Trees Can Grow to Outer Space

I don't have to tell anyone that the title of this blog is an obvious myth.  

• It doesn't matter how confident we are (investor sentiment).  
• It doesn't matter how fast they grow (momentum).  
• It doesn't matter how much we spend on fertilizer (stimulus, hedging).  
• It doesn't matter which financial entertainer is telling us to believe it:  

Trees can't grow to outer space.  In fact, due to the sheer physics of being a tree, they can't even come close.

Which is why I find this chart so fascinating.*

The chart shows the inverse relationship between real (adjusted for inflation) S&P500 performance and margin debt balances.  Margin debt is the money investors have borrowed to buy securities in their brokerage accounts.  For example, my Interactive Broker's account says I have nearly $900,000 in "Buying Power" even though my cash balance is 1/5 that amount.  You can't tell me that huge number, "$900,000" coupled with the words, "Buying Power" isn't very seductive to even experienced investors.

Jill Mislinski warns that there simply aren't enough major corrections to call Margin Debt a reliable leading indicator of a recession.  But it sure quacks like a duck, doesn't it?  When margin debt peaks, stock values plummet.  That "mirror" image is classic inversity.

*From Top Ten Charts of the Year, courtesy of the brilliant and prolific Jill Mislinski, in the 12/14/2021 issue of Advisor Perspectives.

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