Margin Debt Has Exploded by 49 Percent in One Year to $814 Billion...

Wall Street On Parade

April 13, 2021

Investor's Insight are my comments about each of the headlines in the weekly Market RoundUp videos, available in real time to clients of Harasymiw Investments of ACPI only. These excerpts are released for general viewing four months after initial private release. To learn more about partnering with Harasymiw Investments of ACPI to help guide your investment portfolio, get started here.

For those of you wondering about my skepticism when it comes to the financial experts, I bring forth to you this headline of the week, in its fullness:

"Margin Debt Has Exploded by 49 Percent in One Year to $814 Billion. That Actual Figure May Be in the Trillions"

Firstly, let’s talk margin. What is margin? Margin is the process of borrowing money to invest, using your existing investment portfolio as collateral.

So, as a very simple example, say your account is extended 50% margin. This means that on a $100,000 investment account, you could invest up to another $50,000 that account. This is a very simple example, of course. There are many nuances but this should be enough to help you grasp the gravity and absurdness of the situation.

In the interest of time and brevity, I’ll leave you two quick quotes from the article to whet your appetite, though I strongly recommend you take a read of this piece, even if it feels over your head. I think you’ll thank me later.

“One good reason that Powell may have wanted to dodge this issue of margin debt is that he knows very well from his days as a Wall Street insider that the $814 billion margin debt figure cited by Pelley is just the tip of the iceberg”


“But as Powell well knows…Wall Street’s largest banks are not actually reporting all margin debt that is fueling the sharp rise in stock prices.”

I highlight headlines and stories such as these because for those ignoring the reality of what’s going on, there awaits more financial tragedy. Many financial losses in 2007-2009 were the result of lackadaisical efforts by investment managers and clients alike. I’d like to avoid that same fate the next go around. And there will be a next one, though the magnitude and timing I cannot venture to guess.

SOURCE: Wall Street On Parade

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