Scary Economic Chart of the Day

From Testosterone Pit:

Margin debt started spiking in January 1999 and in March 2000 hit a record of $278.5 billion, or 2.66% of GDP. That very month, stocks began their epic collapse, which, after 28 months of cliff dives and sucker rallies, left the S&P 500 down 45% and the Nasdaq nearly 80%!

Margin debt started spiking again in September 2006 to peak in July 2007 at $381.4 billion, or 2.60% of GDP. The market maxed out in October. Then the fetid air started hissing out of it. As stocks swooned, brokers told their frazzled clients with suddenly too much margin debt to put more money into their accounts or sell their holdings – right now! Forced selling commenced. As margin debt was unwound by dumping whatever could be dumped at whatever price, the selloff turned into a plunge. After a few waves of it, hedge funds, leveraged to the gills and going deaf from the giant sucking sound of redemptions, were forced to sell too, which drove stocks down further and triggered more forced selling. When the dust settled, the S&P 500 had crashed 57%.

Margin debt began spiking again in August 2010 but didn’t make it very far. In April 2011, well below the prior records, it headed south as spooked investors fondled their sell buttons. But in August 2012, it started rising again, and this time, it turned into a phenomenal spike that set a new record in July 2013 and continued shooting toward the stars. In February, at $465.7 billion, margin debt hit 2.73% of GDP. The highest ratio ever!
Over that period, investors had borrowed an additional $188 billion from their brokers and bought stocks with it, which drove up stock prices further and encouraged even more borrowing. Margin debt: the great accelerator on the way up. And on the way down.

Maybe THIS time is different.  Ha ha.  Eventually this will crash out, but hopefully that 2.6-2.75% of GDP range isn't where you automatically get a crash.  Let it be higher, because I'm not ready to unwind my portfolio positions.