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Strategies & Market Trends : Natural Resource Stocks -- Ignore unavailable to you. Want to Upgrade?

To: isopatch who wrote (1625)	10/8/2003 11:10:07 AM
From: Jim Willie CB	Read Replies (1) \| Respond to of 108691

I found this article on margin debt growth it cites some numbers, which are surely helpful the big balloon is in Nasdaq margin, so tech bubble is back I would love a trove of some historical data bayarea.com Posted on Fri, Sep. 19, 2003 Buying stock on margin becoming popular again By Jeff D. Opdyke WALL STREET JOURNAL Ready for another bubble? Just as they did at the height of the bull market in 2000, investors today are increasingly borrowing cash to buy stocks -- a practice that is raising concern among regulators. Just as happened during the raging bull market, some of the biggest buying appears to be taking place in tech stocks. Much of the upsurge also appears to be happening through online brokerage firms. That's worrisome to some because it suggests that individual investors, rather than market pros who fully understand the risks, are driving the trend. Overall, investors have borrowed $174.4 billion to buy stocks as of July, the most recent complete data. That marks a 25 percent increase since the end of last year. While that is still substantially below peak levels of nearly $300 billion of margin debt in early 2000, market researchers point out that a big slug of the increase has taken place at brokerage firms regulated by the National Association of Securities Dealers. Of particular concern: Margin use through brokerage firms registered with the NASD has more than quintupled since the end of last year to nearly $26 billion. That actually exceeds the $21.4 billion investors borrowed through NASD firms at the market peak in March 2000. Margin debt reported by firms regulated by the New York Stock Exchange are substantially larger at $148.5 billion but have grown just 10.5 percent this year. "This tells you the bubble is back," says Charles Biderman, chief executive officer of TrimTabs.com Investment Research. "If you look at the big trading-volume increase happening at online firms, and you look at what the hot stocks are at those firms, that tells you people aren't buying General Motors." Some regulators and market observers fear that investors have forgotten the lessons of the past and are blindly rushing into stocks again. The upsurge comes as the Dow Jones Industrial Average tiptoes back toward 10,000, and with the Nasdaq Composite index up nearly 50 percent in the past 12 months. The renewed reliance on borrowed cash prompted the NASD, a self-regulatory agency, to issue an alert to investors earlier this week warning of the risks associated with buying stocks on margin. Mary Schapiro, vice chairman of the NASD, says the organization's inquiries after the last bull market died revealed that many investors did not understand the risks inherent in buying stocks on margin. Federal Reserve rules allow investors to borrow from their brokerage firm as much as half the purchase price when they buy stock. They must repay the loan when the shares are sold. In the meantime, the investor pays interest, currently between 4 percent and 7 percent per year, depending upon the brokerage firm and the size of the loan. Buying on margin can really juice returns if a stock rises because you've got additional shares that you couldn't otherwise afford. The real risk is what happens when stocks prices tumble. The brokerage firm has the right to liquidate your shares if the value of the account falls too low. You may not have a choice in which shares are sold, which can have costly tax implications. In the worst-case scenario, a margin investor can lose more than the original investment. Wednesday, online firm ETrade Group Inc. reported that margin debt had increased to $1.23 billion, an increase of about 25 percent this year. Jarrett Lilien, president and chief operating officer at ETrade, says the margin growth his firm has seen "is growing orderly and responsibly." Online competitor Ameritrade Holding Corp. saw margin activity increase 46 percent to $1.9 billion between March and June. Brown/Co, a unit of J.P. Morgan Chase & Co., says its margin balance has risen about 20 percent so far this year in accounts that have a margin balance. The increase in margin debt "suggests that smaller investors have become extremely speculative again," says Barry Ritholtz, market strategist at Maxim Group, a medium-size brokerage firm in New York. "If I had to bet, I'd bet a disproportionate amount of (buying on margin) is in tech, biotech and Internet stocks, just like last time."