People Taking Loans Against Brokerage Accounts - Mike Swanson (01/19/2015)

Here is a crazy fact for you in an article in this weeks Baron's:

WE CAUGHT UP late last week with Josh Brown, the acerbic market blogger, journalist, and financial advisor. He’s concerned over the declining participation of individual stocks and sectors in the market’s snapback rallies in the past six months. This phenomenon can be seen in declines in the advance/decline figures and the number of stocks hitting new highs and trading above their 200-day moving averages.

Complacency has replaced fear. In an article in Fortune last month, Brown commented on the growing boom in “nonpurpose loans” that Wall Street is proffering to wealthy clients who have large portfolios of stocks and bonds that serve as collateral for the borrowing. The only proviso on the cheap financing is that the money not be used for securities purchases.

The rub, of course, is that much of the money is going for illiquid assets like second homes, condos for mistresses, yachts, and insensate consumption. In a market selloff, the liquidation of securities collateralizing these loans could add tinder to any market conflagration.

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