New York Stock Exchange (NYSE) margin debt just hit a new all-time high of $476.38 billion and is now 25% higher than the 2007 pre-financial crisis peak of $381.37 billion. Since bottoming in 2009 during the financial crisis at $173.3 billion, NYSE margin debt has increased by 175%!
As a percentage of US GDP, NYSE margin debt is now up to an extremely dangerous level of 2.69%, which exceeds the 2007 peak of 2.62% and is just short of the all-time high from 2000 during the dot-com bubble of 2.78%. In 2000, NYSE margin debt as a % of GDP spent a total of 8 months at or above the extremely dangerous threshold of 2.37%, before crashing to an eventual bottom of 1.18%. In 2007, NYSE margin debt as a % of GDP spent a total of 3 months above the extremely dangerous threshold of 2.37%, before crashing to an eventual bottom of 1.20%.
NYSE margin debt most recently surpassed the extremely dangerous threshold of 2.37% in September 2013 and has remained in extremely dangerous territory ever since. Unbelievably, this month (May 2015) is officially the 21st consecutive month of extremely dangerous NYSE margin debt as a % of GDP, which is nearly double the previous two periods of extremely dangerous NYSE margin debt from 2000 and 2007, combined!
NIA has figured out how to profit and prosper from the highs and lows of NYSE margin debt levels. NIA has discovered an extremely strong negative correlation between NYSE margin debt as a % of GDP and the return of the Dow Jones Industrial Average (DJIA) over the following 36 months.
Over the last 20 years, every time that NYSE margin debt as a % of GDP has peaked at an extremely dangerous level of 2.62%-2.78%, the DJIA experienced a decline over the following 36 months of 27%; and every time that NYSE margin debt has bottomed at a low level of 0.79%-1.2%, the DJIA achieved an average rally over the following 36 months of 78.5%!
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