Margin Debt HITS DANGEROUS NEW LEVEL: Your House WILL BE TAKEN

There are so many things happening in our economy today that are eerily reminiscent of what we saw between 2007 and 2009 when we had the great financial crisis here in the United States and Wall Street is playing with fire once again because investors are borrowing to the moon using margin debt because now margin debt on Wall Street has jumped to near record highs and history shows that when margin debt climbs, the risk of a market crash grows. And by the way, today I am on the Spanish Trail here in Tiburon, California. We're going to see some beautiful coastal views and trees along the way. So let's take a look at what margin debt is and why this is such a problem for the stock market and potentially the rest of the U.S. economy. Here's how it works. Say you buy $100 worth of stock, but instead of paying all cash, you borrow $50 from your broker. So you're only putting in $50 of your own money. That's your equity. Okay. And if the stock goes up to $120, your $20 profit is a 40% return because you only invested $50. Sounds pretty good, right? But it works the same in reverse. So if that stock drops to $80, you've lost $20. That's still 40% of your equity now gone. So margin debt amplifies both your gains and your losses, but it gets even worse because the financial industry regulatory authority, also known as FINRA has a rule, which is that equity in margin accounts can't fall below 25% of its total value. And if it does, you get a margin call. That means you need to add more cash or sell shares immediately to cover your shortfall. And this is why sell-offs can snowball. And when stocks drop, leverage investors are forced to dump shares and that extra selling pushes prices down even further. And one thing a lot of people don't realize, which I recently learned from Bert Doman on Daniela Gamboni's show, is that if you get margin called, then you can also lose your house over this because say you don't have the money to pay for your margin call. Well, guess what? They can foreclose on your house. And apparently this is something that happened pretty widespread back in the 1980s. So right now, margin debt stands at a staggering $1.1 trillion, which is up 69% from just 2022 levels. So in three years, it's up 69% and it's almost back to the $1.2 trillion record that was set back in 2021. And every time the market climbs, investors seem to borrow more and more and their debt balances balloon. So now compared to the market, margin debt is at 1.9% of the S&P 500's $56 trillion value. So margin debt hit record highs in the year 2000, 2007, and in 2021. And after that, guess what came? A 20% market correction or stock market crash, if you will. So right now the stock market's in a very vulnerable position. It would only take a single digit decline in the S&P 500, for example, to push margin debt over 2%. And that could trigger margin calls for selling and potentially a downward spiral in the market. So what could trigger this? You might ask. Well, inflation staying above the Fed's 2% target, limiting rate cuts could be one thing, which we know is probably going to be the case. And here's the thing, even if the Fed continues cutting rates, then inflation is going to continue to get worse. So it's important for everybody to understand that there is risk building in the background in the stock market, because if you have a 401k account, you're at risk. If you have an IRA account, you're at risk. Any type of investment account that you might have for your future retirement is at risk right now. I personally don't take on any of these types of risks. You know, for me, I would rather just invest the money I have. I'm not going to borrow money to make investments. It's a little bit different when it comes to real estate. In my opinion, you're not at risk of getting margin called. You can take much more calculated risks, but with the stock market, it's way more volatile. The changes are much more extreme and the day-to-day fluctuations are extreme. And people who do this are playing with fire, you know, and ultimately their poor decision-making and gambling style of investing can end up costing you in the end, somebody who's just trying to save for retirement. So keep that in mind. And today I just have a mishmash of different things that I want to go over regarding the economy, regarding people's finances. And the next thing is American's household average monthly expenses. Because when I saw this, I was actually kind of surprised that people's average expenses are higher than I actually thought they were. And once you see the breakdown of this, it's not really hard to understand why so many people are broke right now, because people's average monthly expenses have gone up substantially. And it's to the point where people are spending most, if not all of their income, or more than all of it, just on getting by and living right now. The average American household spends $6,440 per month, according to the latest consumer expenditure survey from the U.S. Bureau of Labor Statistics. And that is a $359 increase from the average monthly household spending in 2022, and a $2,182 per month increase from just 2013, guys. So you want to know how much inflation has crushed everybody? Just look at that right there. It used to be a whopping $2,200 a month cheaper for an average household to live their life and get by just 13 years ago, which really wasn't that long ago. So let's take a look at some of the things that people have to spend their money on just to be able to get by. Housing, of course, is the number one expense coming in at about $2,100 per month. And people are spending on average $25,500 a year as of 2023. So you know, these numbers are substantially higher now, two years later, because inflation has been raging since then. But that's 33% of people's income being spent just on housing, okay? Transportation comes in second at almost $1,100 a month, or about $13,000 a year. And that's about 17% of someone's annual spending. And then food, which I have more on food in a little bit here, is the third largest expense at $832 per month, clocking in at almost $10,000 a year, which is 13% of the annual budget. And then personal insurance and pensions comes in at fourth at $796 per month. You have things like healthcare and entertainment. Those are significant expenses. Entertainment at $300 a month. Clothes, apparel, $170 a month. Education, $138 a month. And the list goes on, totaling $6,440 per month. And what do you notice? The top three of this list are housing, transportation, and food. And what does the core inflation number exclude? Do you remember what it is? Oh yeah, that's right. They exclude volatile food and energy, okay? So two out of these three top categories are not included in the core inflation numbers that's sitting at 3.1% right now. And you can see how much these expenses are. And that's how you know right there that the inflation numbers that we're being fed month after month are a complete lie because they should be way higher just by looking at the average American budget right here. The fact that they can even exclude food and energy is really a crime if you ask me. I mean, the other thing that's crazy about this is just those top three expenses, housing, transportation, which is the gas you put in your car, things like that, and food are 63% of the average household budget right now, guys. So well over half of your money is just going towards those top three expenditures, food, transportation, and housing. And it's no wonder right now that so many Americans are worried about the price of food. That seems to be one of the largest concerns that people have are grocery prices. According to a recent poll from the Associated Press, only 14% of Americans say grocery prices are not a financial concern right now, which means that 86% of Americans, they do think that grocery prices are a major concern right now. And so it's not a surprise that many households are turning to food assistance programs right now to fill the gap. And even those lifelines feel shaky because the government has been cutting a lot of SNAP benefits for people that pretty much can't prove that they need it, which is the way it should be. They shouldn't just be giving it out to people just because they say they need it. They should be able to prove that they need it as well. So many lower income Americans and senior citizens are relying on food banks to be able to get their weekly groceries. And if it wasn't for these food banks, then a lot of them would be going hungry and grocery shopping would become a major stress and anxiety source in their life. And of course, Americans who are making $30,000 a year or less say that grocery prices are a major financial stress compared to four in 10 Americans making above $100,000. But even if you make a six-figure salary, you still got 40% of people worried about the price of groceries. So it's not like making a six-figure salary or being in the top income earners of the country, you know, makes you immune from this. Yeah. Does it make it easier to pay those bills and not have to go into debt over it? Sure. But it's still taking up a larger percentage of your income than it used to along with all these other expenses that we just went over. And we know that some people are even resorting to buy now, pay later options. Now that this is offered pretty much at the checkout of every single store in America, or you can just do it on your phone and pay with your phone right at the checkout. But the problem is people who use buy now, pay later for recurring expenses like groceries, for example, that can cause multiple overlapping payments and raise your risk of missing a payment and ultimately getting hit with the late fees that you can get if you don't pay on time. And buy now, pay later programs are now being reported to the credit bureaus, putting you at risk for your credit score going down, especially if you miss a payment, but it can also contribute to the overall amount of debt load that you're carrying, which increases your debt to income ratio, which makes it harder to get a good interest rate on a loan in the future. About 70% of Americans right now say that financial uncertainty has caused them anxiety and younger Americans are reporting even higher percentages. And people are saying that it's having an impact on their sleep. It's having an impact on their marriage and even on their job performance. It's pretty much affecting every important aspect of their life, which makes sense. If you don't know how you're going to pay the bills and how you're going to come up with the money to pay for your living expenses, of course, people are going to be stressed out and anxious over it. And then people who are honest and try to work hard and work their way out of this situation, end up taking on multiple gigs and multiple jobs. And that adds even more physical and mental stress to their plate, leading people to burnout. People are done. And that burnout can have some serious negative impacts on your relationships with the people around you. And that's why ultimately the smartest people right now are banding together. You have friends that are buying houses together. You have multi-generational families that are living together again. You're seeing an uptick in those things because when times get tough, if people can band together, that's going to be your easiest way out of the situation and feel more secure. But if you're somebody that is worried about your food costs, you really need to start tracking how much money you're spending on groceries each month, because it's probably more than you think. Look at the average I just showed you guys. It's almost $900 a month for the average American household. And you need to kind of narrow down what you need and what you don't. Separate the wants from the needs when it comes to food, which can also lead you to eating a much healthier diet, by the way, if you really just look at the food that you should be eating versus the food that you really shouldn't be eating and eliminating all that stuff. Or you can also shop at cheaper grocery stores. Like for example, in Miami, where I live, we have Publix, we have Trader Joe's, we have Aldi, we have Whole Foods, we have Fresh Market. Those are the ones that come to my mind right off the top of my head. But here's the thing. Whole Foods and Fresh Market are exorbitantly expensive and so is Publix too now, by the way. So where do my wife and I buy the bulk of our groceries? Trader Joe's. In fact, I just met one of my subscribers, I think his name was Chris, at Trader Joe's right here in Corta Madera the other day. He can back me up and let you know that I shop there. And it's not the cheapest grocery store. It's not quite as cheap as Aldi, but the Aldi in Miami is far away and there's no Aldi around here in Marin. But you can shop at more stores like that. You can shop at Trader Joe's. You can shop at Aldi. You can shop at Costco or Sam's Club and also buy a lot of generic brands or store brands in order to help cut down on costs. And one of the biggest ways that people can reduce their food costs is to just eat more at home and cook more at home. You know, you could save 50% on your monthly food budget just by eating at home exclusively for a while and not eating out. So if you're spending $900 a month, you might be able to knock that down to $500 or $600 a month realistically, because of course you're going to have to buy more food since you're eating at home. But say you've already done all that stuff, then your last resort is you're going to have to apply for SNAP benefits, which is also formerly known as food stamps. Or you can try visiting your local food bank and getting a handout from them. But I think that should be the last resort, not only because those things come from donations and taxpayer money, but also because people need to learn how to survive on their own. Like if there's really no other way, then it's acceptable, right? But if you're doing it because you're lazy, or you just don't want to figure out how to make it work for your family, then it's not so good. Now all of a sudden you're a burden on society and taking that away from people who truly do need it. Like people who are disabled or elderly and physically cannot actually work anymore. Now one other thing we got to go over is the mortgage rates, okay? Because the whole housing industry was anticipating mortgage rates to come down. They were all, you know, banking on this next Fed rate cut about how this was just going to change the market and bring buyers back in. Well guess what? We're seeing a repeat of last year. Mortgage rates have gone up 20 basis points actually since the day before the Fed decided to cut interest rates. Take a look at these charts right here. This shows you where interest rates were at right before the Fed rate cut the day before. They were at 6.13% for 30-year mortgages, and then they shot up to 6.35% over the following few days. And why did this happen? Well because the 10-year treasury yields have also been on the rise since then, and everybody always forgets, especially people in the real estate industry, that these 30-year mortgage rates track the 10-year treasury, not what the Fed does. And when the Fed is lowering interest rates into a high inflationary environment, of course investors are going to want a bigger and better return. And even these returns on these 10-year bonds are abysmal. 4.13% right now? Who's buying that? I know I'm not. And you know, we saw the same exact thing happen last year, last September. You can see right at the beginning of this chart here how low interest rates were back then. They were about 6.15%, and after the Fed made its first rate cut last September, one year ago, then rates eventually shot back up to 7.2% for a 30-year mortgage within a few months. By January of 2025, that's where they were at. So the thing is, these investors who buy these treasuries are focused on where the policy and the rates are going to go in the future, not just where they're at today. So whatever the Fed is doing with cutting rates, it doesn't really matter because they anticipate that inflation is going to be a continued problem, and it is even possible that the Fed may have to actually hike rates and reverse course at some point over the next year or two once inflation becomes too much of a problem. That'll be very interesting to see. I don't know if they've ever done that before. In fact, Fannie Mae's fourth quarter prediction for 30-year mortgage rates is that it's going to be 6.5% at the end of 2025, and right now, you know, we're already back up to 6.3%. So that could very well be a pretty accurate prediction. And even then, Fannie Mae predicts that mortgage rates will still be 6.1% by the third quarter of next year. So essentially, mortgage rates are predicted to remain relatively flat between now and the next year from now. So you need to reevaluate and look around and say, okay, if I can't afford a house at today's prices and rates, well, we know interest rates probably aren't going to budge much. So what should we be looking out for instead? Well, you should be looking out for price cuts and be making low-ball offers because that's the only way people are going to be able to afford to buy homes. Do not be afraid to offer significantly less than what a seller is asking, especially in this current housing environment. And many more sellers over the next year are going to have a wake-up call and learn the hard way that inflation isn't going anywhere. Interest rates for mortgages probably aren't going to be much lower than this for the foreseeable future. So if you want to get your house sold, there's only one way it's going to happen, and that's lowering the price. And if a lot of people get margin called and end up losing their home, well, then there could be a whole lot more available new listings out there if we see a big crash in the stock market as well. So keep a lookout for that. There's so many things that are working in favor of people who have been patient, people who have been saving and investing their money diligently, and kind of just sitting quietly and waiting for something like this to happen. And as the months go by, more and more pieces of the Jenga tower start to get pulled out, and eventually it's going to come crashing down. So if you guys enjoyed this video, make sure you subscribe to the channel. And if you don't want to wait for my next video to come out, check out this one on the screen right over here, and I'll see you in the next one.