No one knows total stock market leverage, but it’s huge and ballooning, as we see from the tidbits we’re allowed to see.
No one knows how much total leverage there is in the stock market. Only fragments are reported. Margin loans are reported monthly, and they provide a general idea of the trend in stock market leverage. Some types of leverage are not disclosed at all until something implodes spectacularly, such as Archegos. Other types of leverage are reported in bits and pieces, if at all, by a few banks and broker-dealers in their quarterly financial statements, if they so choose. This includes “securities-based lending.”
Some banks & brokers report securities-based lending, others don’t.
On Thursday and today, some Wall Street banks and broker filed their Q3 earnings reports and supplemental information with the SEC, and a few of them included in their supplemental filings some tidbits about their securities-based lending (SBL).
Securities-based lending is hot; people who want to cash out some of the gains in their portfolios – thank you halleluiah, Fed – but didn’t want to sell, can use their portfolios as collateral for loans by the broker, the proceeds of which can be used for anything – buy more securities, buy a house or a new vehicle, or pay for a divorce settlement.
When asset prices fall enough, the borrowers get a margin call and either have to either come up with some cash and put it into the account, or they have to sell securities and pay down their SBL balances, thereby turning into forced sellers.
Goldman Sachs didn’t disclose anything about its SBL; they’re lumped into a larger loan category.
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