charles Biderman,
chief executive of TrimTabs.com said Tuesday. "New online
investors are buying heavily on margin and it looks like they're
buying Internet stocks", Biderman said.
TrimTabs.com is a Santa Rosa,
Calif.-based firm which collects information on mutual fund flows
and other market data.
"When people borrow to buy
(stocks) that's a very bad sign for the future."
Biderman cited figures showing
margin debt for customers of New York Stock Exchange (NYSE) member
firms at $182 billion at the end of April, up from $156 billion at
the end of March and $142 billion at the end of February. He said
the nearly 30 percent increase over a two-month span was
The wild price moves in Internet
stocks, which can go up or down tens of dollars a day, have caused
brokerages to stop allowing customers to buy some of these volatile
stocks on margin or require clients to put up more cash.
"Either the market has to rise
dramatically to make those loans good or in any down move
there's tremendous selling pressure," Biderman said.
08 December 1999,
Event: 2nd MoM change in NYSE margin debt >10%
The Cambridge Reporter:
"Margin debt oddly overlooked "
"U.S. Federal Reserve figures show
that margin debt has grown tremendously. Since 1993 the rate at
which margin debt has grown is three times faster than the growth
rate for U.S. household debt and overall debt in credit markets.
According to a non-profit think
tank, Financial Markets Centre, as a percentage of market
capitalization or the total value of stocks, margin debt has reached
the highest level since just before the 1987 market crash. Too, as a
percentage of gross domestic product, margin debt is at the highest
level in 63 years, and now of course the over-valued stock market
makes that more worrisome.
In Canada for reasons of privacy
margin debt figures are not disclosed. The U.S. Federal Reserve has
been unwilling to attack stock market speculation. Since January,
1974, the Federal Reserve has left margin requirements at 50
percent, despite the huge rise in the stock market.
The unwillingness of monetary
authorities to deal with the equity markets is unprecedented and
puzzling. The failure to acknowledge the role of debt in the stock
market surge, something so massive, is difficult to understand.
Now, just sitting with folded
hands is a prescription for disaster in thee long run for the U.S.
and Canada as well."
21 December 1999,
Event: 3rd MoM change in NYSE margin debt >10%
The Los Angeles Times:
"Monthly increase, largest since 1971, adds to fears that
level of speculation in stocks may signal near-term peak"
"The Federal Reserve is concerned about
a sharp rise in margin debt, or money borrowed from brokers to
purchase stocks, in the last two months of 1999, Fed chairman Alan
Greenspan said on Wednesday. Greenspan said, however, that the Fed
did not consider raising its margin requirements, currently at 50
percent, an effective way to address the problem.
At a Senate Banking Committee hearing on
his renomination, Greenspan was asked if the Fed was worried about
data showing margin debt rose substantially in November and
"Obviously," he replied. "It is
certainly the case that the numbers that you cite, especially
for November and December, have caught our attention."
While there has been considerable
conversation at the Fed about how to address the problem, Greenspan
said changing margin requirements was not the solution.
"All of the studies have suggested
that the level of stock prices have nothing to do with margin
requirements," he said. The Fed has been reluctant to adjust
requirements that would not affect large investors, who have
other sources of financing, he said. "
26 February 2000,
Event: (prior to) Margin debt peak
Reuters News: “NYSE,
NASD call for review of margin lending rules.”
“The New York Stock Exchange (NYSE) and
the National Association of Securities Dealers (NASD) have asked
members to review their lending requirements in a sign of increasing
concern that rising levels of margin debt could exacerbate a stock
market plunge. [...]
Some firms add their own requirements to
that rule in order to limit risk but the popularity of margin
borrowing still causes concern. Indeed, Federal Reserve Chairman
Alan Greenspan said recently that the central bank has been paying
increasing attention to a surge in margin debt.
Last fall, the NYSE said margin debt
held by its member firms equalled $182 billion, or 2 percent of the
U.S. gross domestic product. That compared with NYSE member firm
margin debt of $30 billion at the start of the decade.”
17 May 2000, Event:
(post) Margin debt peak
"Margin Debt Fell Almost 10% in April - Turbulence in U.S. Market May
Have Curbed Borrowing"
"Margin debt, which has been
soaring, fell nearly 10%during the month. The drop marks the first
time since August that investors pruned their debt loads. Investor
borrowing reached record levels in recent months, drawing the
scrutiny of securities regulators who viewed it as a sign of the
market's speculative fervor.
But until recently, most investors
ignored red flags raised by regulators.
"The bottom line is that investors
got their fingers burned during the recent market downdraft,"
says Morgan Stanley Dean Witter & Co. analyst Henry McVey.
The drop isn't all that surprising,
however, given last month's sharp fall in stock prices.
Many investors were forced to come up
with additional cash or stock to meet margin calls; others had their
stocks sold without notice as falling share prices eroded the value
of their holdings.
The decline in investor borrowing
was sharp at some online firms. At Datek Online Holdings Corp.,
margin debt fell about 20% in April and "looks pretty flat in May so
far," says spokesman Mike Dunn. Margin debt also fell about 20% in
April at Ameritrade Holding Corp. and is up about 1%or 2%so far this
month, a spokeswoman says.
About 80% of the decline is due to
customers voluntarily cutting back on their borrowing, she adds.
Some brokerage firms continue to make it tougher for investors to
borrow to buy stock.
TD Waterhouse Group Inc. plans to
increase its base margin-lending rate to 35% from 30% on June 15.
"We think the change is
prudent and we think it protects customers, in light of the
current volatility we're seeing in the marketplace," says TD
Waterhouse spokeswoman Melissa Gitter. The online broker now has
more than 800 stocks subject to higher margin requirements, up
from 443 on April 13."
19 December 2006,
Event: 1st MoM change in NYSE margin debt > 10%
News Service, "Margin Debt Saw Big
Spike In November"
"A rising stock market encouraged more
investors to go into debt to buy stocks last month, sending
so-called margin debt to a level not seen in more than six years.
November was the first month since 2000
that margin debt has topped the $270 billion figure. The last time
that happened was in March 2000, when margin debt set a record at
$278.53 billion as the Nasdaq Composite Index was reaching its
all-time peak. Last month's rise, which left margin debt about 3%
below its record, came as stocks continued to rise.
The Dow Jones Industrial Average and the
Standard & Poor's 500-stock index gained 1.2% and 1.6%,
respectively, during November, leaving both market barometers with
double-digit percentage gains for the first 11 months of the year.
That display has helped inspire margin
trading, in which investors use funds borrowed from their brokers to
help finance their transactions.
"This market has been uni-directional"
for a while, and "that gets a lot of money chasing performance,"
said Art Hogan, chief market analyst at Jefferies. "You're not
going to borrow to buy in a market where the trend has been
20 February 2007,
Event: All-time high margin debt (Mar-2000) crossed
Dow Jones Intl News:
“Margin Debt Tops All-Time High; Reached $285.6B In
“A rising stock market continued to
inspire investors to go into debt to buy stocks last month, sending
margin-debt figures past their all-time high, which had been set
several years ago in the waning days of the technology-stock boom.
Margin debt as tracked by the New York
Stock Exchange totaled $285.61 billion in January, the NYSE said
Tuesday, up from $275.38 billion in December and moving past the
previous peak of $278.53 billion.
That high was set in March 2000, as the
Nasdaq Composite Index was peaking. Margin debt's recent advance has
come as stocks moved higher.”
11 April 2007,
Event: 2nd MoM change in NYSE margin debt > 10%
The Globe and Mail:
“Record level of margin debt prompts regulator warning”
As thousands of homeowners in the United
States are realizing it's unwise to borrow more than they can
afford, the National Association of Securities Dealers is offering a
similar warning to investors: It's risky to invest more than you
The brokerage regulator said yesterday
the amount of debt investors took on to buy securities, known as
buying “on margin,” had soared to a record $321.2-billion (U.S.) in
February. That topped the previous record of $299.9-billion in
March, 2000, at the peak of the last bull market in stocks.
Margin debt has more than doubled from
$141.3-billion in January, 2003, the NASD said, three months after
the bottom of a bear market in stocks.
“When the Internet bubble imploded,
many people were shocked to learn that firms can sell their
stock, and they have no choice in what can be sold,” John
Gannon, an NASD senior vice-president for investor education,
Regulators, including the Federal
Reserve, the New York Stock Exchange and the NASD, set minimum
requirements for margin traders.
Brokerages are free to set more
stringent standards. Under the minimum requirements, before trading
on margin, ordinary investors must deposit at least $2,000 or 100
per cent of the purchase price, whichever is less. Fed rules
generally let investors borrow up to 50 per cent of the purchase
price of securities that can be bought on margin.
NYSE and NASD rules then require equity
in an account to be at least 25 per cent of the securities' market
value in that account, known as a “maintenance margin.”
“You can lose your money fast and
with no notice,” the Securities and Exchange Commission said.
12 July 2007, Event
Margin debt peak
The Wall Street Journal:
"On the NYSE, 'Margin Debt' Jumps to Record $353 Billion"
"Investors are borrowing record
sums of money to finance trades on the New York Stock Exchange,
according to data due out from the Big Board today.
NYSE officials attribute the trend
to recent regulatory changes effectively allowing both small and big
investors to take on more leverage, or borrowed money, from their
brokers. So-called margin debt, a broad measure of leverage, jumped
11% to $353 billion at NYSE in May, up from nearly $318 billion in
Wall Street has had a love affair
with leverage in recent years, typified by hedge funds and
private-equity firms that make use of it to buy companies and stocks
and bonds. Such financing can also amplify losses if investors' bets
go the wrong way.
But regulators say that doesn't
necessarily translate into more risk.
"I wouldn't necessarily say
that leverage equates to risk," said Grace Vogel, executive vice
president for member regulation at NYSE. "We feel that the
amount of margin being collected by the firms is appropriate,
given the strategies in [their customers'] portfolios."
27 October 2007,
Event: S&P 500 peak
"Stock market vulnerable to sharp fall as margin debt remains high"
"It has become a source of
concern to some investors who worry that it makes the stock
market more vulnerable to a nasty tumble, particularly if
equities’ resurgence continues.
High margin debts show the effect of
over-leveraging and mispricing of risk in our financial system,”
says Scott Schermerhorn, chief investment officer for Choate
Advisors, which runs about $2.7bn (£1.3bn, e1.9bn).
“It indicates that, despite the
August runoff, there’s still more problems out there. This will
take a long time to work through the system.”
Based on historical levels, margin
debt makes the market look risky and subject to a sharp downtick
It comes to 2.4%of total
adjusted-market capitalisation – 3.4 times its 62-year norm of
“These are certainly not the kind of
numbers you see at the beginning of a bull market,” says Ed
Clissold, an analyst for Ned Davis Research.
In July, margin debt hit an
all-time high of $381bn.
But as worries about sub-prime mortgage
loans set off a credit crunch in August, more than $50bn of the debt
was erased. Almost half of the margin drawdown came from brokerages
such as Merrill Lynch, which called loans backing two Bear Stearns
What is particularly worrying to
some is that margin debt is just one tool available to investors
seeking leverage these days. Options and futures make it easier than
ever to obtain leverage. So the near-record margin numbers may
understate the situation.
“As financial markets have
grown and become more diversified, margin has become one of many
ways to finance securities, so it represents less of a
proportion of finance than it used to,” says Henry Kaufman.
The one-time chief economist of
Salomon Brothers now heads Kaufman & Co, an investment management
and financial consulting firm.
Granted, recent structural changes
that take into account an entire portfolio’s risk have contributed
to the gains. If an investor is using options to hedge his risk, new
rules give him the ability to borrow more because he has lowered the
risk profile of his entire portfolio.
But the new rules do nothing to
minimize margin lending’s inherent conflicts of interest or its
potential to send the market down sharply as it did in August in a
cascade of margin calls. Brokers sometimes give investors little or
no time to cough up more cash before they liquidate a portfolio at
A brokerage firm may force a margin call
on the one hand, while helping set the price on the securities sold
to meet it on the other.
09 January 2013,
Event: 1st MoM change in margin debt > 10%
"Margin Debt Soared in January; Sign of Top Nearing?"
"NYSE says margin debt jumped 10% in
January alone to $364 billion, 32% higher than a year earlier and
the third-highest ever, trailing just June and July 2007.
The previous instances, of course, came
just a couple months before US stocks last topped out before the
ongoing rally, with margin then peaking at $381 billion. So it's
pretty clear where the record January rush of cash into equity
products came from.
Now, what happens if things get a little
frisky and some margin debt turns into margin calls?"
06 May 2013, Event:
All-time high margin debt (Jul-2007) crossed (1/2)
The Wall Street Journal:
“NYSE Margin Debt Raises Eyebrows”
“High levels of margin debt on the
New York Stock Exchange are raising concerns about the state of the
rally. Stephen Suttmeier, technical research analyst at Bank of
America Merrill Lynch, notes leverage, as measured by NYSE margin
debt, rose 28% in March from a year ago to $380 billion.
That figure is slightly below the
July 2007 peak of $381 billion.
Market analysts track margin-debt
activity as an indication of investors’ appetite for taking on
speculative trading. It has been trending higher since bottoming out
during the financial crisis and currently is hovering around
“Leverage can be used as a
sentiment indicator because it is related to investor
confidence... Although it should not be used as a market timing
tool, the implication is contrarian bearish,” Suttmeier says.
”Peaks in NYSE margin debt preceded peaks in the S&P 500 in both
2007 and 2000.”
It's no surprise people have been
taking on more risk as the market has moved to record highs.
But the question is what happens
when the easy ride higher turns south and some of that margin debt
turns into margin calls? A potential pitfall for those trading "on
margin" is a sharp decline in stock prices, which can expose
investors to margin calls, requiring them to post additional
collateral lest their brokers sell their securities to cover the
A wave of margin calls can worsen
selling pressure on stocks and was seen as partly to blame for the
market's woes during the financial crisis.
"It's rather alarming to see NYSE
margin debt just shy of its all-time high as of the March
reading," Cullen Roche of Orcam Financial Group wrote on the
Pragmatic Capitalism blog (hat tip Business Insider).
"My guess is we've actually
already surpassed the all-time high though we won't officially
know until April data is released. Fun times knowing we live in
a world that is built on such a fragile foundation."
31 May 2013, Event:
All-time high margin debt (Jul-2007) crossed (2/2)
The New York Times “Shades of 2007
“AMERICAN investors have taken out
more margin loans than ever before.
That indicates that speculative
investing has grown among retail investors, reaching levels that in
the past indicated the market was getting to unsustainable levels
and might be in for a fall. [...]
It was the first time the total
had surpassed the 2007 peak of $381 billion, a peak that was
followed by the Great Recession and credit crisis. [...]
[T]he last time the Fed adjusted
the margin rules was in 1974, when it reduced the down payment
required for stocks to 50 percent of the purchase price, from 65
Nonetheless, margin loans have
remained popular among many individual investors, who tend to raise
their borrowings during times of market optimism and to reduce them
when markets are falling. Thus the margin debt levels now may
provide an indication of popular enthusiasm for investments.”
27 June 2013, Event:
All-time high margin debt (Jul-2007) crossed = Did margin debt peak
"U.S. stock market margin debt falls in May from record April level"
"The value of U.S. equities
investors bought with borrowed money fell 1.7 percent in May from
the previous month's record high, marking the first monthly decline
in margin debt in nearly a year.
Margin debt accounts totaled
$401.6 billion in May, down from a record $408.7 billion in April,
data from the Financial Industry Regulatory Authority showed on
Thursday. The level had increased every month since a 2.3 percent
drop between June and July 2012.
Margin debt is one way to measure
how much risk hedge funds and other large investors are taking to
enhance their returns through the use of borrowed cash. Extremely
high readings are seen as a gauge of overly bullish sentiment.
In April, the New York Stock
Exchange reported margin debt hit $384.4 billion, surpassing the
previous record of $381.4 billion in July 2007. On Thursday, the
NYSE said its share of the May total was $377 billion."
27 June 2013, Event:
All-time high margin debt (Jul-2007) crossed = Did margin debt peak
"Record margin debt points to a far wider Wall Street Crash coming soon"
"Don’t even think about jumping back
into US stocks after the recent modest sell-off. If margin debt is
any guide, and historically it has been an excellent guide then what
we have just seen is just a warning of a much biggerWall Street
crash around the corner.
The last time margin debt was at present
levels was at a previous peak in July 2007 at $381 billion, just
before the global financial crisis struck. Yes it is hard to believe
that confidence was that high in stocks just at the wrong moment.
Record margin debt: It is the same story now. In March 2013 NYSE
margin debt totaled $380 billion.
You do not need to be much of a
financial analyst to spot almost an exact parallel. But what you
should also understand is that margin debt works in both directions.
It accelerates the upside in stocks by allowing punters to buy with
borrowed money but then it accelerates the drop in a stock market by
taking it away from them.
How does it do that? Well think about
it. If you owe money then you will be forced to sell a perfectly
good asset in a falling market to pay off your debt, and that sale
accelerates the fall in stock prices. Besides with the bond market
weakening the cost of margin debt is going up. That will also be
triggering liquidation of this debt with an obvious impact on stock
prices supported by this borrowing. [...]
The current weakness in gold and silver
is also a sign of a coming crash in all major financial assets.
Once the weaker investment holders of
gold and silver have finished selling precious metals they will
continue with other assets, and margin account requirements will
force them to liquidate US stocks. Stock market crash: We think the
sell-off of precious metals is almost done but it has hardly started
with the overinflated US stock market.
A historically high US price-to-earnings
ratio still anticipates an economic recovery that is just not coming
through. US GDP growth in the first quarter was revised down from
2.4 to 1.8 per cent, after the negative fourth quarter.
The only economic recovery is in house
prices and the stock market, both inflated by cheap money courtesy
of the Fed. Rising mortgage rates are going to ditch the housing
recovery and rising margin costs will do for the US stock market.
Welcome to the liquidation sale of the