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Margin Debt: Correlation or Causation

Margin debt is at its historic highs since 1990.  What might this imply?  Possibly that the exuberence in the equity markets has become frothy:

Margin Debt Vs S&P 500The two time series do not have a spurious correlation.  Markets go up means that investors want to join in even if he/she does not have the money to buy.  Margin goes up, margin users are buying, buyers push up prices.  This merry-go-round happens until it runs out of steam…or until the Federal Reserve chairman decides to take away the punch bowl.

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