Leverage

Risk taking continues to accumulate on this market. Discussions about the “bubbleness” are not stopping investors from piling up on leverage, wether through traditional margin, or through vehicles that incorporate the loans in its creation, like leveraged ETFs. In the chart below you can see how both are trending up. On the bottom one, traditional leverage has reached $1.2Tn, which dwarfs the prior peaks of 2000 and 2008. On the top, the financial engineering of the leveraged ETFs keeps attracting investors, since technically, there is no margin call, and the alchemy is explained in the prospectuses that few dare to read. Currently at $240bn, it has more than doubled over the last 2 years, and it will likely continue to do so until the bubble pops. Charlie Munger, Warren Buffet long term partner, used to say that you get in trouble with the three “Ls”: Ladies, Liquor and Leverage, to which Buffett clarified that the real problem was Leverage, the other two were there just for the joke. It looks like we’re getting in trouble.

Want to know more? You can find all our posts at https://www.myfundamental.net/insights

#iamfundamental #soyfundamental #wealthmanagement #familyoffice #financialadvisor #financialplanning #policymistake #ratecut #stagflation