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:
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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