Posted on 02/25/2007 10:12:42 AM PST by staytrue
NEW YORK — Investors are borrowing at a record pace to sink into the stock market, and the trend is raising concerns on Wall Street about what might happen if a major correction occurs.
The amount of margin debt, which is how brokers define this kind of borrowing, hit a record $285.6 billion in January on the New York Stock Exchange...
The last time margin debt hit this level was at the height of the dot-com boom in March 2000, just ahead of a two-year decline.
"I don’t think this is saying you should suddenly run into your bomb shelter," said Hugh Moore, a partner with Guerite Advisors. "Nevertheless, I think it is saying there is exuberance out there, a feeling from investors that ‘I don’t want to miss the bus.’ "
That usually signals "the bus has already left," Moore said.
The March 2000 peak for margin debt, at $278.5 billion, matched market highs on the Dow Jones industrials, Nasdaq composite, and Standard & Poor’s 500 index early that year...
Margin debt dropped to less than half its peak between March 2000 and October 2002, mirroring a plunge in stocks...
The four-year bull market has pushed the Dow to record levels and the S &P to six-year highs. In 2006 alone, margin debt increased 24.2 percent while the Dow picked up 16.3 percent. Investor borrowings rose 3.7 percent in January, while the Dow posted a 1.3 percent gain for the month...
"Debt is only a problem on the way ... down," said Alexander Paris, an economist and market analyst for Chicagobased Barrington Research. "There’s a lot of margin debt out there, and with the S &P shooting for its ninth-straight month up, you haven’t had this kind of run since 1926. It’s a warning flag."
(Excerpt) Read more at columbusdispatch.com ...
In my opinion, going forward the stock market can go up a little, stay flat, go down a little, or go down a lot.
Going up a lot is off the table, in my opinion.
That sounds like a lot, but it's probably just a couple percentage points of total market capital, the same as back in 1999.
I am not terribly bullish, but this is not 2000. Buying stocks on margin may be more rewarding than buying real estate on a mortgage. Real estate is where the speculation has been. The difference in the market now is that there is not as much speculation and the stocks that are going up actually have earnings as opposed to the tech bubble. Personally, I believe there were a lot of petrodollars pumping the market up, because much of the move has been on ascending oil prices. It is somewhat counterintuitive but oil and the stock market may be moving in the same direction together. The one thing is for sure that the first time oil hit 70, it did not tank the market. I daytrade the same stocks every day, but only trade two outside the Dow 30. I am still looking to buy weakness on intraday lows, but in the last month one could short the intraday highs and make money as well, which had been a fairly dangerous for the previous months.
since you asked on a different thread.
ping (probably 2 days late)
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