Nexvu Capital

Nexvu on Economics, Politics and the Markets

  • Enter your email address to follow this blog and receive notifications of new posts by email.

    Join 1,022 other followers

  • Nexvu on Twitter

    Error: Twitter did not respond. Please wait a few minutes and refresh this page.

  • Previous Posts

Margin Debt: Move Along, Nothing to See Here

Posted by nexvucapital on October 25, 2013

“NYSE Margin Debt just reached another record high, and an increasing number of market skeptics are expressing concerns.  They reason as follows.  Increased investor willingness to buy stocks on margin suggests increased investor confidence and optimism.  But markets don’t perform well when investors are already confident and optimistic.  Moreover, people invested on margin are less able to tolerate price fluctuations.  As their presence in a market grows, so does the risk that otherwise healthy challenges to the market’s advance will provoke rapid, self-fulfilling unwinds of positions.  These unwinds have an uncanny ability to grow into more ominous things.”

“To ground these concerns, the skeptics appeal to history.  They point out that extreme margin borrowing was the primary cause of the 1929 stock market crash, and that the market crashes of 2000 and 2007 both involved blow-off peaks in margin debt.”

Margin Debt: Move Along, Nothing to See Here.


Source: Philosophical Economics


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: