Finally the real New York Stock Exchange (NYSE) as a percentage of US GDP rose to new highs – going over the previous high set on March 2000, more than 15 years ago when the dot-com bubble was at peak! As you know Debt to GDP is one of the best measures for market sentiment and is connected to the market. Once the market starts going down quickly, it reinforces a vicious cycle where the margin debt goes down and the market follows and so on.
This ratio is one of the few followed by many legendary macro traders. Its always worth keeping an eye on it and it usually peaks after making new all-time high as every central banks induced bubble is bigger than the previous.
Currently the margin debt of the NYSE expressed as a percentage of US GDP is 1.85 times higher than the median for the past 292 months of 1.55%. A debt/GDP ratio margin of 2.38% equate to a 90 percentile – A debt/GDP ratio of 2.38% is considered by NIA to be “really dangerous”, which implies that the stock market is risking a dramatic fall in the short-term. The debt/GDP margin in 2000 was for about six month in very dangerous territory, in 2007 the ratio it was in very dangerous territory for just 3 months.
DYI
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