Return of margin lending
Interesting note from David Taylor at the ABC, reporting the return of Aussie margin lending.
Total margin lending collapsed in an unseemly heap of margin calls after the December 2007 quarter, and never really came back.
Some of the margin lending has since been replaced by new forms of leverage such as Contracts for Difference (CFDs).
And, as it turns out, some margin lending apparently wasn't being captured.
The Reserve Bank's latest figures show the clear series break in the September 2019 quarter, with total lending quite a bit higher than previously thought.
It's an interesting point, because generally speaking it's hard to have a dangerous financial 'bubble' without some form of leverage.
And corporate leverage isn't especially high in Australia today - at least in aggregate - since a number of mining seniors such as Fortescue Metals Group took advantage of high commodity prices to pay down their debt loads.
There's probably some hidden leverage in Aussie stocks, such as via housing equity redraw, CFDs, options, and other derivatives.
Interestingly margin calls were running at an average of zero per day per 1,000 clients (rounded) through calendar year 2019, as markets rose relentlessly.
Curiously, history shows that as markets rise the appetite for leverage seems to increase as speculators chase gains.
You'd think it would be the other way around, but, then again, people don't behave rationally when it comes to finance!
Curiously, history shows that as markets rise the appetite for leverage seems to increase as speculators chase gains.
You'd think it would be the other way around, but, then again, people don't behave rationally when it comes to finance!
