Margin debt drops

[cubical]

Thought this was pretty interesting. Will anything come of it? I don't know.



It began to spike in January 1999 during the final throes of the dotcom bubble. In March 2000, it hit a record of $278.5 billion, or 2.66% of GDP. In April, it declined. An epic stock-market crash had just started.

It began to spike in September 2006 to max out in July 2007 at $381.4 billion, or 2.60% of GDP. In August, it declined. In November, the fetid air started hissing out of the market. Momentum stocks got killed first, and as they plunged, margin calls went out, and forced selling set in, and the selloff turned into a rout.

In August 2012, margin debt spiked again, and this time, it turned into a phenomenal spike that set a new record in July 2013 and continued going for the stars. In February, it hit $465.7 billion, 22% above the prior all-time record. And 2.73% of GDP. The highest ratio ever!



http://www.zerohedge.com/contributed...market-crashed

[enoch150]

Here's the month over month percentage change, going back to 1984. In percentage terms, the drop was almost twice as large in May, 2012.

[cubical]

Yes, but its not the drop itself that is significant, but rather the drop after an all time high that just so happens to be around the same levels(actually a bit higher) of margin debt to gdp as the crashes in 2000 and 2007.

[Zippyjuan]

The margin drops seem to come AFTER the economy slowed not before (assuming blue areas in the chart above reflect recessions- neither of them show dates aside from the peaks in the first one). Result of, perhaps, rather than a foreshadowing the recessions.

[cubical]

The margin drops seem to come AFTER the economy slowed not before (assuming blue areas in the chart above reflect recessions- neither of them show dates aside from the peaks in the first one). Result of, perhaps, rather than a foreshadowing the recessions.

It came right before the stock markets had their crashes.

[Zippyjuan]

The Dow Jones for the year 2000 hit its peak in January at 14,650. Margins peaked in March. In 2007, market peaked in September at just over 15,000. Margin peak that time was July so one was before stocks peaked and one was after. Which one was the cause and which one was the effect? Could be either way.

http://www.macrotrends.net/1319/dow-...storical-chart

[cubical]

The Dow Jones for the year 2000 hit its peak in January at 14,650. Margins peaked in March. In 2007, market peaked in September at just over 15,000. Margin peak that time was July so one was before stocks peaked and one was after. Which one was the cause and which one was the effect? Could be either way.

http://www.macrotrends.net/1319/dow-...storical-chart

Looks like the DOW fluttered around 14,000 most of 2000, then it "crashed" down to 9500 by 2002.

The Nasdaq peaked in March 2000 as did margin debt. By the end of 2000 the Nasdaq was almost cut in half.

[Zippyjuan]

2002 would be almost two years after margins peaked. But even if we do use the NASDAQ figures, were stocks going down because people were buying less on margin or were margin purchases falling because stock prices were falling (less demand for stocks)? I'm inclined to say probably both. Also the current drop (from February to March) does not seem to be any historically large amount ($15.5 billion or three percent) compared to other drops on the chart. Has it had any predictive effect in the past (the 1980- 1982 or 1991 recessions for example?)

[cubical]

2002 was when stocks bottomed, not when they started their fall.

Its not about the size of the drop, its about the exponential rise into new highs stopping.

[Zippyjuan]

I count at least eight times since the last bottom it "stopped its exponential rise".

[cubical]

I count at least eight times since the last bottom it "stopped its exponential rise".

at new highs?

[enoch150]

It peaked in March 2000, at $278.53 Billion. It breached that level in January, 2007, when it hit $285.61 Billion. It declined 0.92% in March, 2007, before going on to peak in July of that year.

The other peak, in July 2007, was $381.37 Billion. It breached that level in April, 2013, when it hit $384.37 Billion. The next two months - May and June, 2013, it declined a combined 2.01% before going on to - possibly - peak in February, 2014.

It's worth noting, because there is a correlation, but it's not perfect.

[enoch150]

Margin debt dropped another 2.9% in April. It's now down 6.1% when added to the March decline. The S&P 500 had very slight increases both months and is up 1.3% over the same period.