Key Points:
Record Divergence: Real margin debt has grown 550% since 1997 while the market gained only 358%, the widest gap ever recorded and a pattern that preceded the 2000, 2007, and 2021 peaks.
Bank Earnings Watch: If Tuesday's bank reports show rising loan loss provisions and consumer credit stress, forced-selling risk climbs sharply from the record $991.7 billion retail negative credit balance.
Special Report: Forget SpaceX, Elon Is Now Powering the Next Hot IPO (from Brownstone Research)
Buffett Positioning: Berkshire Hathaway holds a record $397.4 billion in cash and Treasury bills, more than Saudi Arabia's entire foreign reserves, while the Buffett Indicator sits at 233% and CAPE at 41.60.
Warren Buffett is 95 years old. He is sitting on $397 billion in cash. That's more T-bills than Saudi Arabia holds in reserve.
Same week, everyday investors just borrowed a record $1.42 trillion to buy stocks. That's up 53.7% in a year. Nine months in a row of new highs.
I can't stop thinking about this. Two records. Pointing opposite ways.
JP Morgan did not become the world’s biggest bank by making the wrong bets. So when they put $1.5 trillion behind energy, people notice.
Here is what they see. Every EV battery needs lithium. So do AI data centers going up right now. Demand is set to grow 5X by 2040.
But the mines cannot dig fast enough. The traditional mining takes 18 months and leaves most of the metal in the dirt.
Because the hard part isn’t finding lithium. It is getting it out…
Meet a private company called EnergyX.
General Motors led a $50 million round.
The U.S. Department of Energy added a $5 million grant.
And it gets better…
EnergyX just opened the largest plant of its kind in the country, down in Texarkana in East Texas.
At full scale, it will pull 50,000 tons of lithium a year out of the ground and generate $1 billion in revenue.
The institutions are already in. You would be buying at the same stage they did, before a public market exists to price it for you.
Ride alongside the institutions into EnergyX. Invest by July 16.
Here's what worries me. Every big market crash of the last forty years started with this same setup. Not close to it. This exact setup.
Margin debt is money people borrow from their broker to buy stock. You put down $50. The broker lends you $50. Now you own $100 of stock. When it goes up, you win double. When it goes down, you lose double. And your broker can call the loan anytime.
Right now, small investors owe their brokers $991 billion more than they hold in cash. That's a record too. It means they've bet the milk money.
The gap is what stopped me cold. Since 1997, margin debt has grown 550%. The stock market has grown 358%. That's the widest gap ever recorded. People are borrowing far faster than stocks are rising. They think they're smart. They're just leveraged.
One more number. Margin debt is now 4.1% of the whole U.S. economy. The fifty-year normal is 1.5%. We're at almost three times normal.
I don't think most people realize how this ends. When stocks drop, brokers make margin calls. That means pay us back now. To pay, people have to sell. That selling pushes stocks lower. Which triggers more margin calls. Which forces more selling. It's a chain reaction. It's mechanical. Nobody has to panic. The math panics for them.
We saw this in 2000. We saw it in 2007. We saw it in 2021. Same pattern. Same setup. Same ending.
Don't Let This Slip By
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Make sense?
And now Buffett. Ninety-five years old. Lived through eleven bear markets. He just called this "the most gambling mood I've ever seen." Think about that for a minute. The oldest, most patient investor alive. Says he has never seen anything like it.
He is not buying. He is stockpiling. He has $397 billion parked in short-term Treasury bills. More cash than Berkshire has ever held. More T-bills than Saudi Arabia holds in reserve. He is waiting.
The Buffett Indicator — total stock market value divided by the U.S. economy — just hit 233%. Highest reading ever. The CAPE ratio, which smooths earnings over ten years, sits at 41.60. Only touched that level once before. The dot-com peak.
I get it. Sitting out is hard. Cash feels dumb when everything is going up. Your neighbor is bragging at the barbecue. Your brother-in-law bought a new truck with his gains. You feel behind.
But here's what I keep coming back to. The ninety-five-year-old with the best track record in history is holding cash. The retail investor with a phone app and no scars is holding margin loans. One of them is right.
Bank earnings start Tuesday. We'll get our first real look at how much of this borrowed money is showing up in the plumbing. I'll be watching net interest income. I'll be watching loan loss provisions. I'll be watching what the CEOs say about consumer credit.
Nobody knows exactly when the tide turns. Nobody ever does. But when the man who called every bubble of the last sixty years is stockpiling cash, and the crowd is stockpiling debt, I know which side I want to be on.
More on this tomorrow.
— Lauren
Editor, American Ledger
