What keeps me awake at night?
This.
This is one of the oldest froth gauges on Wall Street: the year-over-year change in margin debt. How fast investors are borrowing money to buy stocks.
When it crosses 55%, optimism has gone rampant and people are loading up on leverage in the late innings of a bull market. It has flagged every major top since the 1970s. 1972. 2000. 2007. 2021.
Today it sits at 53.34%.
Not 55 yet. But knocking on the door.
And it doesn't sit alone. Look at everything else lighting up at the same time:
– Margin debt as a share of GDP just hit an all-time high
– 70% of BofA's market-peak signals are triggered, the average seen at prior tops
– South Koreans are cashing out insurance policies at a loss to chase the rally
– Momentum is beating quality by the most since December 1999
– The largest IPO in history is hitting the tape this week
So to answer the question directly.
Is everybody nuts?
Not nuts. Just leveraged, optimistic, and quietly convinced it's different this time. Which is exactly what the late stage of every cycle feels like from the inside.
Froth is never a timing tool. The market can stay irrational, and margin debt can push well past 55%, for far longer than feels possible. People made fortunes in 1999 buying with both hands.
But here's the part worth remembering.
Leverage feels like genius on the way up.
It is the thing that turns a normal correction into a forced liquidation on the way down.
The borrowed money always gets called back.
Usually at the worst possible moment.
#IBDPartner
