A big reason WHY 2013 stock prices are in the Stratosphere

A Big Reason Why 2013 Stock Prices are in the Stratosphere

Margin debt is up 100 times in the last 39 years

By Elliott Wave International

A famous quote attributed to Archimedes, the ancient Greek mathematician, is: “Give me a place to stand and with a lever I will move the whole world.” And, as you probably know, leverage can also move the stock market.

In the July-August Elliott Wave Theorist, Robert
Prechter discussed the role of leverage in sending the market
to new price highs.

a FREE 2-page sample of Robert Prechter’s
Elliott Wave Theorist.

First, take a look at this chart from that issue, and then read Prechter’s commentary.

Margin debt, incredibly, is up 100 times in the
last 39 years (see the chart above). It was $4 billion back
in 1974; it’s nearly $400 billion today. That is a big reason
why stock prices are in the stratosphere. You might think
that there’s a lot more money around, thereby justifying
the rise. … Let’s normalize this indicator to GDP and
see what we have. … [M]argin debt as a percentage of annual
GDP is still 10 times the 1974 level. … The current
ratio is also 3 times what it was at previous major
in the stock market in the 20th century.

The Elliott Wave Theorist, July-August 2013

Margin debt levels are not a precise market timing indicator, but one major financial firm advises caution.

“Investors have rarely been more levered than today,” said Deutsche Bank, warning that the spike in margin debt is a “red flag” and should be watched closely. … It said the equity rally may have further legs but it cited “astonishing similarities” between the latest patterns and events preceding prior market crises.

— The Telegraph, August 13

The high levels of margin debt in the stock market should be a concern to every investor, as should other indicators that Elliott Wave International reviews.

You can learn what EWI sees ahead for the market by reviewing
The Elliott Wave Theorist without any obligation.
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article was syndicated by Elliott Wave International and
was originally published under the headline A Big Reason Why 2013 Stock Prices are in the Stratosphere.
EWI is the world’s largest market forecasting firm. Its staff
of full-time analysts led by Chartered Market Technician
Robert Prechter provides 24-hour-a-day market analysis to
institutional and private investors around the world.

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