Warning: Why My Flash Crash Alert Flag Is Flying High
By: Bill Bonner
May 16, 2013
Whoa! Investors are acting as if it were 2007 all over again.
USA Today has the story: Emboldened by soaring stock prices and record-low borrowing costs, stock investors are taking out loans against their portfolios at the fastest pace since before the Great Recession hit.
So-called margin debt hit $379.5 billion in March, the highest level since July 2007 when such debt hit an all-time record of $381.4 billion, according to the most recent data available compiled by the New York Stock Exchange.
The trend signals that investors are more comfortable with stocks and are more willing to use borrowed money to buy more securities in hopes of garnering fatter returns in a hot market that has pushed the Dow Jones industrials up more than 15% in 2013.
Why are investors so bullish? Because the economy is coming back? Because the future is rosy? Because stocks are going to earn even more?
Nah… What do you take us for, dear reader? We know the story. Stocks are going up because the Fed is making them go up. Here’s David Rosenberg in Canada’s Financial Post:
The US Fed has always been important in influencing trends in the financial markets, even if the economic effects have been far less than dramatic. This influence has actually strengthened in recent times to the extent that the correlation between the Fed’s balance sheet and the direction of the stock market, which was barely 15% before all these rounds of quantitative easings began four years ago, is 85% today.