by Wolf Richter
The foundations have crumbled. All bets are off.
Over the last 20 years, margin debt – when investors buy stocks with borrowed money – went through three multi-year run-ups, each topped off with a spike, followed by a reversal and decline: during the final throes of the bubbles in 2000 and 2007, each followed by an epic stock market crash – and now.
That pattern of jointly soaring and then declining margin debt and stocks even occurred during the run-up and near-20% swoon in 2011.
The grand cycle began in February 2009, at the trough of the Financial Crisis, when margin debt had dropped to $200 billion.