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It's the lure of easy money. It has a very strong appeal."
-Glenn Frey, Smuggler's Blues
Investors borrowed $384.4 billion in April, a 1.3% gain from the previous month and a 29% rise from the same month last year. This is an all-time record for margin debt and it exceeds the previous high mark set in June 2007. Some may see this as an increased sign of investor confidence but I am not one of them. To me this is a giant red warning flag blowing in the financial breeze indicating the leveraging of dumb money making very risky bets.
"Every swindle is driven by a desire for easy money; it's the one thing the swindler and the swindled have in common."
-Mitchell Zuckoff
Substances based upon some sort of white powder are quite dangerous. They can overcome your good sense and then they it can be quite difficult to extricate yourself from them. The Great Depression was caused, in large part, by massive leverage utilized in the equity markets. This was the white powder of 1929. It took a decade and a World War before America was able to loosen the grip of the stuff.
The white powder of 2008/2009 was easy money provided by the American banks. It wasn't the subprime mortgages that caused the problem but the leverage that was used to buy them and then various securities that were appended to them. It took the coordinated efforts of the world's central banks to stop the carnage. Money for nothing, money from nothing and checks for free.
Chicks were still expensive but at least we could afford them once again.
"I came to a stark realization: chronic surpluses could be almost as destabilizing as chronic deficits."
-Alan Greenspan
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