"Volume Of Speculation Index" Blows the Roof Off

Taco Gratis · Feb 3, 2021

Nobody ↑ :
There are all sorts of signals pointing to rampant speculation in the stock market today. And if we are to measure it by way of margin debt (normalized by the size of the economy), then what we are witnessing is, in fact, a level of speculation that dwarfs anything seen in modern times.

Not only is the overall level of margin debt hitting new highs, the 9-month increase in the total amount of margin debt also just soared to a new record. It’s hard to believe that both of these could be possible simultaneously, that off of such a massive base the amount of debt used to speculate could increase so rapidly, but there you have it.

Close observers of the chart above will notice two things: first, when margin debt has soared in the past like it just did, it almost always coincides with a major stock market peak (see: 1972, 2000 and 2007 – 1983 was the exception and when you consider that valuations were extremely cheap at the time and margin debt was coming off relatively miniscule base it’s not hard to see why the correction following that increase was relatively muted.)

Second, the bear markets following these surges in margin debt were, to some extent, driven by a natural deleveraging process that took the 9-month change deep into negative territory. In other words, the boom sows the seeds of its own bust.

The ‘Index Of The Volume Of Speculation’ Blows Off – The Felder Report
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Concrete Helmet · Feb 3, 2021

Connect the dots to the historically low rates of today and you've discovered the cause...

1983 was the exception and when you consider that valuations were extremely cheap at the time and

Why speculate at a time when you could get 10% plus returns on bonds? Squeeze a balloon full of air or water from one end and the air or water expands the other side of the balloon... until it explodes...

"Volume Of Speculation Index" Blows the Roof Off

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"Volume Of Speculation Index" Blows the Roof Off

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Concrete Helmet Hook, Line, and Sinker Lifetime Member

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Concrete Helmet Hook, Line, and Sinker
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