One of the most talked about charts among bears and other
value-minded investors is the level of margin debt on the NYSE. I
take this version of the situation (data current as of June 30,
2013) from Doug Short, who has been keeping a close eye on the
metric this year.
Doug has several versions of this data on his website. Here is
his explanation of this chart and the patterns he is
"This chart shows the two series (NYSE margin debt vs the
S&P 500) in real terms - adjusted for inflation to today's
dollar using the Consumer Price Index as the deflator. I picked
1995 as an arbitrary start date. We were well into the Boomer
Bull Market that began in 1982 and approaching the start of the
Tech Bubble that shaped investor sentiment during the second half
of the decade. The astonishing surge in leverage in late 1999
peaked in March 2000, the same month that the S&P 500 hit its
an all-time daily high, although the highest monthly close for
that year was five months later in August. A similar surge began
in 2006, peaking in July, 2007, three months before the market
Though it would be nice to see the July data that shows margin
debt has declined from lofty levels above $300 billion, there are
important themes here we should be asking about the peak in April
and corresponding peaks to come in the market and in the Fed's QE
Is the level of margin debt and its relationship to excess
speculation cause for concern now?
Does it need to get washed out with a major correcction before
the bull market can go higher?
On a related theme, while many smart people say that QE has
been the sole driver of the stock market rally this year, I
haven't seen any direct evidence to convince me of this supposed
fact. Low interest rates clearly help the asset class, but Fed
bond purchases don't directly put money in stocks. Call me naive,
but I want to see the math first.
Where do you stand on QE and stock prices?
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