by Mish

"Margin debt climbed to a record high in February, a fresh sign of bullishness for flummoxed investors trying to navigate the political and economic crosscurrents driving markets.

The amount investors borrowed against their brokerage accounts climbed to $528.2 billion in February, according to the most recent data available from the New York Stock Exchange, released Wednesday. That is up 2.9% from $513.3 billion in January, which had been the first margin debt record in nearly two years.

Before January, the previous record high for margin debt was $505 billion in the spring of 2015. Margin debt then started falling, months ahead of a summer swoon that sent major indexes down more than 10%."

Analysts Say Don’t Worry

MarketWatch reports Record Margin Debt May Be a Red Flag, but Analysts Say Don’t Worry.

"The latest warning sign — following underperformance by small-cap stocks, record inflows into exchange-traded funds and high levels of political uncertainty — is margin debt, which is seen as a measure of speculation and just broke a record that has stood for nearly two years.

Don’t worry.

According to the most recent data available from NYSE, margin debt hit a record of $513.28 billion at the end of January, topping a previous record of $507.15 billion that had held since April 2015. Margin debt refers to the money that investors borrow to buy stocks, and high levels of it, in periods of market volatility, and can lead to sharper declines. Records preceded both the dot-com market crash and the financial crisis.

However, expecting a similar correction because debt is at a record now would be “naïve,” said Jeff Mortimer, director of investment strategy for BNY Mellon Wealth Management.

“This isn’t a signal to me that markets are reaching an exuberant level like they did in the 1920s or 1990s, when speculation was rampant,” he said. “What our clients are doing is borrowing against the portfolios because interest rates are so low. They’re not leveraging up because they see the market exploding to the upside; they’re using leverage because they can pay it off at any time.”

Borrowing Against Portfolios

Don’t worry, clients are just borrowing against their portfolios because rates are low. Allegedly, they can pay this back anytime.

Excuse me for asking, but what if they spent the money?

Consumer Confidence a Leading Indicator of Market Tops?

In response to Consumer Confidence Strongest Since December 2000: A Strong Contrarian Indicator? I received an interesting chart from Doug Short at Advisor Perspectives.

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Once again, here is a chart from John Hussman to which I added vertical bars.

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For now, I am sticking with consumer sentiment as a coincident, not leading indicator unless the markets make a fresh set of highs.

Hussman Tweeted, and I strongly agree, “Multi-year highs in consumer confidence are less a sign of forthcoming consumer spending as a sign of forthcoming investor losses.”

"Here is margin debt in real terms for those who wanted it. pic.twitter.com/DCz0Q3pwZ4

— Jonathan Tepper (@jtepper2) March 30, 2017"

Sentiment peaked just before the 2001 recession. It would be a fitting irony if the same happened again.

Mike “Mish” Shedlock

Don’t Worry: “It’s Only 1997” Besides “It’s Different This Time”

Two articles in the last two days, one on Bloomberg, the other on the Wall Street Journal, provided key reasons we should not worry about stock market bubbles. 1. It’s only 1997 (P/E valuations have not exceeded the dot-com bubble in 2000 yet) 2.It’s different this time (always a classic argument)

Household Debt Climbs to Record High, Delinquencies Rise

The quarterly report on household debt shows another record high. Delinquencies are up strongly as well.

Auto Sales Weak Again, Average Loan Hits Record 5.75 Years: Don’t Worry “Plateau Expected”

With about 3/4 of the totals in, vehicle sales in June are running no better than even compared to May’s 16.7 million annualized rate according to Econoday.

Ticking Time Bomb of Record High Corporate Debt

The Fed released its "Z1" report today on Household Net Worth and Domestic Nonfinancial Debt. Let's dive into debt.

Consumer Confidence Strongest Since December 2000: A Strong Contrarian Indicator?

Consumer Sentiment and Consumer Confidence are similar measures by two different organizations. The former is from the University of Michigan, the latter is by the Conference Board.

Confidence vs. Liquidity

Punk Ziegel analyst Richard Bove is saying some of the things that needs to be said. The article in question is: Fed rate cut won’t help markets. Here are a few select clips from the article.

European Sovereign Debt Crisis in Pictures; PIIGS Spreads to Germany at or Near Record Levels

The sovereign debt crisis in Europe is still simmering. Country by country, spreads to German debt are at or near record levels.

Increasingly Confident GDPNow Estimate Way Too High

On Monday, following construction spending and ISM reports, GDPNow upped its estimate of second-quarter GDP from 2.7% to 3.0%.

Household Debt Hits Record High $13.29 Trillion Led by Mortgages, Student Loans

A New York Fed report shows household debt hit a new record high of $13.29 trillion in the second quarter.