✍️ Margin Debt (Leverage/Borrowing) by Retail Investors. Maverick Special #7

Margin Debt: Absolute vs Relative! They are not really the same!

Dear all,

U.S. equities at all-time highs, MEME stocks & retail favorites going parabolic, hence one topic making the rounds = Margin Debt (leverage/borrowing) by Retail Investors!

As usual, too many out there (no name calling) are using just the level $ values to chase clicks, fear monger, practice politics-like polarisation, or simply not doing more of the work required to provide more angles and nuances for better insights.

Well, that is why I am here, and I guess also why you enjoy this independent research!

---

Hence, as you got used to, in just 7 Maverick Charts I will ‘say’ 10,000 words or more!

1. Margin debt in brokerage accounts (FINRA data):

👉 tops $1 trillion for the 1st time in history with a +9.4% growth from May to June, and marking the highest jump since November 2020

👉 topped even the 2021 madness as retail investors go into debt to buy 'stonks', hence July data likely even higher, maybe +$1.1 trillion ... melt up is underway ...

👉 big margin spikes into local tops = a pattern happening before equities drawdowns (red shaded areas), just check the boxes = pun intended 😉

N.B. this chart and post had +20,000 views on Twitter

2. Enhancing the chart by adding also the S&P 500 - a similar message:

3. Margin Debt as % of U.S. Total Stock Market Value and equities drawdowns (red shaded areas) in order to 'standardise' / 'normalise' this data series:

👉 looks way way less troublesome and worrisome at 1.39%

👉 2000s Dot-Com bubble and 2007/GFC/Lehman spikes were very noticeable (check the 2 boxes), hence only when we would have a similar vertical increase, I would be more confident to say this metric signals that the local top is just around the corner

👉 therefore, for now hovering around 1.4% it is just a flat & boring line since 2023, hence just 5,000 views on Twitter despite being more insightful …

4. Margin Debt as % of GDP:

Some say to see Margin Debt via GDP is a bit of a stretch given that MD exists within financial markets, and not the real broader economy, but on the other side let’s recall the fact that stock market values change quickly sometimes - 2025 latest example with a 19% market drop in April before an almost immediate recovery. And in general it happens certainly way more than the economy (GDP).

Therefore, also a valuable angle I think, especially that in general and many times we have it like I like to say it: 'In research there are no exact magic solutions or metrics, just various weights to variables and trade-offs'

👉 Margin Debt as % of GDP = 2.94% it does not look that troublesome

👉 not the case currently, but check for big vertical spikes into local tops like before = a pattern happening before equities drawdowns (check the boxes = pun intended)

5. Margin Debt change to GDP (Y/Y, %GDP), going funky a bit now:

👉 at 0.65%, more is needed to reach troublesome signalling territory, yet to check for big vertical spikes into local tops like before = a pattern happening before equities drawdowns (check the boxes = pun intended)

6. Margin Debt as % of Real Disposable Personal Income:

👉 at 5.17%, lower than the recent 5.62% peak during the 2021 stock market mania

👉 more and a vertical spike is needed to reach troublesome signalling territory

7. Margin Debt as % of Real Disposable Personal Income + the S&P 500:

👉 relatively 'low' to the S&P 500 latest up kick

👉 to signal trouble, margin debt should kick higher and faster than the S&P 500

A final few key notes for some extra food for thought:

• given high(er) interest rates nowadays, margin debt is way more expensive than it was during the low / very close to 0% interest rates era (ZIRP) when one could so easily leverage up their investments

• behaviour wise, when speculation and mania kicks in, likely not even higher borrowing costs are a big deterrent as animal spirits can kick in (FOMO)

• all margin should not be assumed to only ‘chase upside’ - many see the market very overvalued nowadays, hence margin is to be used also to finance short selling

Bonus: recall ‘The Triple L’ via Charlie Munger, and with a wordplay & jokey vibes: Leverage does it quickly while Ladies & Liquor take longer but do the same too 😉.

---

Maverick’s net takeaways aka conclusions:

👉 Margin Debt current nominal historical record above $1T is clearly surpassing 2000's ~$300B, 2007's ~$400B and 2021’s $930B peaks

👉 that said, relative to market capitalisation, GDP, and real disposable personal income, it looks way less troublesome currently

👉 vertical spikes in both $ absolute amounts, and especially in % relative terms are to be monitored going forward should they get into troublesome signalling territory

All in all, as I don’t chase clicks, fear monger, do polarisation & similar ‘marketing BS’, I rely on you sharing my independent investment & economic research around your networks! Like this, the big positive externalities become the name of the game! Thank you!

---

N.B. in the future, and just like with all the other Maverick Special Reports, you will get this one as well on an ad-hoc needs-based frequency. Just in case you missed the previous 6 report, you can read them here.

F.A.Q.: ‘What is your view on the market in terms of valuation?’ Deep dive on that via my future 2 distinct and materially enhanced S&P 500 reports:

✍️ S&P 500 Report: Performance, Sentiment, Seasonality, Technical Analysis (#Ed 6)

✍️ S&P 500 Report: Valuation, Fundamentals, Special Metrics & Leading Indicators (#Ed 6)

Complementary, the U.S. economy will also be covered given the interconnectedness between the real economy and the financial markets - that is Maverick Macro-Finance!

✍️ The State of the U.S. Economy in 75 Charts (4th edition)

Have a great day! And never forget, keep compounding: family, friends, hobbies, community, work, independence, capital, knowledge, research and mindset!

With respect,

Mav 👋 🤝