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Overleveraged Financial System

Rehypothecation is becoming a mainstream word again, as major investors and hedge fund managers (1) adopt risky strategies (2) as they scavenge for profitable trades that will outperform the leading ETFs in a propped-up, artificially ascending market (3). Last time this term was widely used was in the 2008 Great Financial Crisis. Looking at margin debt, one can see a very strong YoY increase, which historically speaking, is hardly a good sign for stable markets. Nevertheless, we acknowledge that the build up of margin debt usually lasts some time before markets start collapsing. Interestingly enough, the Repo Crisis initiated a larger deleveraging than the Covid-19 incident.

The question how long an overleveraged system can function will be the crucial one (4). If one leaves the party too early, large gains may be left out; too late, and the losses from deleveraging respectively from the monetary instability will be massive. The Fed, for their part, is attempting to prepare a soft landing for the inevitable, meanwhile doing everything within their power to ensure that asset prices and interest levels will not spark too strongly in any direction, however the effect of this is that markets become even less “free” and increasingly politicized (5). The word is out, the charts have spoken, everyone is aware that things are not as they should be, yet few are acting on the issue. When the crash does finally hit, those who have failed to take precautions can blame only themselves for their now empty pockets.



  1. How Goldman And Morgan Stanley Broke Ranks And Triggered The Biggest Margin Call Since Lehman

  2. Rehypothecated Leverage: How Archegos Built A $100 Billion Portfolio Out Of Thin Air. . . And Then Blew Up

  3. “A Zoo That Has Gone Nuts” - WTF Chart Of Spiking Stock Market Leverage

  4. Time for a great reset of the financial system

  5. Zoltan Sparks Treasury Dump, Says Fed “Foaming Runway” For SLR End

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