Stock Market Leverage in La-La Land, Rises to Historic WTF High, by Wolf Richter

Leverage is called leverage because borrowed money levers markets up . . . and down. From Wolf Richter at wolfstreet.com:

Archegos shows how leverage is the great accelerator of stock prices on the way up, and on the way down. One of its bets, ViacomCBS, after skyrocketing, collapsed by 60%.

Vast, unreported, and at the time unknown amounts of leverage blew up Archegos Capital Management, dishing out enormous losses to its investors, the banks that brokered the swaps, and holders of the targeted stocks. The amount of leverage became known only after it blew up as banks started picking through the debris. ViacomCBS [VIAC] was one of the handful of stocks on which Archegos placed huge and highly leveraged bets, thereby pushing the shares into the stratosphere until March 22, after which they collapsed by 60%.

Archegos is an example of how leverage operates: It creates enormous buying pressure and drives up prices as leverage builds, and then when prices decline, the leveraged bets blow up as forced selling sets in. Most of the leverage in the markets is unreported until it blows up. The only type of stock-market leverage that is reported is margin debt – the amount that individuals and institutions borrow against their stock holdings as tracked by FINRA at its member brokerage firms. Margin debt is an indicator for overall leverage, and it has reached the zoo-has-gone-nuts level.

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One response to “Stock Market Leverage in La-La Land, Rises to Historic WTF High, by Wolf Richter

  1. Pingback: Stock Market Leverage in La-La Land, Rises to Historic WTF High, by Wolf Richter | STRAIGHT LINE LOGIC – Additional survival tricks

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