Related Topics
Investing , Stocks
     

Why Next Wave of Margin Calls Will Be FAR More “Disruptive” Than in 2000 or 2007

“Can investors afford to borrow anymore?”

by Bob Stokes
Updated: January 26, 2021

Financial history shows that every bear market has been followed by a bull market and vice versa.

So, the current bull market will end sooner or later.

The prior two bull market tops occurred in the years 2007 and 2000. One of the characteristics of each of those tops was investors' ramped up use of margin. In other words, market participants were borrowing heavily to buy stocks.

This can work out well until stock prices tumble. Then come the "margin calls" or demands from their brokerage firms to increase the amount of equity in their accounts. Investors who lack sufficient cash to deposit into their accounts are often forced to liquidate securities quickly, which can result in big losses.

Considering what's been stated, our January Elliott Wave Financial Forecast has a section titled "Margin Debt Mania." Here's one of the charts along with the commentary:

CanInvestorsAfford

Margin debt as a percentage of disposable income is near a record. The most recent data point of 4.7% is higher than at the 2007 stock market peak and close to its level near the 2000 market top. With employment and economic conditions far more precarious now than at either of those prior peaks, margin calls will likely be far more disruptive than during either of the prior bear markets that followed.

The "Margin Debt Mania" section of the January Elliott Wave Financial Forecast has two more revealing margin debt charts that you need to see.

You'll also learn how the frenzy to use borrowed money to buy stocks ties in with Elliott wave analysis.

Learn why financial markets -- including the stock market -- may be near one of the most pivotal junctures in financial history.

Get started by following the link below.

In 2021, “All These Trends Will Change”

The quote in the title is from the January Elliott Wave Financial Forecast, a monthly publication which provides subscribers analysis of major U.S. financial markets.

Learn about the specific trends that the EWFF references so you can prepare for what is likely ahead.

As you read the January EWFF, you'll find a discussion about "the central importance of the Fibonacci sequence to finance." Indeed, the first chart clearly lays out why 2021 is likely to mark a major "turning point" year for financial markets, including stocks.

Oh, yes, Bitcoin.

You are definitely encouraged to review that discussion.

The Elliott Wave Financial Forecast also covers bonds, gold, silver, the U.S. dollar, the U.S. economy and more (including equities, as mentioned).

Your first step to getting the financial analysis that will help you to prepare for historic market changes is to follow the link below.

EXCLUSIVE

"A Classic Bearish Reversal Sequence"

In this clip from our Commodity Pro Service, editor Jim Martens highlights a "classic" Elliott-wave setup that can lead to a high-confidence trend change. In Jim's words, "A classic bearish reversal sequence I always mention. I want to see this before I'm confident that the trend has changed." The good news, you can apply this lesson to any market!

PTPC: In Harmony with Social Mood -- The Genius, King, Godfather and Poet Laureate

Ray Charles. Elvis. James Brown. Chuck Berry. These four pop music icons need no introduction. Music historians have told their individual stories many times. But when we zoom out and look at their careers collectively, we see the indelible influence of social mood on their bouts of triumph and tumult.

Trends, Turns and Dollar Index Opportunities Since 2021

Sentiment indicators can help you anticipate huge turns in financial market trends. See exactly what Short Term Update subscribers saw at the start and the end of a two-year move in the Dollar Index.