Bending the Third Rail
Because We Should, We Can, We Do
Thursday, January 18, 2007
Margin
Our favorite market analyst, Barry Ritholtz, puts up this chart today:


Barry discusses the meaning of margin in two posts at the link above.

Without getting all hung up in the details of the chart, just know this. This chart is a measure of margin debt in the New York Stock Exchange. Margin debt is money that people borrow to buy stocks. The first big mountain on the chart was the dot-com bubble. Looks like we're nearing those levels again as folks begin to be confident that the sky's the limit.

Margin debt can be an indicator of sentiment and/or overexuberance. Sometimes. But one thing is for sure, having a lot of margin debt in the market can mean that when a downturn occurs, .... and it will occur .... there is more panic selling as folks sell to cover their loans. In the same way that margin can fuel a rising market .... it can crash a falling market.
Written at 3:30 PM by Greyhair.
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