Leverage and Markets Peak?

It was an interesting week in respect of leverage, when one recalls that the 1998 market swoon was accompanied by the LTCM “black-box” collapse, leveraged at 5 times and the 2007/09 market rout which saw the demise of Lehman Bros bank, leveraged 30 X. The latest Federal Reserve numbers show that its balance sheet has reached a record $US4.24 Trillion, or 73 X its assets, whilst NYSE margin debt reached a record high, at $US466BN, on which we comment more below. Turning to the UK, its main financial regulator, the FCA, appears to be perfectly happy to report that Hedge Funds regulated by it have increased their leverage, which is the use of borrowed money to maximise bets, from 54 X their assets at June 2013 to 64 times as of the latest report. Presumably, what’s good enough for the most important Central Bank in the world is good enough for Hedge Fund clients’, assuming that the are aware of any of this.

weekly_blog_130605_01

NYSE “margin debt,” the amount borrowed against US stock-portfolios and used to leverage yet more stock exposure, reached a record high in February, at a near $US.466BN, up by 5% year to date and by 169% since the March 2009 S & P 500 low. Whilst the past is no guarantee of the future, one can note the correlation between it and stock-market tops and that this rally has required even more debt than the prior two bubbles had.

Just what do you think?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: