10 replies to this topic

[Rogerdodger]

LINK


WASHINGTON Thomson Financial - US securities regulator NASD warned that the amount of debt taken on by investors to buy securities, known as buying 'on margin' reached a record high of 321.2 bln usd in February 2007.

That topped the previous record of 300 bln usd in March 2000, near the peak of the internet stock bubble.

'We are concerned too many investors are unaware they could suffer substantial financial losses by using debt to purchase securities,' said Mary L. Schapiro NASD chairman and CEO.

The regulator's last such warning was in 2003.

Edited by Rogerdodger, 11 April 2007 - 03:00 PM.

[kemo1k]

Do you know if the leveraged QQQQ products (QLD/QID, rydex, and profunds) have an impact on this figure? Thanks

[Rogerdodger]

I have the same question. But I don't know. There are certainly a lot of leveraged ETF's which were not around in 2000. It's easy to be leveraged 200% buying SSO or QLD for example...with NO leverage. So what if you leveraged your leverage?

[paulstan]

QID and other inverse ETF's must figure into the margin figures -- they are all securities that can be purchased via margin funds, albeit many of these securities have lower margin limits (ie., 60% margin requirements).

[Darris]

RD, on March 19th Jason G. wrote an article on this. He said that if you subtracted "free cash credits" from the margin debt total, all the hoopla about margin debt is bunk at this point in time. FWIW. In edit, thank you for mentioning DOW this weekend. Got in today.

Edited by Darris, 11 April 2007 - 04:02 PM.

[spielchekr]

Red line spiking way above the blue line seems to equate with living in interesting times.

When was the last time that the smart money did this? It must have been before 1983, if ever,

because I don't think I can detect it anywhere on this chart.

(Note~ the x-axis incrementation is 1.25 years on their chart. I have no idea why.)

[OEXCHAOS]

We've got a LOT of hedge funds out there and a whole lot of sophisticated derivatives. I suspect that this explains a lot of that margin debt. Mark

[thespookyone]

We've got a LOT of hedge funds out there and a whole lot of sophisticated derivatives. I suspect that this explains a lot of that margin debt.

Mark

Mark-I'm not sure I quite understand what you are saying. If you are saying they are the ones at margin, and that is somehow safer-I would have to disagree. Many of the newer hedge funds don't act like the hedge funds of the past-it seems that arbitrage is a word they are unfamilliar with It would seem the hedge funds blowing up in the last oil "mini dump" affected that market no differently than it would have been if it was individuals over margined going the wrong way. I think too much margin is simply what it is, and is clearly not healthry for the overall market-no matter who is deep in the water. Considering the path of the market over the last few months, my guess would be that most of that margin was used to go long.

[OEXCHAOS]

If I'm 400% leveraged with half of my buying power short the MZZ and half my buying power long the QID (absurd hypothetical, but whatever), what is my real risk? What I'm saying is that it makes sense to increase margin debt if you are reducing risk and tax liability. Similarly, hedge funds trade differently than individual traders. They can get caught leaning (I look for it--they were in February), but they also use leverage as a matter of course and often are both long and short. The margin debt may not represent too much market exposure and may in fact represent too little little beta seeking too much alpha. See what I'm saying? Mark

[thespookyone]

If I'm 400% leveraged with half of my buying power short the MZZ and half my buying power long the QID (absurd hypothetical, but whatever), what is my real risk?

What I'm saying is that it makes sense to increase margin debt if you are reducing risk and tax liability.

Similarly, hedge funds trade differently than individual traders. They can get caught leaning (I look for it--they were in February), but they also use leverage as a matter of course and often are both long and short. The margin debt may not represent too much market exposure and may in fact represent too little little beta seeking too much alpha.

See what I'm saying?

Mark

Yes I do see, and thanks. I caught them when they learned a bit hard on copper a while back, then recently the oils-love the speed they create when they fall.