As a long-term value investor, short term movements in margin usage are interesting to me if they produce opportunities to move into or out of pre-arranged positions.
Normally, in my opinion, the graph above is just interesting. However, at its inflection points, especially moving to downward sloping, NYSE margin debt superimposed on S&P 500 levels may be a harbinger of things to come.
Margin debt has increased for the second consecutive month, however, the longer term data is the part that gets my attention. Combined with the asymmetric downward investment risks firmly setting into the financial markets and the fact that margin usage is seen at these levels just before significant market movements, should give investors pause. High levels of margin, coincident with a drop in equity prices typically results in calls, which can escalate into a major sell-off, it gets really nasty from there.
Strategic investors should keep a close eye on margin levels over the weeks and months to come.
Investors, Your Thoughts?
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