BLINKING RED BUBBLE LIGHT: Stock Market Investor Margin Debt Reaches New High

The world is standing at the edge of the financial abyss while most investors are entirely in the dark.  However, specific indicators suggest the market is one giant RED BLINKING LIGHT.  One of these indicators is the amount of margin debt held by investors.  What is quite surprising about the level of investor margin debt is that it has hit a new record high even though the market has sold off 2,500 points from its peak in February.

It seems as if investors no longer believe in market cycles or fundamentals. Instead, the Wall Street saying that “This time is different” has become permanently ingrained in the market psychology.  For example, it doesn’t seem to matter to the market that Amazon makes no money on its massive online retail business.  The only segment of Amazon’s business that made a decent profit last quarter was from its Cloud hosting services.

So, the new Amazon way of doing business in the United States is to destroy the retail industry so it can break even.  I gather once many of the retail chains have gone out of business; Amazon might then increase its prices and shipping costs.  But for now, the mighty online retail chain is firmly entrenched in the U.S. RETAIL CANNIBALIZATION mode.

Unfortunately, if Amazon is successful in destroying a significant portion of the brick and mortar retail industry, it will spell bad news for Americans when the next financial collapse takes place.   Why?  Well, the simple answer is that we can’t go backward.  Think about this for a moment.

Mom and Pop retail stores in the downtown areas were the backbone of the early U.S. retail market.  However, they were largely destroyed by Walmart.  But, at least Walmart employed a lot of people and had stores all over the country, easy for customers to access.  Now, with Amazon’s door to door delivery system, you don’t need thousands of stores in all cities throughout the country.

So, what the hell happens if Amazon goes belly-up during the next market crash and economic depression?  The U.S. retail infrastructure will be destroyed to such a level that Americans will have a lot fewer places and options for purchases goods.  The market has no idea that this is taking place.  Instead, they believe that the Amazon miracle of selecting millions of products online and getting them delivered right to one’s front door will last as long as the 1,000 year Third Reich.. .which only lasted 12 years.

Regardless, the economic and financial markets today are setting up for one heck of a fall.  According to FINRA, the Financial Industry Regulatory Authority, investor margin debt reached a new high of $669 billion in May:

Investor margin debt is up from its previous high of $665 million in January when the Dow Jones Index topped 26,500 points.  However, as I mentioned, the market has sold off several thousand points while investors placed an even higher amount of margin bets in May.  Below we can see that the Dow Jones Index continues to trade in a range between 23,800 and 25,400:

I stated in several articles and videos that the Dow Jones Index was not likely to surpass its high, but remain in a trading range.  So far, this is exactly what is taking place in the market.  Although, I am surprised that investors piled more margin into this market knowing that we are overdue for a massive correction… at the very least.

If we look at the Advisor Perspectives updated chart, the total Margin Debt is nearly $170 billion higher than the peak in 2007:

Also as you can see in the graph above, we are almost ten years into a business cycle without a significant correction.  Back at the beginning of 2016, when the Dow Jones Index lost 2,000 points, investors, who thought this was the beginning of the next bear market, plowed into gold and silver.  Flows into Gold ETF’s spiked the second highest level Q1 2016 during the brief correction.  The quarter with the most Gold ETF inflows was Q1 2009, as investors panicked when the Dow Jones fell to 6,600 points.

It’s hard to forecast how these markets will move anymore, but due to the massive debt and leverage in the system, I believe we are going to start seeing major Fireworks during Q3-Q4 2018.

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35 Comments on "BLINKING RED BUBBLE LIGHT: Stock Market Investor Margin Debt Reaches New High"

  1. IMO, the TBTF Banks are now too afraid to let ANY type of big correction taking place and they fear if it does it will take hold and we’ll have permanent deflation instead of inflation. Wrt Amazon, yeah you’re right as the jobs go poof and the bricks and mortar stores shut down you just can’t flip a switch and bring them back. It’s like the snake swallowing it’s own tail. The other call is for robotic AI to take over in Amazon’s warehouses so those jobs are all temporary anyways. But don’t worry because we are starting to hear more and more from politicians to Jim Rickards who are saying a basic guaranteed income is coming our way.

    I think we need to change the saying from: “We live in interesting times, to We live in crazy, asinine times”.

  2. – It’s interesting to see the pounding silver is getting. Any thoughts?
    – Maybe you already have seen this, but in case you haven’t:

    Keynesian Economics Is an Artifact of Cheap Energy
    http://charleshughsmith.blogspot.com/2018/07/keynesian-economics-is-artifact-of.html

  3. “So, the new Amazon way of doing business in the United States is to destroy the retail industry so it can break even” : still amazed to see people “complain” on the effects which are only the logic and natural consequences DNA of capitalism.
    More seriously, a bearish article on stocks so that means a huge bouce is coming (look at cryptos today again). If only a bearish article on precious metals could be posted here…

    • RD,

      Your insufficient logic always ceases to amaze me… LOL. If you looked at the trading volume during Bitcoin and the Cryptos big movements over the past few days, you would not be bragging about it. However, you are a perfect example of THIS TIME IS DIFFERENT.

      steve

      • There is not logic here to consider, you cannot dismiss the fact that each time you release a bear article on cryptos a huge bounce takes place right after !
        Best regards.

      • Paul D Anders | July 3, 2018 at 2:39 pm |

        Steve I like your work, and I’m a patron…although your eating beans off of my contribution (sorry, gotta spread the wealth) but sometimes things are simple. I really don’t care if crytos make it or not (which I think you know I think they are here for a long time to come). As an investor one must look at trends, not cold hard facts in a distorted world. If I think flower scented dog shit is the next best thing…I’m in!

        • Paul,

          Thanks for the comment. While anything is possible, my analysis on the Crypto Market suggests that we are going to see $2,000 Bitcoin (or lower) before the end of the year. I believe the Crypto Market is heavily manipulated by the Whales that control most of the trading in the market.

          My associate sent me this link to an excellent White Paper on how Bitcoin and the Crypto market are being manipulated:

          https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066

          Here is the summary of the Abstract:

          This paper investigates whether Tether, a digital currency pegged to U.S. dollars, influences Bitcoin and other cryptocurrency prices during the recent boom. Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies. The flow clusters below round prices, induces asymmetric auto-correlations in Bitcoin, and suggests incomplete Tether backing before month-ends. These patterns cannot be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.
          ——————-

          The Crypto Market is wrought with fraud from within. Crypto Aficionados who claim “Manipulation” by the Powers That Be are barking up the wrong tree. The manipulation is taking place by the very Large crypto owners themselves.

          steve

          • Paul D Anders | July 4, 2018 at 7:24 am |

            I absolutely agree with you Steve, in fact I believe EVERY market is manipulated. I also think that Bitcoin has the possibility of going way down, down even to where you say, nut I don’t think they can kill it, in fact I think it is at least going to be part of a new system when they finally pull the plug on this one. Time will tell…and I don’t think it’ll be that much longer. P.S. What are the odds of getting up and down vote buttons for peoples comments?

          • Paul,

            I try to keep the blog as simple as possible because each additional feature adds to the complexity and data usage of the website and server. TO keep the site running as fast as possible, I have elected to keep the BELLS & WHISTLES to a minimum.

            steve

      • I hope that cryptos will continue to crash in order to allow gold to appear more as the anti financial claims asset, in the meantime cryptos experienced today another huge rise !

  4. If you want to see first hand how some people “DON’T” get it and live on fantasy island this individual left these comments for James Kunstler today: http://kunstler.com/clusterfuck-nation/a-turn-for-the-worse/#comments

    The first comment was: “It’s one thing to spend other people’s money during an age of steadily rising GDP, and another thing when GDP is collapsing. Didn’t you just finish saying how most of the money was scammed by racketeers using financial shenanigans? Oil is still cheap. Resources still plentiful and waiting for plunder. This has just become another bullshit propaganda site.”

    And his second comment was: “Jim, I see no serious proposals, just doomsayer negativity not based on evidence. You kick down on visionaries like Elon Musk constantly. You’ve become more divorced from reality (the evidence thing again), during the same period the world has seen the greatest increase in technologies, efficiencies, and production.

    The evidence is that Tesla, or a similar company may just succeed, oil has been cheap for the last 10years, the US increased its production in oil in the same period that US use is down based significantly on more efficient transport and technology.

    And the US taxes are the lowest in 100 years, and we have the wealthiest society ever. Robotics will further the increase in productivity at a greater clip because of the further integration of computers and machines. Look at the history of a company like Crown Cork for instance to get an idea of the benefits of automation: crowncork.com/about-crown/history-and-timeline”

  5. DisappearingCulture | July 2, 2018 at 4:01 pm |

    “So, what the hell happens if Amazon goes belly-up during the next market crash and economic depression?”
    Now Amazon is a “too big to fail”. Bezos buddies up to & is part of the real deep state [for those that don’t know, the deep state are not Republicans or Democrats; they are our financial masters]. Bailout for Amazon with taxpayer digits?

  6. “The evidence is that Tesla, or a similar company may just succeed, oil has been cheap for the last 10years, the US increased its production in oil in the same period that US use is down based significantly on more efficient transport and technology.”

    then there are the laws of physics and the limits to growth

  7. It could be argued that Amazon sells many of its own products but also has thousands of Mom and Pop vendors who take advantage of being able to sell goods without the bricks and mortar required by old style retail. Mom and Pop stores still exist in cyberspace..

  8. Joe Lindell | July 2, 2018 at 8:04 pm |

    Steve: Now another article of doom & gloom i.e. margin debt. I see your patron list is dropping. Is it because all of your articles and charts do not result in any positive change in silver? You are getting more and more like Cloud, Morgan and that ilk where they have these past 10 years been telling everyone to buy silver. Cloud even said we will run out of silver by 2020.So my question remains. With all that you’ve written, why is silver now under $16 per ounce, if our world is full of all the troubles you’ve written about? Is it because no one is buying minted coins or is it because your data is 10 to 20 years too soon? Will you answer the question or will you be sarcastic and evasive to degrade me?

    • Joe,

      Why don’t you stop with the POOR ME routine? It get’s quite old since you have no problem ridiculing precious metals dealers and analysts. Anyhow, I didn’t degrade you. Rather, I answered your question… YOU HAVE NO CLUE.

      steve

    • Gordon Tomura | July 2, 2018 at 9:14 pm |

      I’d rather be 10 years too early than 10 days too late

    • DisappearingCulture | July 3, 2018 at 7:35 am |

      So people need to focus on what makes them happy, and also the people they communicate to.

  9. Ask anyone why Toys R Us went under and they’ll wrongly say Amazon. https://wolfstreet.com/2018/03/08/its-over-for-toys-r-us-liquidation-next/

  10. I believe the thinking is, in the USA markets, that the big banks and corporations will and must continue to be subsidized by the government (same as China is doing, state owned, state backed, what’s the difference?) in some form or fashion so it’s all gotta keep cranking. Isn’t that what QE was? The tax breaks? Less regulation? The banks are making profit, corporate stocks rise, via government support and everyone knows it will and has to continue. No one believes or thinks about a bust.

  11. Thomas Malthaus | July 2, 2018 at 8:37 pm |

    Your info on Amazon’s cloud service seems to gist what I read elsewhere: The Federal government is keeping them afloat through the CIA’s contract with them. They might have other contracts with other federal agencies.

    Linkages: Washington Post is owned by Jeff Bezos (Amazon chief exec.) which is also the CIA’s chief propaganda mouthpiece.

    It all meshes like peanut butter and jelly.

  12. Joe Lindell | July 3, 2018 at 6:21 am |

    Steve: You are as bad as as a government representative. All words, no answer. With all your research and articles these many years, why is silver down below $16 an ounce? Keep in mind that you urged us these past 5 to 7 years to buy silver. I’m not crying. I bot my 10,000 ounces and the grand children will inherit. But I was further a stupid investor in that I put the rest of my money in stocks these past 6 years and all I did was increase my holdings by 43.67%. What a stupid sucker I am. Imagine I could have put it in silver and today my account would 25 to 35% less. I need not bad mouth you Steve. I’m just citing my observations of your articles and the accompanying results.

    • DisappearingCulture | July 3, 2018 at 7:41 am |

      Joe,
      Focus on something that makes you happier, stop whining, or just go away and complain to the mirror.

      The price controls on silver have been covered in this column; you just don’t want to understand.

    • Paul D Anders | July 3, 2018 at 2:26 pm |

      Joe, first off I don’t believe you.
      Secondly, if what you say is true, then your just a greedy person, and nobody twisted your arm…do your own homework!

  13. Ah come on Joe! You can’t see the reason for the $ 16.00 per ounce farcical price for silver!??!? It’s as plain as the nose on the end of your face, for Pete’s sake!!! The big boys still have the controls for what they want to do with what is only an algorithmic set price. Did you ever hear of the “Fat Finger”

  14. Online sales are roughly 10% of retail sales. Half of that is Amazon, the other half are retail stores selling online ( Wally, Home Despot ). 5% is a huge number, granted, but it doesn’t put the majority out of business. Amazon is more a mail order catalog who runs more efficiently than anything else. Retail did it to themselves with debt, mostly. And Wal-Mart didn’t kill off mom & pop-globalization did. Wal-Mart just got the initial model right ( now they are the High Price/Low Quality Leader ). Amazon is also NOT the cheapest. You can shop around and find better deals on almost everything in there. What they are is a great One Stop Shop like Wally used to be. Amazon is great, but they aren’t THAT formidable.

  15. If so then we should wait until autumn. Isn’t autumn reality’s favourite season to settle scores with Wall Street ?

  16. OutLookingIn | July 3, 2018 at 9:48 am |

    The economy is much weaker than the narrative promoted by government, the banks, and the financial media. Its no accident that the size of the financial sector today, as a percentage of GDP, is at levels equaled only on the eve of the Great Depression.
    Asset prices are no longer driven by the economy, but now drive the economy. Massive leverage is the root cause driving up asset prices. The difference between household net worth and GDP trend lines, suggests that asset prices are overvalued by more than 40 percent.
    Since 2008 Fed intervention of $33 trillion has resulted in a cumulative economic growth of $2.64 trillion, or 16.7% which equates to $12.50 of interventions for every $1 of economic growth. As debt becomes ever more unmanageable it begins to collapse, along with the collateral that this debt depends upon. Assets.
    Corporate CEO’s recognize this as they have been cashing out, while heading out the exits via stock buybacks. So far within the first half of 2018 buybacks have set record highs, with May alone hitting a record $171.3 billion. This is the so-called “smart money” evacuating stocks.

  17. I’ve heard that like Facebook, Amazon is deep state money, designed to use the financial markets to clean potentially – its dubious origins. Jim Willie and others have pointed this out.

  18. Paul D Anders | July 3, 2018 at 2:20 pm |

    Amazon is just a middleman, I do not see them going anywhere anytime soon…

Comments are closed.