The bursting of a credit bubble

There is little doubt that the credit bubble is at or close to its peak. There are signs in the Mag7 and cryptocurrencies that bullish momentum is fading in these leading indicators.

All the signs of a market top are showing in US equities today. Value is the least consideration: momentum and investment fashions are what matters overwhelmingly. Relative to bonds, equity valuations have become more stretched than ever. Bank credit has been expanding to finance demand for the easy money made in a bull market. But the psychology of easy money is fading in cryptocurrencies, which before bitcoin declined some 25% in recent weeks were seen as a surefire path to riches.

Ignored by the bulls, higher equity prices are dependent on the continual expansion of credit to inflate prices. FINRA’s estimate of US dollar margin finance has just been posted for October, and it’s a further rise to a record $1.184 trillion. In the context of