2017-07-29wolfstreet.com

the hottest form of stock and bond market leverage is opaque, offered by financial firms that usually don't disclose the totals: securities-based loans (SBLs) -- or "shadow margin" because no one knows how much of it there is. But it's a lot. And it's booming.

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now Goldman Sachs, which has been offering SBLs to its 12,000 super-wealthy clients through its Private Banking unit -- accounting "for more than half of the unit's $29 billion in loans outstanding," according to the Wall Street Journal -- announced on Thursday that this wasn't enough and that it is partnering with Fidelity Investments to spread these loans far and wide.

This effort to lever up investors' portfolios occurs after an eight-year bull run, with stock indices hopping from one all-time high to the next even as the economy has been growing at a dreadfully slow pace and even as corporate earnings have mostly gone nowhere for years.

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It is at these precariously high levels of the markets that brokerages go into hyper-drive to push "shadow margin" on their clients, using inflated securities as collateral. If markets decline, brokerages start making margin calls, and investors will be forced to sell securities into a falling market at the worst possible time, or else the brokerage will liquidate their portfolios. Investors could lose every dime in their accounts and might be personally responsible for the remainder of the debt.

After eight years of bull market, no one is thinking about risk anymore.



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