Posted by jdavis on April 15, 2014
In essence, it's the amount of money borrowed to invest in the stock market.
As you see, for the major US market it's at all time highs. Look at the last times Margin Debt was at peaks - in early 2000 and 2007.
Look at what happened to the stock market immediately after - it crashed.
Does this mean the US stock matrket (and in sympathy the rest of the Developed Markets) is going to crash? Well, it has done twice in the last 15 years. We cannot say what will happen. But consider this too:
CASE SHILLER PRICE / EARNINGS
Essentially, it compares the level of the US stock market to aggregate corporate profits. Importantly, it irons out blips by averaging each data point over 10 years.
As you see right now the index is around the third highest in history. The two higher periods were leading up to 1929 and to Dot Com in 2000.
Looking at that as well as Margin Debt and other signs, we remain of the view that the US (and UK etc) stock markets are very overvalued.
We look for quality assets that have tumbled in price and appear to be reversing up. Why focus your investing efforts on assets that appear very highly priced?