Saturday , 23 September 2017


A Stock Market Crash Followed This Occurrence In 1929, 2000 & 2007 – It’s Happening Again!

What do 1929, 2000 and 2007 all have in common?  Those were all years in whichstockcrashimages-1 we saw a dramatic spike in margin debt.  In all three instances, investors became highly leveraged in order to “take advantage” of a soaring stock market but, of course, we all know what happened each time.  The spike in margin debt was rapidly followed by a horrifying stock market crash.  Well guess what?  It is happening again.

So writes Michael Snyder (http://theeconomiccollapseblog.com/) in edited excerpts from his original article* entitled Whenever Margin Debt Goes Over 2.25% Of GDP The Stock Market Always Crashes.

[The following article is presented by  Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Snyder goes on to say in further edited excerpts:

In April (the last month we have a number for), margin debt rose to an all-time high…  The previous high…occurred back in July 2007.  Margin debt is about 29% higher than it was a year ago, and the S&P 500 has risen by more than 20% since last fall.  The stock market just continues to rise even though the underlying economic fundamentals continue to get worse.  So should we be alarmed?  Is the stock market bubble going to burst at some point?  Well, if history is any indication we are in big trouble.  In the past, whenever margin debt has gone over 2.25% of GDP the stock market has crashed.  That certainly does not mean that the market is going to crash this week, but it is a major red flag.

The funny thing is that the fact that investors are so highly leveraged is being seen as a positive thing by many in the financial world.  Some believe that a high level of margin debt is a sign that “investor confidence” is high and that the rally will continue.  The following is from a recent article in the Wall Street Journal…

The rising level of debt is seen as a measure of investor confidence, as investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. The latest rise has been fueled by low interest rates and a 15% year-to-date stock-market rally.

Others, however, consider the spike in margin debt to be a very ominous sign.  Margin debt has now risen to about 2.4% of GDP, and as the New York Times recently pointed out, whenever we have gotten this high before a market crash has always followed…

The first time in recent decades that total margin debt exceeded 2.25 percent of G.D.P. came at the end of 1999, amid the technology stock bubble. Margin debt fell after that bubble burst, but began to rise again during the housing boom — when anecdotal evidence said some investors were using their investments to secure loans that went for down payments on homes. That boom in margin loans also ended badly.

Posted below is a chart of the performance of the S&P 500 over the last several decades.  After looking at this chart, compare it to the margin debt charts that the New York Times recently published that you can find right here.  There is a very strong correlation between these charts.  You can find some more charts that directly compare the level of margin debt and the performance of the S&P 500 right hereEvery time margin debt has soared to a dramatic new high in the past, a stock market crash and a recession have always followed.  Will we escape a similar fate this time?

S&P 500

What makes all of this even more alarming is the fact that a number of things that we have not seen happen in the U.S. economy since 2009 are starting to happen again.  For much more on this, please see my previous article entitled “12 Clear Signals That The U.S. Economy Is About To Really Slow Down“. At some point the stock market will catch up with the economy.  When that happens, it will probably happen very rapidly and a lot of people will lose a lot of money.

There are certainly a lot of prominent voices out there that are warning about what is coming.  For example, the following is what renowned investor Alan M. Newman had to say about the current state of the market earlier this year…

“If anything has changed yet in 2013, we certainly do not see it. Despite the early post-fiscal cliff rally, this is the same beast we rode to the 2007 highs for the Dow Industrials. The U.S. stock market is over leveraged, overpriced and has been commandeered by mechanical forces to such an extent that all holding periods are now affected by more risk than at any time in history.”

Unfortunately, most Americans never get to hear such voices.  Instead, most Americans rely on the mainstream media to do much of their thinking for them and right now the mainstream media is insisting that we are not in a stock market bubble…

Forbes: “Why Stocks Are On Solid Footing And This Is No Bubble

ABC News: “AP Survey: Economists See No Stock Market Bubble

Businessweek: “Prognostications: It’s Not a Stock Bubble

Yahoo: “This Is NOT a Stock Bubble! Says Ben Stein

MarketWatch: “Is a stock bubble coming? No, say economists

[Then there is the multitude of articles on the web (as posted on munKNEE.com) suggesting the exact same thing:

1. Stock Market Could Enjoy Many More Years of Big Gains! Here’s Why

2. Easy Money Is To Be Had: Buy the DOW – Now!

3. The Stock Market: There’s NOTHING to Be Bearish About – Take a Look

4. Relax ! Stocks Are In NO Immediate Danger – Here’s Why

5. Latest Action Suggests Stock Market Beginning a New Long-term Bull Market – Here’s Why

6. Sorry Bears – The Facts Show That the U.S. Recovery Is Legit – Here’s Why

7. Stocks Are NOT In Another Bubble – Here’s Why

8. Research Says Stock Market Bull Should Continue Its Run Until…

9. Can Photos of 35 Swimsuit Models Be Wrong? Lastest “Swimsuit Issue Indicator” Suggests An UP Year for S&P 500!

10. Bull Market in Stocks Isn’t About to End Anytime Soon! Here’s Why

11. QE Could Drive S&P 500 UP 25% in 2013 & UP Another 28% in 2014 – Here’s Why

12. 5 Reasons To Be Positive On Equities

13. Start Investing In Equities – Your Future Self May Thank You. Here’s Why

14. Investors, Get Fully Invested! S&P 500 On Verge of Entering Euphoria Stage of Cyclical Bull Market

15. What Does Stock Market Valuation Multiple Suggests for Future of S&P 500?]

What do you think? Do you believe that we are in a stock market bubble that is about to burst, or do you believe that everything is going to be just fine?

Please feel free to express your opinion by posting a comment below…

[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]

*http://theeconomiccollapseblog.com/archives/whenever-margin-debt-goes-over-2-25-of-gdp-the-stock-market-always-crashes

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