Margin debt is the money people borrow from their stockbrokers to expand their holdings of shares. The margin debt ratio is now 70%, meaning with $3,000 you can borrow $10,000 dollars worth of shares.

Here’s where it gets interesting — there is a relationship between the change in margin debt and the level of asset prices. Even more importantly, a correlation between the acceleration in margin debt and the rise in asset prices.

For 2013, we’re relying on the acceleration of margin debt to drive rising share prices and when that acceleration slows down, equity prices will fall.

Currently, margin debt levels in the U.S. now are similar to where they were in 2000 and 2007 — before the stock markets crashed.

Tags: Margin Debt, Stock Market Crashes

Rate This Article!

(No Ratings Yet)

Loading...