How much chaos are we going to see if there is a sustained share market fall of 20% or more ? The attached article may provide a hint. No idea how this will play out but the numbers will be scary if things go wrong.
I found the contents of the article about margin debt really concerning. Margin debt has ballooned hugely in the last 4 years (ie about double) especially since the second half of 2023 - the data is only to the end of March 2024 so with a higher Stockmarket who knows how much higher the figures are since March. Notice how the debt increases as the Stockmarket climbs!
I had no idea margin debt was so high - if the stock market does go down a lot there may be chaos caused by huge margin calls which is what made the 1929 crash so bad ie a lot of margin debt - not so much for the Dotcom and GFC crash as explained in the article as margin debt was so much lower. After the 1929 crash the US passed legislation stopping banks providing such finance but that all stopped in 1999.
This quote from the article summarises the issue really well:
”The Federal Reserve – a key federal regulator of the largest bank holding companies in the U.S. – is completely lost when it comes to tabulating out-of-control margin debt in the U.S. banking system — which is creating giant speculative bubbles”
The trouble is the huge margin debt is all with banks and most of it at the huge banks.
Regional banks may have big problems with commercial real estate but the major banks may have a much bigger risk.
SPR Price at posting:
$1.28 Sentiment: Hold Disclosure: Held
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