Yes, worrying chart but CARE ONE// Why use an arbitrary 1995 base? Re-base to March 2009 and it looks totally different 

TWO// Don't be a victim of what Bruce talked about at the seminar..apples and oranges charts....debt is bound to rise as the market rises but see ONE above ....debt growth is maybe even LAGGING the market growth since 6/3/2009

THREE// Margin debt is under 1% of market cap so worrying but not fatal...what about the other side of the balance sheet,,,,investor CASH? That has probably RISEN so net debt may be stable versus stocks

David Fuller's view

Many thanks for an email likely to be of general interest.

Re your ‘Care One’: The chart covers 20 years and includes the build-up to the 2000 tech bubble, and 2008 when we had a debt crisis meltdown.  Therefore, the 1995 date could only be described as “arbitrary” if you were making a case for the inclusion of more historic data.  However, it would certainly be arbitrary, in my opinion, and myopic, if rebased to 2009 as you mention.

Re ‘Care Two’: Yes, I appreciate that margin debt will increase as the US stock market rises, and the comparison is extremely important.  Historically a spike in margin debt, as we saw in 2000 and 2007, is a serious warning signal as those people will certainly deleverage when they experience profit erosion and become concerned by the extent of a sell-off.    

Re ‘Care Three’: I think margin debt is higher than 1% because there are now a number of leveraged ETF instruments that people can buy.  Also, some investors will have borrowed money elsewhere to play a stock market which had been rising for five years.  In other words, margin debt with a stock exchange is not the full picture in terms of leverage.   Regarding investor cash, our impression is that many people were very wary of reinvesting in the early years of the bull market but bought in increasingly during the 4Q 2013 surge.  This is typical of maturing bull market cycles. 

Note: The reference in the second section of the email above is to Bruce Albrecht of P&C, who made a short, interesting presentation at The Markets Now seminar on 7^th March.  He will also most likely speak on 9^th May, in addition to Iain Little and myself.  I am looking forward to it. 

(See also Friday’s Comment of the Day and Eoin’s reference to cash below.)