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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end?
YHOO 52.580.0%Jun 26 5:00 PM EST
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To: Mad2 who wrote (3115)10/21/2000 11:39:20 AM
From: RockyBalboa  Read Replies (1) of 3543
 
Get off of margin. Now.

To me, it looks like Jim Cramer is again playing the wrong tunes.
From what I have heard, margin buying is around since the time the modern stock markets have developed. Like short selling it allows to add a "bias" to normal plain equity participations.

In addition, margin buying allows to increase the leverage effect - which makes even more sense if you buy fat, de-leveraged companies.
To decide whether th debt level is unhealthy not margin debt alone but company debt has to be taken into consideration as well.

From a macroeconomic view, margin debt and company debt should be negatively correlated - for the simple reason that margined equity contributions help companies financing their growth and/or reduce the borrowings by companies at the same time.

When condemning margin debt, it is overlooked that it is by far not the worst form of debt.... which is plain consumer debt, in my opinion: Financing Peoples livestyles, by the banks with no (or little) increased future revenues generated out of it.

We need margin debt...especially as long as the assumed earnings growth rates easily beat the interest rate on margins.

By substantially lowering the margin debt, the markets could experience a shakeout which noone wants to see...and in the long term companies need to replace the lost ressources by incurring additional debt, making them even more vulnerable.
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