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Here's a data point to make you stop and think: As of today, more people have borrowed money from their brokers to buy stocks than ever before.

That number was reached this past month, with Margin debt hitting an all-time high, passing even the days of the tech/telecom/internet boom.

According to the NYSE, the margin totaled $285.61 billion in January, up from $275.38 billion in December and passing the previous peak of $278.53 billion.

Although the previous all time high was set in March 2000 - just as the Nasdaq Comp Index hit its apex - there were prior highs to the penultimate one. This doesn't mean the top is in or even imminent, but it is a factor well worth watching over the coming weeks.

I haven't figured out yet how to adjust the present high relative to the March 2000 peak for inflation; at the very least, it implies more room for margin debt to increase in order to reach comparable levels to the 2000 margin highs. Add to that the lower costs of borrowing versus 2000 (i.e., lower interest rates), and while this is a worrisome stat, it is not necessarily the bell that gets rung at the top.

In fact, Marketbeat points out that there has seen a "veritable who’s who of 'bad news' indicators come and, for the time being, go" - all without any major market dislocation:

  • The VIX, commonly known as the “fear index,” is hovering around 10, a low point, suggesting a lot of carefree folks out there these days. This level is often a turning point, a calm before the storm, so to speak.
  • The Treasury yield curve inverted months ago, suggesting a recession was on the way. It hasn’t happened.
  • The Dow industrials, transports and utilities all closed at new highs on the same day last week — something that became a routine occurrence in just two years, 1929 and 1986, both preludes to big market falloffs.
  • The current rally is now the third longest since 1900 without a 10% correction.
  • Fascinating stuff. None of this stuff matters, until it does. Then it matters a whole lot.


    Buying (and Buying) on Margin
    David Gaffen
    WSJ, February 20, 2007, 3:27 pm

    Source: Margin Debt Hits New Record