Quote:
Originally Posted by Max_Tab
My question is (and I know, no one has the answer, I'm just speculating), has it started, or still to early to tell?
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MaxTab,
A more telling indicator is the "margin debt", which is at record levels.
That is professional traders are borrowing money (stock shares) to
bet that the stocks will go down in value.
They are not betting on the stock going up (as most investors would buy stocks), and can leverage their "shorts" by 5 to 1 (i.e. 20%) on a trade.. That means that they can "sell" $5 million of a stock
they do not own with only $1 Million to cover the trade.
This is an area where Soros has made so much of his wealth.
If the stocks go up --- they are screwed, and have to buy shares at a new higher price to cover their sale.(That is the margin call).
But these people don't get rich by being stupid.
SnT
In the month of December margin debt on the NYSE surged by over $20 Billion dollars hitting a new all-time high of $444.931 billion.
The rise in leverage also sent investors net worth to a
negative $149.358 billion which is also a record.
It is important to note that it is not the rise in margin debt that is the problem for the markets - it is the fall.
When the ultimate reversal begins, and investors are forced to liquidate to meet margin calls, the market begins to feed upon itself.
This forced liquidation quickly accelerates downside reversions in equity markets leaving investors little opportunity to react. The last two peaks in margin debts have had nasty outcomes for this very reason.
http://www.investing.com/analysis/ma...me-high-200249