Near-Record NYSE Margin Debt Leads to Caution: Chart of the Day

Borrowing to buy U.S. stocks is close enough to a record to cause concern that prices may not rise much longer, according to Cullen Roche, founder of Orcam Financial Group LLC.

The CHART OF THE DAY compares the total amount of margin debt at New York Stock Exchange member firms, according to data compiled by the exchange, with the performance of the Standard & Poor’s 500 Index.

Margin debt amounted to $379.5 billion in March, the latest month available. The total was the second-highest in the history of the NYSE’s figures, going back to 1959. The highest was the $381.4 billion recorded in July 2007.

“It’s rather alarming to see NYSE margin debt just shy of its all-time high,” Roche wrote yesterday in a posting on his Pragmatic Capitalism blog. The borrowing points to “a fragile foundation” for the current advance in stocks, he wrote.

The 2007 record was set three months before the end of a five-year bull market, which sent the S&P 500 to an all-time high. The index surpassed its peak five weeks ago, after more than doubling from its March 2009 low, and later closed as much as 2.1 percent higher.

Investors owed $92.2 billion in March after subtracting credit balances in cash and margin accounts, according to the NYSE’s data. Holders of cash accounts have to pay the entire purchase price for stocks up front, while those with margin accounts can borrow as much as 50 percent of the price.

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