Stocks Were Already Crashing the Last Two Times this Happened. So What Gives?…”The foundations have crumbled. All bets are off.”
by Wolf Richter
WolfStreet.com
July 26, 2016
Over the last 20 years, margin debt – when investors buy stocks with borrowed money – went through three multi-year run-ups, each topped off with a spike, followed by a reversal and decline: during the final throes of the bubbles in 2000 and 2007, each followed by an epic stock market crash – and now.
That pattern of jointly soaring and then declining margin debt and stocks even occurred during the run-up and near-20% swoon in 2011.
The grand cycle began in February 2009, at the trough of the Financial Crisis, when margin debt had dropped to $200 billion. It was followed by a multi-year record-breaking run-up, topped off with a spike that culminated in an all-time peak of $507.2 billion in April 2015. Then margin debt reversed and began to decline. On cue, the stock market began to decline a month later. Margin debt zigzagged lower, and stocks did too. But in February this year, stocks suddenly bounced off sharply – without margin debt.
The New York Stock Exchange reported on Monday that margin debt declined again in June, by $3.7 billion to $447.3 billion, just a hair above where it had been in February.
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