Market participants are buying shares with borrowed funds at a record pace over the past 20 years.
In August, speculators bought shares with loans worth $ 31.7 billion, and since March, more than $ 166.2 billion. Thus, the total amount of borrowed funds reached $ 645.5 billion, Finra reports. There has not been such a rapid increase in leverage on the New York Stock Exchange since 1997 (we do not have any earlier statistics).
Amount of loan funds allocated for the purchase of shares (billion dollars)
Source: NYSE, FINRA
It is worth noting that before the record volume set in May 2018, there is not enough $ 23 billion.
In addition, the amount allocated by brokerage and investment companies for margin trading set an all-time high and surpassed the $ 1 trillion mark.
Thus, the “printing presses” in combination with borrowed funds and “short squeeze” (the markets have a very low volume of short positions on shares), did their job – at the end of August, the indices renewed their historical highs.
However, in our opinion, this situation is extremely unreliable, since the current rise in assets was caused only by new money, and not by the real achievements of companies. Moreover, the use of credit funds always means increased risks, since with a fall in assets, the losses of trading participants are much greater than they could have been, which forces them to close their positions much earlier.
Thus, it can be stated that the markets were not only inflating a bubble caused by the “printing press”, but also a leverage.
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- Leverage on NYSE
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