Investor Net Worth Hits Record Low

万得福

Margin Debt Soars To New Record; Investor Net Worth Hits Record Low
Submitted by Tyler Durden on 11/26/2013
http://www.zerohedge.com/news/2013-11-26/margin-debt-soars-new-record-investor-net-worth-hits-record-low

The correlation between stock prices and margin debt continues to rise (to new records of exuberant "Fed's got our backs" hope) as NYSE member margin balances surge to new record highs. Relative to the NYSE Composite, this is the most "leveraged' investors have been since the absolute peak in Feb 2000. What is more worrisome, or perhaps not, is the ongoing collapse in investor net worth - defined as total free credit in margin accounts less total margin debt - which has hit what appears to be all-time lows (i.e. there's less left than ever before) which as we noted previously raised a "red flag" with Deutsche Bank. Relative to the 'economy' margin debt has only been higher at the very peak in 2000 and 2007 and was never sustained at this level for more than 2 months. Sounds like a perfect time to BTFATH...

And as more attention has shifted to the topic of speculator leverage once more, inquiries into the correlation between bets upon bets and stock performance are popping up once more, in this case in a study by Deutsche Bank titled "Red Flag! - The curious case of NYSE margin debt." Of particular note here is a historical comparison of margin-debt warnings that have recurred throughout history but especially just before major stock bubble crashes, such as in the period 1999/2000, 2007/2008 and of course today, which have time and again been ignored. Here is what was said then, what is being said now, and what is ignored always.

As DB says, "we prepared a collection of press articles which were published around the key events during the past financial crises. Our key finding is straight forward. Irrespective of the publishing date, the articles read alike throughout the two major crisis periods, i.e. the “new technologies market equity bubble” (1999-00) and the “Great/Global Financial Crisis” (2007-08). Most interestingly, literally the same content can be found in todays’ press. Universal phrases include:

• “A rising stock market encouraged more investors to go into debt to buy stocks, sending margin debt levels past their all-time high”.
• “The National Association of Securities Dealers (NASD) has asked members to review their lending requirements in a sign of increasing concern that rising levels of margin debt could exacerbate a stock market plunch.”
• “The Fed is concerned about a sharp rise in margin debt but has been unwilling to attack stock market speculation as high levels of leverage do not necessarily translate into high risk. The last time the Fed adjusted the margin rules was in 1974, when when it reduced the down payment required for stocks to 50 percent of the purchase price, from 65 percent.” […] “The Fed should return to its pre- 1974 policy of actively changing margin requirements in response to stock market speculation”.
• “High margin debts show the effect of over-leveraging and mispricing of risk”.
• “The movements in stocks cause brokerages to stop allowing customers to buy some of the volatile stocks on margin or require clients to put up more cash.”
• “Either the market rises dramatically to make those loans good or in any down move there is tremendous selling pressure”.
• “Until recently, most investors ignogred red flags raised by regulators”.
• 
  

http://www.advisorperspectives.com/dshort/charts/markets/nyse-margin-debt.html?NYSE-investor-credit-SPX-since-1980.

archers

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