By Doug Short – Re-Blogged From http://www.Silvr-Phoenix500.com
The astonishing surge in leverage (i.e. NYSE Margin Debt) in late 1999 peaked in March 2000, the same month that the S&P500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge NYSE Margin Debt began in 2006, peaking in July 2007, three months before the market peak…and subsequent crash.
Debt hit a trough in February 2009, a month before the March market bottom. It then began another major cycle of increase. It is imperative to note NYSE Margin Debt hit an all-time high in February of this year.
The latest Margin Data
Unfortunately, the NYSE margin debt data is a month old when it is published. Real (inflation-adjusted) debt hit its all-time high in February 2014, after which it margin declined sharply for two months, but by June it had risen to a level about two percent below its high and then oscillated in a relatively narrow range. The latest data point for January is four percent off its real high eleven month ago.
The next chart shows the percentage growth of the two data series from the same 1995 starting date, again based on real (inflation-adjusted) data. I’ve added markers to show the precise monthly values and added callouts to show the month. Margin debt grew at a rate comparable to the market from 1995 to late summer of 2000 before soaring into the stratosphere. The two synchronized in their rate of contraction in early 2001. But with recovery after the Tech Crash, margin debt gradually returned to a growth rate closer to its former self in the second half of the 1990s rather than the more restrained real growth of the S&P500. But by September of 2006, margin again went ballistic. It finally peaked in the summer of 2007, about three months before the market began to crash.
After the market low of 2009, margin debt again went on a tear