NYSE Margin Hits All Time High

by: Barry Ritholtz March 20, 2007    
Barry Ritholtz

Barry Ritholtz

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Now we are getting into the uh-oh region: NYSE Member Firm Margin Levels.

click to enlarge
nyse_member_firm_margin

(See our prior discussion on what this may or may not mean here)

Bloomberg News has the details:

The amount of money borrowed from brokerages that do business on the New York Stock Exchange to buy stock rose 3.6 percent to a second straight monthly record, reaching $295.9 billion in February. Margin debt, as the borrowing is called, in January broke the prior high set at the peak of the so-called Internet bubble.

Changes in the level of margin debt have mirrored those of U.S. stock indexes. After setting an all-time high of $278.5 billion in March 2000, margin debt dropped to less than half that amount by September 2002. It reached $285.6 billion in January.

As I read the NYSE rules on this, I do not believe Shorts are included in this;

"Include only free credit balances in cash and margin accounts. Balances in short accounts and in Special Miscellaneous Accounts are not to be considered as free credit balances."

-Rule 421. Periodic Reports

It's borrowed money - not margin data - that matters . . .

Source:
NYSE Margin Debt Advances 3.6 Percent to Second Straight Record
Nick Baker
Bloomberg, 2007-03-19 14:39

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This article has 3 comments:

  •  
    Mar 20 10:33 AM
    One item from the Wikipedia entry on the stock market crash of 1929 states "The crash followed a speculative boom that had taken hold in the late 1920s, which had led millions of Americans to invest heavily in the stock market, a significant number even borrowing money to buy more stock. By August 1929, brokers were routinely lending small investors more than 2/3 of the face value of the stocks they were buying." Granted, conditions now are not precisely the same as in 1929, but I agree that we are in "uh-oh" territory.
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  •  
    Mar 20 11:05 AM
    Well, this is all history now, isn't it? Most of February precedes the big market decline at the end of the month. Whatever bad news those statistics portend is already played out. We'll see when in the March figures whether most of that margin got covered or whether people managed to hang on to it. It would be exceptionally surprising if the borrowing increases despite the drop.
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  •  
    Mar 20 05:05 PM
    Is there delay effect of margin debt ? For example, when magin keep growing, it is extremely bullish. When market starts coming down, margin debt will come down. Only when it hit certain point, may be 50 days moving average, the real sell signal is generated. I found it is true for VIX. People have been calling low VIX for two years and market still go higher. The big problem of margin data is it being published only once a month.
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