In a world where ratings are irrelevant.
Through Wolf richter for WOLF STREET.
Margin debt – the amount of money individuals and institutions borrow against their equity holdings – climbed $ 56 billion in December, after already climbing $ 63 billion in November, by far the two largest increases in month-to-month record, at $ 778 billion, according to FINRA which regulates brokers and exchanges. Since March, this measure of margin debt has jumped nearly $ 300 billion, or 62%.
Margin debt as tracked by FINRA to its member companies is not the only form of stock market leverage, but it is the only form that is disclosed monthly. There are many other forms of stock market leverage by institutions and individuals that are not disclosed, or that are only voluntarily disclosed in SEC filings by brokers and banks who lend to their clients against. their portfolios, such as “securities lending” (SBL). We don’t know what the total leverage of the stock market is, but margin lending shows the trends, and we had another WTF moment:
High margin balances tend to precede epic stock market selloffs, as shown in the chart above.
With these two-decade charts, long-term changes in dollar amounts are less relevant as the purchasing power of the dollar has fallen over the period. But in the short term, the movements are very indicative of the rise or fall of leverage in the stock market.
Year over year, margin debt jumped nearly $ 200 billion in December, by far the highest:
The stock market leverage is an accelerator. When stocks are already rising and investors feel confident, they borrow money to buy more stocks and can borrow more against their stocks because their value has gone up. And that extra borrowed money runs after stocks and thus creates more buying pressure, and prices rise further.
And stock market leverage is a declining accelerator, when stock prices are already falling and brokers issue margin calls to their clients who then have to sell stocks to stay compliant, triggering a forced sell wave. and many leveraged investors sell before margin calls to avoid being forced to sell at the worst possible time.
This rise in margin debt over the past few months is another sign that the markets have gone crazy, and everyone is on the hunt for anything no matter what it is, whether it is a penny stock with a name similar to something Elon Musk mentioned in a tweet, or whether it was Tesla stock itself, or one of the EV makers or manufacturers of suspected EVs that might never mass-produce EVs, or even a legacy automaker now touting its investments in EVs, or whatever, including Bitcoin – which has exploded higher, before plunging 28% in two weeks.
Everything is chased above by valuation-indifferent speculators, who focus only on having others chase these things higher, and valuations are irrelevant, and part of that chase happens with borrowed money, regular margin debt means to borrow against home or credit cards. This is what we learn from this surge in margin debt. It got crazy there.
Lenders who have financed apartment buildings get nervous about falling physical occupancy rates (tenants living in the apartment) and even falling economic occupancy rates (tenants actually paying the rent) . Lily… Eviction bans and increased apartment vacancy rates Trip up CMBS supported by 43 apartment buildings
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