True dat, and we’re in a period where investing is becoming more and more about leveraged money!
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Investors should learn the difference between “nominal vs real”. 25 years ago, a $100 K debt is crippling to me… today $1 M debt is not bad.. in fact it is great, because i could put it to better use…
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Margin call…it’s not about individual risk…it’s about market risk.
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Yep. If you can attain your financial goals without the use of leverage, that’s preferable.
intercst
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Margin certainly can be a problem but the chart has two problems
- It show market value, not margin
- it’s a linear chart while stock market growth is exponential
Note that the crashes are less deep
- 2000 - 50%
- 2007 - 56%
- 2018 - 20%
- 2021 - 25%
My concern is about picking the right stocks, not the right market timing. As I have often said, buy stocks that will bounce back.
Debt is not inherently bad but size matters! Investing has many facets. One that is hardly ever discussed at TMF is cash management. Hoards of cash in the bank is wasteful. Liquidity in emergencies is a necessity. Volatility is inevitable. One way to manage them is through good cash management and margin can be one of the tools used in moderation, not for speculation.
The Captain
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Nope, it shows margin debt. Maybe you like this one mo better…
https://en.macromicro.me/charts/415/us-margin-debt
True dat. However, what we’re seeing now is Jack Kerouac style “moderation”.
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Sounds very scary, sage advice… we have record margin debt… yada, yada… but is it an issue?? Data says no…
Margin debt as % of market cap is at record low level… it is about 1.75~1.8% of the market cap.
Recently, in crypto world, where wild fluctuations are more normal, just wiped 1.8 million wallets/ accounts and $19 B in total lost by those accounts. No major market disruptions.
From COVID, to till date we have had 5 or 6 major market shifting events, in none of the cases margin debt has caused any major disruptions.
Thanks but I can’t figure out the chart. How is the S&P 500 price (6,664.01) calculated? How many “shares” make up its market cap, (56/ - 57 trillion) a figure not shown by Yahoo?
The chart has two scales, left and right. Left seems to align with the S&P 500 price. What is the dollar amount of the S&P 500 margin?
Frankly I find this discussion a waste of time (my time anyway).
The Captain
Record margin debt isn’t an issue, until it is. There is lots of data that says…probably so. Margin debt as a % of market cap is only one measure, and it’s a shatty one at that. What market are we talking about? What is most of the margin debt purchasing?
Everyone says this time around will be different, until it isn’t.
Crypto disruptions don’t affect the financial markets like security fluctuations and margin calls. Get real.
You’re a smart dude. Most of the leveraged buying is pouring into the Magnificent 7. That’s risky business. If there are any stock price drops, selling off to meet margin calls will cause stock to fall into a burning ring of fire. Don’t fall for it like a child, because oh, the fire will be wild!
That said…sure there are lots of the big players that will survive and thrive. That doesn’t mean we should be oblivious to short-term drops that could eat our lunch.
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You have not provided one objective measure… lots of meaningless phrase, and saying it will be an issue when it is an issue, sounds really great, but under what circumstances it will be an issue???
- In 2020, COVID decline resulted in markets dropping 34%; no margin call issues
- 2022 tech stock decline, no margin call issues
- April 2025 correction, no margin call issues
When, under what circumstances margin debt will become an issue?
-
Japanese Yen carry trade unwind, there were margin calls made, but that resulted in a quick sell-off to cover currency losses, and market quickly recovered; but no systemic risk; Remember this was $1T trade unwind.. still no systemic risk
-
In March 2021, Archegos Capital Management, was forced to unwind, a $20 B unwind, resulted in few brokerages taking losses, and some of his favourite names like Tencent, Vipshop, Baidu all declining; but no systemic risk;
In fact, it created one of the best buying opportunity on a quality name.
Time to time, few individuals hedge funds, will take outsized risks, and often they are due to some failure in oversight or other reasons, few stocks, currency, crypto names where there is lot of buying using margin debt, might decline, but there is no systemic risk.
When you don’t have anything specific to worry about, you can worry about margin debt. It is like worrying about US federal deficit, debt, social security, etc. There is nothing you can do about them, you plan your financials around them.
Is that what the chart says? or that is something you are reading into it? Because there are reports from Bank of America flow report, that talks about these things, they have never flagged the money that is going into Mag 7 is from the margin debt.
Separately mag7 is actually lag 7 recently, I haven’t seen that margin debt coming down…
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Yes, I am! But not MACRO. Stick to investing.
If you want my advice, buy only stocks that bounce back.
The Captain
Another view.
Andrej Karpathy used to lead Tesla’s AI efforts, was a founding member of OpenAI
“Why don’t you do it today? The reason you don’t do it today is because they just don’t work. They don’t have enough intelligence, they’re not multimodal enough …”
He even employed the pejorative that riles up the industry. “Overall, the models are not there. I feel like the industry is making too big of a jump and is trying to pretend like this is amazing, and it’s not. It’s slop,” he said. “They’re not coming to terms with it, and maybe they’re trying to fundraise or something like that. I’m not sure what’s going on, but we’re at this intermediate stage.”
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I tend to agree with Andrej Karpathy but it depends on the use case, some jobs need more intelligence than others.
And there is a second issue, fact checking. People put a lot of faith in “Science.” But what exactly is science? A method of testing guesses that have fancy names like “theory,” and “hypothesis” by way of experiments that prove them right or wrong. “Consensus” is not scientific proof. Nine out of ten scientists could believe the wrong theory. Experimental proof is required.
In the real, practical world we tend to believe the word of people with good references be they doctors, scientists, or trades people because we do not have practical alternatives. It is not yet the time to believe any and all AI outputs. I think this is what Andrej Karpathy has in mind.
The Captain
NPR last night 95% of corporates see no return from AI.
In the next year my marketing will see a good return from AI. Most people do not know how to use AI. Computer rooms are full of people who love the paycheck ONLY.
Be humble. Know yourself and your place.
Look to the tech leaders (Elon, Jensen, Sam, Zuck, Bezos, Ellison etc.) for guidance. They are much much smarter than us and have a lot more information. They shape the future. We are followers, mostly irrelevant.
AI is big, it is here and will dominate for next few decades.
You are going to get badly hurt.
Don’t hold up cheesy sales people. They have their money because they’ve got your money.
You can not trust them one iota.
All that money can’t buy any of those guys a decent haircut. LOL
BTW becareful with that garbage. The first person in the room to say he’s humble is the least humble person here. That has always been a fact of life.
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Sounds like a brand statement for the emerging AI oligarchy.
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To me it sounds like silly garbage at the top of the market. Sold sold gone.
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