On Demand

NYSE Margin Debt: Near Dangerous Levels $SPX


Recent market action can easily be described as unhealthy. Last Monday the U.S. stock markets opened higher and later sold off due to a Financial Times article released midday speculating Fed tapering. After getting spooked, the author later tweeted out to market participants to “chill out.” The market recovered from its lows soon after.

If it wasn’t so dangerous it would be funny.

George Melloan in his 6/18 Wall Street Journal opinion piece How the Fed Turned the Markets Skittish said it best, “We are in an age where the eight male and four female members of the FOMC are responsible for whether securities markets float or sink. Traders around the world who in better times considered a range of variables now focus on a single one, Federal Reserve policy.”

We have written in the past about a coming market correction and have attempted to provide the appropriate evidence that supports our thesis. Another concern for us, especially in this Fed risk on/off binary market are the large margin debt levels.


It’s one thing for investors to have been put in a position to abnormally seek risk, but now we are borrowing money to do so. Historically this has been shown to be disastrous.

When looking at the chart below, one can see the NYSE margin debt balance back to 1990. The problems arise when the debt levels rise well above the linear trend line. We are approaching those dangerous levels of margin debt.


We hate to sound like a broken record, but we continue to advise our newer clients not to chase the rally. We are of the opinion that we will ultimately be offered a much better entry point. For our existing clients, we have taken profits on positions bought in 2012. We remain largely in cash and have been building positions that move inversely to the general U.S. indices.



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Visitor - Maria: Comment...I think this is an article that is important to all those that have not been following this rally when it began - seven months ago - to read. I was really touched by your concern for your clients.

About the Author


Joseph S.Kalinowski, CFA, is a member of the CFA Institute as a Chartered Financial Analyst.

 In the early 90’s Mr. Kalinowski joined I/B/E/S (Institutional Broker’s Estimate System), a global equity research firm. At I/B/E/S he developed proprietary forecasting models based on analyst corporate earnings sentiment, which led I/B/E/S to the first consensus earnings report. In 2000, Thomson Financial, currently a $12 billion company and a leading provider of global financial information purchased I/B/E/S. Mr. Kalinowski was promoted to Senior Equity Strategist for Thomson Financial. As a Senior Equity Strategist, he was responsible for the integrity of all research and documents produced by his department. During his tenure at Thomson, he developed numerous products based on his research, including Aggregate Data Points and Monthly Comments, establishing himself as a resource to buy- and sell-side institutions globally. Mr. Kalinowski is recognized by the Wall Street community as an expert in earnings forecasting and macro analysis.

 Mr. Kalinowski has been frequently called upon by institutional investors and members of the Federal Reserve Board as a source regarding the sentiment of analysts, corporate earnings analysis, and quantitative modeling.

In the late 90’s, Mr. Kalinowski was engaged by the Federal Reserve Board under the auspices of Alan Greenspan to consult on what has now become the “Fed Model”. Mr. Kalinowski used his quantitative knowledge to develop several proprietary strategies which are available only to clients of JSK Partners of New York.

 Mr. Kalinowski has appeared on CNBC, CNN, Bloomberg, Reuters, Bridge/webFN, Nightly Business Report and Yahoo FinanceVision. His work has been cited in Forbes, Business Week, Financial Times, Barron’s, The Wall Street Journal, The New York Times, Reuters, Bloomberg, USA Today, New York Post, ABCnews.com, Red Herring and the Dow Jones News Wire. Mr. Kalinowski has also authored articles published in Global Investor, Buyside Magazine and The Street.com.

Mr. Kalinowski graduated from Hofstra University, where he earned his Bachelor’s of Business Administration with a major in Finance and Banking. He has done graduate work in economics at Baruch College. He is a member of the CFA Institute and the New York Society of Securities Analysts (NYSSA). Mr. Kalinowski was awarded the Chartered Financial Analyst (CFA) designation in 2001.

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