Part 4/7:
Another concerning trend is the surge in margin debt, where investors borrow money to buy stocks. While margin debt can amplify profits in a rising market, it poses significant risks. As prices plummet, investors are forced to sell to meet margin calls, further driving down prices in a self-perpetuating downward spiral. Current data suggests that margin debt has reached unprecedented levels, indicating an environment of risky financial behavior among investors.
This increasingly precarious landscape raises serious red flags, reminiscent of the periods leading up to past market crashes. The greater the overpricing, the steeper the potential losses.