Margin Debt is Near All-Time Highs

This is a look at margin debt as it relates to M2 money supply. I feel like this is a good metric to illustrate margin debt as a percentage of total available liquidity in the financial system. This isn't to say that the top is in or anything, but it definitely doesn't look like an attractive setup to be over our skis (so to speak). It's also notable that 2021 doesn't look nearly as euphoric as one might have expected at the time. A big component of that is that M2 sky-rocketed during that period which helped soften the effects of added leverage. It could also have been that leverage went to other places besides margin balances - like mortgages, for instance. I've actually looked at other metrics that involved trying to account for the money supply dump in 2020 and 2021 - one being Shiller PE adjusted for M2 instead of inflation - and those also made 2021 look much less euphoric. As of today, M2 has been relatively flat over the last 5 years (it peaked at just under $22T in 2022 and today it stands at $22.6T) so any marginal increase in leverage shows up in a pretty meaningful way. One way to let the steam out of this situation could be for the administration to do another M2 surge at some point in the near future. One final thought. There's not really anything magical about the 6% leverage mark from what I can tell. So it's possible that this situation could persist, and it's also possible that M2 is a poor metric to normalize against. I've seen other spins on this - one was normalizing margin debt to GDP. I personally don't think that's a very good proxy for system leverage, however. But even when looking at margin debt normalized to GDP, 2026 actually looks worse compared to historic levels. *Margin data is from Finra; M2 is from FRED*