Margin debt – the amount of money that individuals and institutions borrow against their stock holdings – spiked by 56 billion in December, after having already spiked by 63 billion in November, by far the two largest month-to-month increases on record, to $778 billion, according to FINRA which regulates brokers and exchanges. Since March, this measure of margin debt surged by nearly $300 billion, or by 62%.
On a year-over-year basis, margin debt surged by nearly $200 billion in December, by far the most ever:
Stock market leverage is an accelerator. When stocks already rise, and investors feel confident, they borrow money to buy more stocks, and they can borrow more against their stocks because their value has risen. And this additional borrowed money is then chasing after stocks and thereby creating more buying pressure, and prices surge further.
This spike in margin debt over the past few months is another sign that markets have gone nuts, and everyone is chasing everything, regardless of what it is, whether it’s a penny stock with a similar name to something Elon Musk mentioned in a tweet, or whether it’s Tesla’s stock itself, or any of the EV makers or presumed EV makers that might never mass-produce EVs, or a even legacy automaker that is now touting its EV investments, or whatever it is, including Bitcoin – which exploded higher, before plunging 28% in two weeks.Time to Worry About Stock Market Leverage Again: Another WTF Sign the Zoo Has Gone Nuts | Wolf Street