Stock market warning
Jun 19, 2013
HEADLINE: Whenever Margin Debt Goes Over 2.25% Of GDP The Stock Market Always Crashes
What do 1929, 2000 and 2007 all have in common? Those were all years in which 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.
The article shows that whenever people leverage their stock purchases so much that it reaches 2.25% of GDP, the market crashes soon afterward.
In 2007 the leverage figure was $381 billion, and the market then crashed.
In April 2013, the last month where we have figures, the amount had reached $384 billion, which is 2.4% of GDP. The Wall Street Journal sees this as a good sign showing investor confidence. The New York Times, however, sees it as an ominous sign from past experience.
Dr. Stephen Jones