Leveraged to the Hilt

Investors, so accustomed to buying any tiny market selloff, have run out of ready capital.

A constraint? Not at all. One can borrow and buy stocks on margin.

It’s a feature of late-stage bull markets, as we described in yesterday’s Grey Swan Live! : Anatomy of A Stock Market Bubble.

While margin requirements are tighter now than they were a hundred years ago in the roaring ‘20s (when a trader could leverage 2X their capital) today’s margin levels are approaching the peak of the dotcom era:

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Only during the dotcom peak have traders been more leveraged in the last 30 years. (Source: Cypress Capital)

Leverage is a two-way street. Investors get a tailwind on the way up. But small drops become a considerable problem – leading to “margin calls” when an investor is forced to settle the debt for a loss.

Forced sales are a downside feature of stock market bubbles. The forced sale of stocks and hard assets like gold push prices lower even if the participants don’t want to sell.

Even the market’s post-Liberation Day selloff – which briefly took markets to bear market territory – wasn’t as leveraged as stocks are now, a mere six months later.

For now, the trend is up. But beware, markets don’t move in a straight line in any direction.

~ Addison

P.S. If you missed part one of our Anatomy of a Stock Market Bubble Grey Swan Live!, the replay will be up on site later this morning. We reviewed several charts and indicators, including this one on margin debt.

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If you’re a paid-up annual member of the Grey Swan Investment Fraternity, join us today for part II of this week’s two-fer: a quarterly review of our asset allocation strategy and our model portfolio, including a 3-part AI Bubble Plunge Protection Strategy.

We’ll be going live at 2pm EST/11am PST. Stay tuned!

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If you have any questions for us about the market, send them our way now to: feedback@greyswanfraternity.com.

Investors, so accustomed to buying any tiny market selloff, have run out of ready capital.

A constraint? Not at all. One can borrow and buy stocks on margin.

It’s a feature of late-stage bull markets, as we described in yesterday’s Grey Swan Live! : Anatomy of A Stock Market Bubble.

Turn Your Images On

Only during the dotcom peak have traders been more leveraged in the last 30 years. (Source: Cypress Capital)

Forced sales are a downside feature of stock market bubbles. The forced sale of stocks and hard assets like gold push prices lower even if the participants don’t want to sell.

Even the market’s post-Liberation Day selloff – which briefly took markets to bear market territory – wasn’t as leveraged as stocks are now, a mere six months later.

For now, the trend is up. But beware, markets don’t move in a straight line in any direction.

~ Addison

Turn Your Images On

We’ll be going live at 2pm EST/11am PST. Stay tuned!

There’s still time to attend if you’re not an annual subscriber. Click here for details.

If you have any questions for us about the market, send them our way now to: feedback@greyswanfraternity.com.

I’m obviously very biased against socialism. I don’t think socialism has solutions to these problems. I don’t think Mamdani particularly has solutions. I don’t think you can socialize housing. If you just impose rent controls, then you probably have even less housing, and eventually, it’s even more expensive.

But to Mamdani’s credit, he at least talked about these problems. So my cop-out answer is always to say: The first step is to talk about the problems, even if you don’t know what to do about them. There’s been a failure of, let’s say, the center left-center right establishment to even talk about them.

According to Global Markets Investor, 655 large U.S. companies have already gone bankrupt this year, the most in 15 years. Not yet a “recession,” per se, but a perceptibly slow tightening of the vise.

Credit conditions are stiff. Debt is heavy. Tariffs are pushing up costs. Consumers are fatigued. The Fed may pause in December.

Industrials lead the pack, followed by consumer discretionary and healthcare.

Stocks have developed a habit of selling off into the weekend before rebounding this year.

One big explanation might be that traders don’t want to be leveraged going into two days where the market’s closed in New York – but stay open online.

Any random Trump tweet can and has moved the market!

Ostensibly, if the weekend is quiet, stocks can recoup their Thursday/Friday declines.

What we’ve seen since 2008 is nothing short of a theft of the commons. Except it happened in little pieces that seemed unrelated at the time. But if we look at the story holistically, it all comes together.

When we step back and view the entire picture, what emerges is not just a story of market excesses and economic shifts. What we see is the gutting of middle America – be it intentional or otherwise.

Now the question is – are we going to see the restoration of the American middle class in the coming years… or are we going to watch everything devolve into a modern redux of the War Between the States, more commonly but mistakenly known as the American Civil War?

Credit conditions are stiff. Debt is heavy. Tariffs are pushing up costs. Consumers are fatigued. The Fed may pause in December.

Industrials lead the pack, followed by consumer discretionary and healthcare.

Stocks have developed a habit of selling off into the weekend before rebounding this year.

One big explanation might be that traders don’t want to be leveraged going into two days where the market’s closed in New York – but stay open online.

Any random Trump tweet can and has moved the market!

Ostensibly, if the weekend is quiet, stocks can recoup their Thursday/Friday declines.