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Herman James over at Market Sanity shared this recently.

Margin Debt just passed $1 Trillion – the usual suspect for a crash.

Margin Debt is what you get when you trade in the stock market using debt.

Let’s say you trade $5k, and then you want to put more in. So your broker loans you another $5k against your current funds.

I’m paraphrasing from the Twitter thread, but now you control $10k.

If you’ve ever heard the term “trading on the margin,” that’s what this is.

It can be a sign of confidence in the markets, but…

When it rises too fast, for too long…

Eventually, the bubble pops.

Prices start falling.

You lose money.

Your broker starts losing money.

Then your broker wants their money back.

So they sell your shares to pay back your loan, and…

The bubble keeps deflating…

You can see this happening before:

“March 2000: Margin debt peaked → Dot-com crash 

July 2007: Margin debt peaked → Housing crash

October 2021: Margin debt peaked → 2022 bear market”

All can be seen here:
 

So, are we close?

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