Tuesday, April 30, 2013
Margin Debt Hitting Levels Only Seen ONE Other Time in History
Link to a larger image of the chart mentioned below
Positive net worth is the situation when investors have little money borrowed and plenty of cash in their brokerage accounts (2003 & 2009).
Negative net worth is the situation when investors have little large amounts of money borrowed (on margin) and little cash in their brokerage accounts (2000, 2007, 2011 & now).
The above chart reflects that only one other time in history has negative net worth been this low, which was the tech bubble back in 2000. The prior two times that negative net worth were this low was 2007 (50% S&P 500 decline) and 2011 (17% S&P 500 decline).
The above chart of Credit Balance/Net Worth shouldn't be used as a market timing tool, yet if history holds true, it has reflected times when investors should load up the truck in stocks (Positive net worth was high at the 2003 & 2009 lows) and it did reflect times when investors should have lowered stock exposure (Negative net worth was low in 2000 & 2007).