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Borrowing Rush by U.S. Stock Buyers Signals Drop: Chart of Day

Borrowing to buy U.S. stocks is rising at a pace that suggests investors are too exuberant and share prices are poised to fall, according to Charles Biderman, chief executive officer of TrimTabs Investment Research.

The CHART OF THE DAY shows how the total amount of margin debt, or loans for stock purchases, provided by New York Stock Exchange member firms compares with the Standard & Poor’s 500 Index since a five-year bull market ended in October 2007.

Margin debt climbed by $38.2 billion in September through November, according to data from the NYSE. The increase was the biggest in a three-month period since May-July 2007. November’s $274 billion total, released last week, was the highest since Lehman Brothers Holdings Inc. collapsed more than two years ago.

The surge in borrowing is among the indicators that show “a short-term reversal could happen soon” in stocks, Biderman wrote today in a report.

Weekly surveys by the American Association of Individual Investors and by Investors Intelligence, which tracks investment advisers, indicate that optimism has become too extreme to be sustained, he wrote. A survey of hedge-fund managers by his firm last month produced similar results, the report said.

Biderman also cited declines in short interest, or the number of shares borrowed and sold to profit from lower prices, and the VIX Index. Last month, bets against S&P 500 stocks fell to a one-year low and the VIX hit bottom at 15.45, its lowest close since July 2007.

(To save a copy of the chart, click here.)

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

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