Kingran - I don’t get it. What does the Fed balance sheet have to do with margin debt?
@eldemonio, Everyone was pointing the fed balance sheet growth is the reason the markets are up, and once fed starts shrinking balance sheet, the market will decline. When the arguments were presented against that thesis, it will matter when it is… similar to your argument about margin debt.
No the fed balance sheet shrinking, QT, didn’t impact the stock market. Similarly margin debt doesn’t matter. All outstanding margin debt is < 2% of the SP 500 market cap. The stock market had 6 stress test in the last 5 years, from COVID to fed rates hike, to tariffs to US bombing Iran… and margin debt/ margin call didn’t cause any market disruptions.
There are lot of myths, “conventional wisdom” that are not supported by data. Investors, should learn to put those “beliefs” to test, test it against data and it should validate your hypothesis. If they are not, then you should assign lower preference to them.
Let us get the facts clear… it is not the margin debt in equity market, rather the financial firms borrow lot of money in short-term from other firms, and often they post collaterals like UST and other assets against that borrowing, they used that borrowed money to buy mortgages and mortgage bonds, and when the value of those bonds started falling, they were left with illiquid assets against which they could not borrow, that is not same as margin debt that you are talking.
There are gazillion theories, when you put them to test, many fail. Also, often we confuse correlation as causation. The subprime issue is not a margin debt issue.
Margin debt is not a systemic issue. Time to time few individuals over extend, institutions make lending mistakes that blow up few hedge funds, that are caught on the wrong side of the trade. They are not systemic issue.
You’re being emotional. These aren’t hunches, it’s logical. If we’re in an AI bubble and it pops, the amount of borrowed money invested in the AI market will cause serious problems. Them’s the facts.
You can argue that we’re not in a bubble, fine, make the argument. But what you can’t argue is the amount of borrowed money being at an all-time high, nor the effects margin debt has on bubbles busting.
I’ve noticed you have a habit of saying goodbye when people don’t agree with you. That’s sorta lame.
Yes you are correct, I am emotional. You deduced that logically. Make sure, you withdraw the cash from the bank before the banks run, because deleveraging already started, and on-going for the last few day, private credit companies are going bankrupt, there is fraud in PE market, gold dropping at historic level, crypto is tanking…
Are you kidding or seriously you have understanding issue??? First of AI investments are not same as people buying stock on margin debt. Few individuals buying stock on margin is not going to pop AI investment cycle. If you don’t comprehend this simple fact, let us stop discussing at this point. Also, don’t look at nominal number, look at it as % of market cap, this is not historic number.
In either case, I should stop this discussion. If you want to believe the world is coming to an end, hop you have take necessary precaution and good luck.
