Margin Debt Snaps Back
Nothing speaks to investors' increased appetite for risk like the recent rise in margin debt.
Online brokers Schwab (SCH), E*Trade (ET) and Ameritrade (AMTD) all reported that margin loans shot up in the fourth quarter and were significantly higher over the course of 2003. The question now is: What does this mean for stocks?
When investors buy "on margin," they are borrowing money from their brokers to purchase securities, using shares they own as collateral. When margin debt starts to grow quickly -- as it has been recently -- some analysts become uncomfortable because it can be a sign that investors are getting too optimistic about the market and are taking on too much risk.
In the most recent quarter, Ameritrade and E*Trade saw margin debt jump more than 20% while margin balances at Schwab increased by 13%. The trend has apparently continued into this year, with Ameritrade reporting a $300 million increase in margin debt so far in January."Online brokers' margin debt is growing dramatically,
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