Risky buying on margin surges again
Enviado: 25/9/2003 10:02Some investors are so confident that stocks will continue to rally, they are literally betting their portfolios and buying stocks on margin.
Margin is using borrowed money to buy stocks and using other stock as collateral on the loan. Currently, investors are on a margin binge that is making some analysts worry we're seeing a return of late '90s-like speculation. Margin buying is:
• At record levels. Investors at firms regulated by the National Association of Securities Dealers (NASD), the watchdog of the Nasdaq stock market and 5,300 brokers, borrowed $26 billion against their stock holdings in July, the latest available data. That tops the old record in March 2000.
• Growing rapidly. Margin borrowing at NASD-regulated firms is up 412% this year and 32% in July.
•Widespread. Total margin borrowing, which includes numbers reported by the New York Stock Exchange, hit $174.4 billion in July, a 25% increase from the end of 2002. That total is the highest in two years.
This is a big warning to some that greed is back. "Those people from 1999 to 2001 are creeping back into the sunlight again," says Michelle Clayman, managing partner of New Amsterdam Partners. "There are people thinking: 'Gee, maybe I can make back what I lost.' " There's so much concern because historically, when margin balances soar, it's bad news for the market. The last time margin balances at NASD brokers topped $20 billion was March 2000 — just as the market was about to head into a brutal three-year slide.
By: Matt Krantz
Margin is using borrowed money to buy stocks and using other stock as collateral on the loan. Currently, investors are on a margin binge that is making some analysts worry we're seeing a return of late '90s-like speculation. Margin buying is:
• At record levels. Investors at firms regulated by the National Association of Securities Dealers (NASD), the watchdog of the Nasdaq stock market and 5,300 brokers, borrowed $26 billion against their stock holdings in July, the latest available data. That tops the old record in March 2000.
• Growing rapidly. Margin borrowing at NASD-regulated firms is up 412% this year and 32% in July.
•Widespread. Total margin borrowing, which includes numbers reported by the New York Stock Exchange, hit $174.4 billion in July, a 25% increase from the end of 2002. That total is the highest in two years.
This is a big warning to some that greed is back. "Those people from 1999 to 2001 are creeping back into the sunlight again," says Michelle Clayman, managing partner of New Amsterdam Partners. "There are people thinking: 'Gee, maybe I can make back what I lost.' " There's so much concern because historically, when margin balances soar, it's bad news for the market. The last time margin balances at NASD brokers topped $20 billion was March 2000 — just as the market was about to head into a brutal three-year slide.
By: Matt Krantz