Investors betting on bulls buy US stocks on credit
By Nick Olivari
NEW YORK, Feb 2 (Reuters) - Just 15 months into the bull market, investors are again increasingly optimistic and buying stocks on credit.
Margin debt, which allows a buyer to put down a percentage of a stock's purchase price and borrow the rest of the cash from a broker, is a bet that better days lie ahead for the market.
With the bulls back in charge, at least for the time being, margin debt has jumped 33 percent since September 2002, a month before the market's most recent trough.
"When you buy on credit it says not only are you sure the market is going up, but you are willing to leverage," said Anthony Chan, senior managing director and chief economist at Banc One Investment Advisors, which oversees $185 billion. "You are betting aggressively that you are going to win."
The New York Stock Exchange said margin debt totaled $173.2 billion in December, its highest since May 2001 and far from the low point of $130.2 billion in September 2002.
Those investors who were willing to take on the extra risk of buying on margin have also been rewarded for the most part. The Standard & Poor's 500 index (^SPX - News) gained 43 percent since Oct. 9, 2002, according to Reuters analytics.
The market's rise, in turn, increases the optimism of other investors who may begin to borrow on margin, or those already using margin debt may finance new purchases with their profits.
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FYI, this was posted by me as a bright red warning flag. When, by this summer, you hear the grocery bag boy talking about stocks again, you'll know the game is almost up.