Original title: investors have begun to deleverage BofA smells bearish signals from margin debt

Research analysts found thatThe Fed is growing its balance sheet at a record pace, and bubbles continue to inflate.. This article chooses to useMargin debt as a starting pointTo conduct research.

Margin debt, which refers to the amount of money that individuals and institutions borrow against shares held by them, tracked by the Financial Industry Regulatory Authority, has soared to the highest level since the low point of the COVID-19 epidemic in 2020.

Margin debt is a simple indicator of stock market leverage. When leverage is removed, the market will have a turning point.. Bank of America CorporationAnalyst Stephen Sutmeier points out:

Margin debt could reach a bearish peak in June 2021. "

The rise in leverage tends to reflect the rebound of the US stock market. It is not scary for margin debt to set a new record. The scary thing is that when margin debt stops rising, it means that investors have begun to reduce leverage.

The Financial Industry Regulatory Authority reported that July was the first month in which margin debt fell since the stock market bottomed in March 2020.The FIA's margin debt plummeted to $844 billion (down 4.3 per cent) from a record high of $882 billion in June.

Although the peak of margin bonds does not always occur at the same time as the peak of the US stock market, he points out thatThis decline leads toS & P 500 indexThe price trend is weakening.。

The main top of the S & P 500 appeared twice, once during the dotcom bubble and once during the financial crisis, when margin debt reversed sharply.

In the wake of the global financial crisis, there have been three declines in margin debt margin lending, adjustments in major stock indices, and then an immediate V-shaped recovery.

Margin debt peaked in June and then fell in JulyBecause of this trend, equity analyst Suttmere has a negative attitude towards the future of the US stock market.。

After analyzing the data released by the US Financial Regulatory Authority and global financial data, he found out the time points of 21 peak margin debt since 1929, and pointed out thatThe S & P 500 index generally weakened after margin debt peaked.。

Suttmere said:

"in all periods since 1928, the current bullish probability of the S & P 500 is small, because in the past history, the market is unlikely to rise in the two years after the margin debt ratio peaked."

Another way to look at margin debt is to observe the ratio of changes in margin debt over a 12-month period. The following figure shows the quick rate indicator of margin debtROC peaked at 71.6% in March this year.Historically, this index of more than 60% is already a "bearish signal" for the stock market.

The 12-month Z value also shows that margin debt is extremely high, slightly higher than the average by two standard deviations. The Z value is a measure of variance. The Z value of margin debt has been twice the standard deviation of the average within 12 months, which meansThe market is seriously overbought.。

Borrowing between clients' cash and margin fell to a record low at the end of December, according to broker-dealer data. This means that investors have added a lot of leverage.

The central bank's low interest rate monetary policy encourages excessive borrowing, which makes investors blindly long the market.. Today, the U. S. stock market has overheated because of the overbuying craze in the long market and the hot sale of sustainable company concept stocks.

Michael Michael Burry, the prototype of the movie "the Big short", was created in June 2021.TwitterThe above post said:

"the worst collapse is coming."

His remarks caused an uproar.

For entertainment stocks such as GameStop and AMC Entertainment Holdings, Burley issued a warning:

"there is no new money to enter the market to catch up."

For decades, when margin debt reversed and the stock market fell, there was always a turning point in the market. A correction in the stock market could trigger the unwinding of margin positions, leading to an economic collapse.