For the past few weeks, the US equities have been trying to post a new all-time high but without any luck. However, yesterday the entire market posted record levels. DowJones finally breaks above 20K, while S&P500 closed at 2298, and Nasdaq closed well above 5100.
This is not fake news, this is a real world, where the US equities keep on rising without any reasonable correction so far. This is alarming for me. Am not calling for a crash, but these equities are over inflated, continuing with such trend without a healthy correction means the bigger the rally; the bigger the correction. I’m not going to say the bigger the crash.
This is what’s concerning me the most, the debt. The global economy is growing on an enormous amount of debt. Governments are spending money they don’t own. Yet, no one seemed to be concerned about it, which is disturbing.
Back in 2007/8, the global debt was close to 28 Trillion US Dollars, which basically exploded at some point due to the US housing market and slides to the world. We had many crises right after that, including the one in Europe, and we are still suffering from it.
Long story short, governments haven’t learned from the history. The global debt is soon to surpass 60 trillion Dollars. The question is when it will explode? We don’t know, but what we are aware, is that the most of the equities gains are also built on debt.
NYSE Margin Debt
Margin debt is debt a brokerage customer takes on by trading on margin.
When purchasing securities through a broker, investors have the option of using a cash account and covering the entire cost of the investment themselves, upfront, or using a margin account, meaning they borrow part of the initial capital from their broker. The portion the investors borrow is known as margin debt; the portion they fund themselves is the margin or equity.
Looking at the chart below, we can clearly notice that the margin debt is at a record high. At the same time, it’s clear that whenever the margin debt spikes to record levels, while fear is on the downside, a crash follows. We are almost there if not there already. Margin Debt is at a record high and the US equities at a record high as well.
NYSE Investor Credit
What is even worse, is that NYSE Investor Credit chart is also alarming. The negative credit balance is at a record level, showing no positive credit balance since 2009. Moreover, this is the first time that negative credit balance declines to such levels.
Looking back to the history, each time negative credit balance posts a new record, a crash follows. The last time we saw this was in June 2007 few weeks before the financial crises and August 2000 right before the tech bubble.
What To Do?
Despite the fact that the media is showing that things are positive and life is rosy, I would stand aside and watch. These are not levels that you need to risk and start investing in stocks. Not saying that the crash is coming tomorrow, but I would look into other investments, less risky and has more potential, such as Gold and Silver.