Stock Market Warning Signs: Record $423.7 Billion of Debt Is Now Invested in the Market

The New York Stock Exchange recently updated its stock market margin-debt data, showing that Main Street and Wall Street are continuing to dump billions in borrowed dollars into the stock market. 


Source: NYSE.

Borrowed money in the stock market, known as "margin debt," hit an all-time high of $423.7 billion in November. This puts margin debt, adjusted for inflation, 4.6% below levels seen during the housing bubble and above highs set during the dot-com bubble.

Margin debt is accrued when someone takes out a loan and invests that money into the stock market. Due to historically low interest rates, the appeal of margin debt is much greater today than in previous bull markets. Based on the attractiveness of low-interest debt, it's likely that margin debt could surpass the adjusted highs set during the housing bubble.  

One stock benefiting from the bull market
Tesla Motors (NASDAQ: TSLA  ) has been a prime benefactor of the recent bull market, rising 327% year to date, compared to the Dow Jones Industrial Average's (DJINDICES: ^DJI  )  gain of 23%. This rally stemmed from Tesla Motors' successful launch of its Model S sedan, which showed the company could be profitable and proved naysayers wrong. Extreme rallies like the one benefiting Tesla are common in strong bull markets with large amounts of debt. 

Final takeaway
In the following video, Motley Fool analyst Blake Bos goes over the margin-debt data, gives examples of how margin debt works in the market, and explains how he uses this troublesome data.

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Read/Post Comments (10) | Recommend This Article (31)

Comments from our Foolish Readers

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  • Report this Comment On January 01, 2014, at 5:22 PM, dwduke wrote:

    Buying on margin is only for those that can afford to lose the money. Debt is not good even if greed is good.

  • Report this Comment On January 01, 2014, at 6:50 PM, DickHamilton wrote:

    as expected - "Business as usual", and those with plenty of credit will get us all in trouble again, and we will be asked to bail them out and suffer more austerity when the prices are finally seen to be unsustainable and unrealistic. Only this time, we won't be able to. You are watching the suicide of the kind of capitalism we currently have, killed by its own greed.

  • Report this Comment On January 01, 2014, at 9:19 PM, stockdissector wrote:

    Interesting stuff Blake. This is worrisome.

  • Report this Comment On January 01, 2014, at 9:25 PM, PEGformula wrote:

    This pig market was overpriced in late 2009. All those who rightfully shorted back then would be way ahead by Novemeber the next year had Bernanke not decided to unlawfully manipulate it up along with all the HATERS of America participating in the bubble-making. If only they understood what they were doing - they act just like the home price pumpers and the stock market pumpers of the late 90's and of 2002 to 2007.

    Valuations are more than 2 times too high for this horrible economy and this is based on historical PE values. For small caps, these are on average 3 times too high. Sadly so many have been brainwashed by the media thinking a PE of 15 to 20 should be expected no matter what the economy is like. Historically, the ratio ranges from 6 to 8 in the worst of times and definitely under 10 when moderately bad. I can show everyone how today is much worse than the lesser depression of the 1930's but of course the ignorant naysayers will jump up and scream that it isn't so before even listening to the evidence.

  • Report this Comment On January 01, 2014, at 9:44 PM, dannystrong wrote:

    The "debt" investments are, in large part, made by banks with 0percent money from the treasury, plus money from bond by-backs by printing money from the fed -- that is, there is nothing surprising about this: give bankers free money and they will do things that -- without the freeness of the money -- would be idiotic.

    They can't lose -- the Fed and the Treasury have bailed them out, and continue to do so -- at least until the congressional elections. If the stocks go up, they keep the profits. If the stocks go down, they beg for another bailout, and use money they are given to pay off the money they were loaned at 0percent in the first place.

    So long as the Administration and its co-conspirators in congress print money and give it away -- and are allowed to do so unquestioned by an apparently clueless media -- this will continue. Woe be unto all of us when the printing press stops. (But don't worry, we can blame the republicans again, so it won't really matter.)

    And, of course, this the only thing keeping Fool Darling Tesla afloat, so don't expect them to say anything about it either.

  • Report this Comment On January 02, 2014, at 1:16 AM, Johnsoftie10 wrote:

    The Fed. Reserve ....Bernanke and the band of thugs like to MANIPULATE stock markets and think they are heroes. They enrich the same gang of banksters like GS (Blankfein), hedge funds who cannot stuff enough in their mattresses. Bernanke who is no different then Bernie Madoff run PONZIE schemes and add CNBC ...it is a beat...with no revenue growth. Jim Cramer (Bernankes Blood brother) brags what a genius. These bastards are the same crooks who "PUMP markets and valuations are cheap". Have you wondered why is there no SUBPRIME lending on stocks that defies VALUATIONS of stocks that are stupid.This Fed. Reserve (the bitch Yellen and Bernanke ....we should call them the the biggest criminals ...we should tie their Pensions and salaries to their NONSENSE and their PRINTING OF FREE MONEY to 0.25% of Americans, Warren buffett in his sleep makes $37million a day. This Fed.Reserve should go to Israel and manage their central bank...Mainstreet in America does not need Money Plants for the rich. These are IMMORAL bastards like hitler and the Nazis.

  • Report this Comment On January 02, 2014, at 11:40 AM, ffbj wrote:

    There is reality and our view of it. If the actual reality does not conform to your view then we will find some excuse or series of excuses to explain why others view of that reality is wrong.

    Saying things like this past recession is worse than the Great Depression tends to make me disregard the rest of what that person might say...since it is so absurd. Oh and now you are going to explain why.

    Laughable.

    Still a lot of margin debt is not good and I think the market is overbought.

    I guess I should take all that money I made in the past 5 years and flush it down the toilet since it wasn't conforming to some persons view of how bad the economy really has been.

  • Report this Comment On January 02, 2014, at 5:15 PM, common69sense wrote:

    Who cares about fundamentals and facts. The only thing that matters is what the lackey fed and the resulting impact on interest rates, just like 2014.

  • Report this Comment On January 03, 2014, at 10:18 AM, Ragingmoose wrote:

    About bubbles, you should read this:

    http://www.hussmanfunds.com/wmc/wmc131230.htm

    ‘' The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. '' John P. Hussman

    Do you think this time is different ?

  • Report this Comment On January 09, 2014, at 4:16 PM, nasis wrote:

    Margin is at record high, but so is short interest (via @reformedbroker):

    https://pbs.twimg.com/media/BdAGoazCIAA37mK.png:large

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