According to today's Wall Street Journal, there is
little doubt that some of the fourth-quarter gains were fueled by borrowed money. Margin debt -- money borrowed from brokers to buy stocks -- was up 21% from February through November, according to data from Ned Davis Research, in Venice, Fla. It finished November at 2% of gross domestic product, the highest percentage level since November 2000.
If memory serves me right, six years or so ago was not an especially good time to be buying equities with other people's money. Maybe it's different this time?
Do you have any analysis on the long-term correlation between either
3-month change in margin debt, or
margin debt / GDP,
and
3-year subsequent return on equities?
THAT would be interesting.
Otherwise, it's just fear-mongering.
Posted by: Bill aka NO DooDahs! | January 03, 2007 at 11:50 AM
Your suggestion is interesting; I will see if I can come up with an analysis. As to the idea that making negative reference to historically high levels of margin debt is "just fear mongering," I'd welcome any data you might have that suggests such a phenomenon is positive for equities.
Posted by: Michael Panzner | January 03, 2007 at 12:31 PM
I never suggested it was relevant in the slightest.
:-)
Logic dictates that assertions should bring evidence. Your reference is negative, and implies a relationship which you have no analysis for, and yet you espouse a pretty strong, and fear-inspiring, position based on this lack.
Posted by: Bill aka NO DooDahs! | January 03, 2007 at 01:57 PM
I hear crickets.
Posted by: Jeff | January 04, 2007 at 12:24 AM