Margin Debt to GDP at NYSE More Than the Dot-Com Bubble High! The Final Stock Market Crash Signal is Here

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Margin Debt to GDP at NYSE More Than the Dot-Com Bubble High! The Final Stock Market Crash Signal is HereFinally the real New York Stock Exchange (NYSE) as a percentage of US GDP rose to new highs – going over the previous high set on March 2000, more than 15 years ago when the dot-com bubble was at peak! As you know Debt to GDP is one of the best measures for market sentiment and is connected to the market. Once the market starts going down quickly, it reinforces a vicious cycle where the margin debt goes down and the market follows and so on. This ratio is one of the few followed by many legendary macro traders. Its always worth keeping an eye on it and it usually peaks after making new all-time high as every central banks induced bubble is bigger than the previous.

For the second month consecutively in April of 2015, the margins debt of the NYSE, nominally, reached new all-time highs increasing by $30.772 billion to $507.153 billion, an increase of 6.46%! The NYSE margin debt rose by $42.22 billion about 8.863% in the past two months – and by 13.081% or a total of $62.317 in the past three months!

Taking the context in real terms, it implies that the margin debt of the NYSE amount currently to about 2.87% of US GDP, surpassing the previous all-time high of 2.78% which has been set at the peak of the biggest stock market bubble in global history, in March 2000.Before the 2008/2009 financial crisis during the 2007 economic bubble, the margin debt of the NYSE was only about 2.62% of US GDP, just short of the dot-com bubble high of 2000.

Currently the margin debt of the NYSE expressed as a percentage of US GDP is 1.85 times higher than the median for the past 292 months of 1.55%. A debt/GDP ratio margin of 2.38% equate to a 90 percentile – A debt/GDP ratio of 2.38% is considered by NIA to be “really dangerous”, which implies that the stock market is risking a dramatic fall in the short-term. The debt/GDP margin in 2000 was for about six month in very dangerous territory, in 2007 the ratio it was in very dangerous territory for just 3 months.

From the first time since July of 2007, in September of 2013, the debt/GDP NYSE margin increased to levels “very dangerous”, when it rose to its pre-financial crisis level of 2.62%, after having reached levels very dangerous for the first time in 74 months. For five consecutive months, the debt/GDP margin of the NYSE kept on rising to reach a short-term peak of 2.73% in February of 2014 – falling just about short of 2.73%, the 2000 all-time high.  In the past 11 months, the margin o the NYSE expressed as a percentage to GDP fell to a short-term low of 2.51% in January of 2015.

NYSE Margin Debt April 2015

From January 2015, the margin of the debt/GDP ratio of the NYSE has risen in the last three months about 35.9basis points – that is the biggest basis point registered for the past eight years!  It has last increased by 35.9 or higher basis points in July of 2007, when the margin of debt/GDP ratio of the NYSE peaked at 2.62%, its pre-financial crisis level, that after having risen by 41.3 basis points in a three month period.  Before 2007, the increase of 35.9 or higher basis points had occurred  when the NYSE margin debt/USGDP peaked at its all time highs of 2.78% in March of 2000 after having risen by 47.4 basis points in just three months!

Taking into consideration the fact that there is just two other circumstances when the debt/GDP NYSE margin had increased by about 30 basis points or more in a period of only three months – that happened when the ration had reached its two major secular bull market highs – the likelihood is highly probable that the NYSE margin debt/ US GDP, is once more at its peak of all time high of 2.87%! It should be given very a high attention that in July 2007, after the debt/US GDP NYSE margin reached its pre-financial crisis high, the S&P 500 just three months later had reached its bull market record monthly close, and after the debt/US GDP NYSE margin in March of 2000 had reach the dot-com bubble peak, the S&P 500 after just 5 months in August of 2000 had reached its secular bull market record monthly close. Hence, if in April of 2015, there is a peak of the debt/US GDP NYSE margin, it should be expected for the S&P 500 to reach its secular high sometimes around July and September of 2015.nysemargindebtpeakrallies

According to NIA, after the dot-com bubble had burst, the NYSE margin debt in nominal terms rose from its low of $130.21 billion in 2002 to a high of $381.37 billion in 2007 – that is a rise of 193%. Surprisingly, the nominal NYSE margin debt reached bottom in 2009 at $173.3 billion and since has risen to the current highs of $507.15 billion, which is an all time increase of 193%! This is a strong indication that the margin debt level has almost reached its peak and the stock market will also as a consequence peak soon!

And this is not the only signal. Recently we published:  S&P 500 (NYSEARCA:SPY) About to Crash According to 100% Perfect PredictorA 100% Perfect Predictor of Stock Market Crashes. S&P 500 (INDEXSP:.INX) (NYSEARCA:SPY). According to the NIA we have the 4-th crash signal in the last 18 years and the market is soon about the dive. NIA has uncovered a way to perfectly predict stock market crashes 100% of the time! From 1997 through 2014, this indicator signaled that the S&P 500 would soon crash on three occasions.

S&P 500 Is About to Crash According to 100 Perfect Predictor

The first time was August 3, 1998, with the S&P 500 at 1,112.44. Over the following 4 weeks, the S&P 500 declined 13.95% to 957.28 – its second largest short-term percentage decline of the past 18 1/2 years.

The second time was September 14, 2000, with the S&P 500 at 1,480.87. Over the following 2 years, the S&P 500 declined 47.55% to 776.76 – its second largest medium-term percentage decline since the Great Depression.

The third time was November 6, 2007, with the S&P 500 at 1,520.27. Over the following 16 months, the S&P 500 declined 55.5% to 676.53 – its largest medium-term percentage decline since the Great Depression.

On February 24, 2015, NIA’s 100% perfect stock market crash predictor once again alerted us to an imminent stock market crash. Although three months have since passed without the market crashing – the last two crashes needed an average of 20 months to play out, with the S&P 500 declining an average of 51.5%. NIA is 100% sure that its indicator will be proven right once again, but we will need to wait until October 2016 for the crash to fully play out.

Remember that these signals are not perfect and good for short-term, medium-term trading and planning but they are as good as they can be for the times when we have to hedge, protect capital or even activate short equities trading systems.

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  • barge lalls

    Keep on repeating, it will happen for sure – now or in a few months or in a year(s) and when it does, make sure to use I told you so phrase 🙂

    • bspurlockocta

      “Remember that these signals are not perfect and good for short-term, medium-term trading and planning but they are as good as they can be for the times when we have to hedge, protect capital or even activate short equities trading systems.” Its not about getting it right, did you even read the whole article? We just want to warn traders and investors. Buy and hold has never worked …

      • barge lalls

        Tell that to Buffet and Munger.. LOL

      • John Ysc Groenvold

        The article says NIA is 100% perfect and 100% confident, and they were wrong. I find it really hard to trust analysts who use ‘100%’ and ‘perfect’ at one moment and ‘not perfect’ and ‘as good as they can be the next’.

        NIA looks like it has a lot of good information mixed with bad, but they’re still a bunch of crackpots wailing about hyperinflation with little regard for the historical profligacies it takes to cause the levels they’re afraid (or for a more modern example the comedic horror tale that is Venezuela). QE is misused true, it should be used to pay down debts more and companies less, and the interest rate should be raised half a percent straight away, maybe more to avoid a long-term bear market soon, but the US Dollar is strong right now because the US economy is fairly productive.

        • bspurlockocta

          We believe it’s known to everyone that there is no perfect and 100% accurate model/signal/systems … it was just right every time so far, which makes it 100% right. Of course the sample is too low (several cases). Anything without at least 200 cases in the sample can’t be be measured accurately. Readers and investors must know that there is nothing sure about the future or anything they do. Manage risk the smart way! Never rely only on reading news and articles (even ours). Do your own research and conclusions and be careful!