latest data:
http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=table&key=3153&category=8

High-margin debt flashing ‘yellow’ warning to market bulls

Are bullish stock investors getting overly greedy?
Margin debt is an indicator that probably doesn’t get as much attention as it should.

Right now, margin debt is flashing a “yellow” signal to market bulls, says Scott Clemons, chief investment strategist at Brown Brothers Harriman Wealth Management. As the chart shows, margin debt rivals the 2007 peak that came just before the financial crisis and the ensuing market drop.

There are some caveats, of course. Clemons, in a phone interview, noted that the market has yet to see several months in a row of gangbuster debt accumulation. It was such sequential jumps that came at the peak of both the tech bubble and the 2007 top, he says. If that were to emerge, it would turn the signal from yellow to red. Total margin debt stood at $382.9 billion in August, according to the New York Stock Exchange, up from $382.1 billion in July and $376.6 billion in June. In 2007, margin debt surged from $293.2 billion in March to a peak of $381.4 billion in July.

Also, it’s not clear if ultra-low interest rates are distorting data. With the cost of borrowing so low, a buildup in margin debt might not be the “greed” indicator it was in more normal circumstances, he said.

Clemons says he’s started paying more attention to margin debt, but that it’s part of a larger dashboard of indicators that indicate stocks could be due for a setback. Those indicators include slowing earnings growth and valuations that appear “full” at current levels.
–William L. Watts