We watched a very eye-opening video today on Yahoo’s Daily Ticker where they interviewed another one of the handful of economists that was warning about the 2008/2009 financial collapse many years in advance. This time, he is calling for another huge U.S. stock market collapse in the very near future. But it is for a reason that we don’t hear as often. I believe most of us know that our nation’s debt problems are unsustainable, however, not many people are talking about margin debt.
For the layperson, “margin” is basically taking a loan from your brokerage firm to buy more stock. Think of it like borrowing money from your friend in Vegas to bet more money on the craps table because you feel “Like you can’t lose…this time”. It is extremely risky and takes leveraged stock trading to a whole new level. If you are a consumer and you don’t know what margin account trading is, then consider yourself lucky! As mama used to say, “Only gamble with the money you don’t mind losing…and actually own”.
Back to the interview with this world renowned economist. He is predicting that due to almost identical patterns in margin debt compared with those of the last couple of stock market corrections, we are entering a period that will result in a bubble popping again. Perhaps a year or two max, he predicts. Check out the graph below that shows how eerily identical the Dow Jones tracks with total margin debt.
Finally, to watch the full interview video, please click the following Yahoo link – http://finance.yahoo.com/blogs/daily-ticker/stock-market-debt-fueled-bubble-steve-keen-121950839.html
Pretty wild how closely total margin debt mirrors the Dow Jones.
its definitely a bubble. any index growing at over 40-50% annualised(the DJIA is up 15% YTD, and about 60% YTD) is a bubble.this is way higher than normal growth and is bubble, paper money growth.