NYSE Margin Debt At All-Time High: DB Puts It Into Perspective

Margin debt for U.S. markets has witnessed 54-year all-time high of $401 billion in September 2013, signifying fragility of the underlying basis.

Lars Slomka and the Deutsche Bank market research team feel even a less severe sell-off in equities could trigger a mass pullout if investors are forced to sell immediately to pay off their loans.

Margin debt surpassed recent peak

Margin debt is the money borrowed against securities in brokerage accounts. Recently, in the United States, margin debt had risen to its highest level ever, at $384 billion, surpassing the previous peak of $381 billion set in July 2007. However, margin debt as a proportion of GDP was not quite yet at the peak set in 2007, but it has exceeded 2.25% only twice previously in the last 50 years – 2000 and 2007.

Investors’ credit balance dwindling

Borrowing to execute securities trades has not waned much at all in recent months, with September 2013 witnessing margin debt of $401 billion. Deutsche analysts point out that correspondingly, total investors’ net worth touched a record low since 2003 at $110 billion.