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* FIEND'S SUPERBEAR MARKET REPORT *

* July 22, 2026 *

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* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

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Fiend Commentary
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The $1.5 Trillion Fuse Under Wall Street

Tuesday was one of those unusual sessions when almost everything rose—including the price of money.

The Dow gained 385 points, the S&P 500 rose nearly 1%, and the Nasdaq climbed 1.3% as semiconductor stocks jumped more than 5%. At the same time, WTI oil settled near $85, Brent finished above $91, and the 10-year Treasury yield reached roughly 4.63%, its highest level in two months. The 30-year remains near 5.1%.

That is not exactly a Goldilocks market.

Stocks are trading renewed AI optimism. Oil is trading a war that does not appear close to ending. Bonds are trading inflation and fiscal risk. Somehow, investors are trying to own all three stories at the same time.

The most dangerous ingredient may be the one receiving the least attention: leverage.

The Margin Debt Powder Keg

FINRA margin debt reportedly reached a record $1.5 trillion in June, up about 49% from a year earlier. Margin debt is money investors borrow from brokerage firms to purchase securities. It makes rising markets rise faster because investors can buy more stock than their cash balances would normally allow. It also makes falling markets fall faster because brokers do not patiently wait for borrowers to recover. When account equity falls below required levels, positions are sold.

The Curmudgeon warned about this before the latest increase. His recent “Chart-o-Rama” showed margin debt at roughly $1.4 trillion in May, up around 55% year over year and more than double its 2023 level. He also noted that previous rapid expansions in leverage clustered near the 2000, 2007 and 2021 market peaks, although the final market top sometimes came several months after the warning first appeared.

Margin debt is not a precision timing tool. It usually rises because stocks are rising, so a record by itself does not mean the market must collapse tomorrow.

But margin debt is gasoline.

Suppose an investor buys $100,000 of stock with $50,000 of cash and $50,000 borrowed from a broker. A 20% decline leaves the stock worth $80,000, but the loan is still $50,000. The investor’s equity has fallen from $50,000 to $30,000—a 40% loss from a 20% market decline.

Multiply that dynamic across $1.5 trillion of borrowing, then add options, leveraged ETFs, single-stock ETFs and automated risk controls. A normal correction can become a forced-liquidation event. Falling prices create margin calls; margin calls create selling; selling creates more falling prices.

That is how a crowded market becomes disorderly.

The Fed Put May Be the Reason for the Leverage

The irony is that the expectation of another Fed rescue may be helping create the conditions that eventually require one.

Investors have been trained to believe that a sufficiently large stock decline, credit-market seizure or economic slowdown will force the Fed to respond. The official reason may be “market functioning,” “liquidity” or “financial stability,” but the sequence is familiar: emergency facilities first, balance-sheet support next, and rate cuts once economic damage becomes visible.

That expectation encourages more leverage because investors assume the central bank will limit the worst downside.

The futures market is currently leaning toward higher rates because oil and bond yields are rising again. Yet a Reuters survey of 104 economists found unanimous expectations that the Fed will hold rates steady next week, while 78 expect no change through the end of 2026. One economist described Warsh as trying to convince markets he will be credible while preferring not to tighten at all.

That sounds closer to reality than the daily swings on the CME screen.

If stocks fall 15%, unemployment starts climbing and private credit begins freezing, how long will the rate-hike narrative survive? Probably not long. A couple of weak reports could convert “two hikes” into “one cut” almost overnight.

But there is a catch. A Fed cut would not necessarily bring long-term yields down.

If the Fed eases while inflation remains elevated, oil is above $85 and federal borrowing remains enormous, the bond market could interpret the cut as inflationary. Short rates might fall while the 10-year and 30-year yields rise. Mortgage rates, corporate borrowing costs and federal interest expense could remain painfully high despite the supposed rescue.

That would be the nightmare scenario: the Fed cuts, but the long bond refuses to cooperate.

Yes, the Debt Was Only $20 Trillion Recently

The federal debt is now roughly $39.5 trillion and is rapidly approaching $40 trillion. The country first crossed the $20 trillion line in September 2017. In less than nine years, the national debt has nearly doubled.

The Joint Economic Committee reported that the debt had increased approximately $3.16 trillion over the prior year, or more than $100,000 per second, and projected that the $40 trillion threshold could arrive around October if the recent pace continues. It also estimates that roughly one-third of publicly held marketable debt will mature within 12 months.

That maturity schedule matters because maturing low-rate debt must be refinanced at today’s higher rates.

A government that borrowed cheaply several years ago now has to roll more of that debt near 4%, 5% or higher. Each refinancing raises interest expense, which widens future deficits, which requires more Treasury issuance, which can place still more upward pressure on yields.

It becomes its own feedback loop.

The federal government is leveraged. Investors are leveraged. Corporations are leveraged. Private-credit borrowers are leveraged. All of them are depending on the cost of money not remaining high for too long.

And yet the 30-year yield is above 5%.

Stocks Are Ignoring the Fuse

Tuesday’s semiconductor rebound was powerful, but it came after the chip index had already fallen more than 20% from its June peak. The market is still trying to determine whether this is a healthy correction in a durable AI boom or the unstable middle stage of a speculative top.

For now, Wall Street is choosing the optimistic interpretation.

Higher oil? Energy earnings.

Higher bond yields? Strong economy.

Weak economic data? Future Fed relief.

Hot inflation? Temporary war effects.

Falling tech shares? Buying opportunity.

Almost every outcome is still receiving a bullish explanation.

That is exactly what makes the leverage so dangerous. Investors do not borrow record amounts when they are frightened. They borrow when they believe the market’s direction is obvious and the central bank has their back.

The fuse may continue burning for months. Margin debt surged ahead of the 2000 and 2007 peaks without producing an immediate collapse. Speculative markets can remain speculative much longer than expected.

But the list of potential sparks is growing:

Oil above $90 for Brent.
A 10-year yield approaching 5%.
A 30-year already above 5%.
A war with no credible ending.
A technology rally dependent on extraordinary earnings.
Federal debt approaching $40 trillion.
A weakening economy that could expose private-credit losses.

The likely Fed response to a genuine crack would eventually be easier policy. That may rescue prices initially. It may also weaken the dollar, revive metals, reignite inflation expectations and push the long end of the bond market even higher.

In other words, the rescue could become the next problem.

Tuesday’s rally showed that the speculative appetite is still alive. The record margin debt shows how much borrowed money is riding on that confidence.

Everything looks manageable until the first forced seller appears.

Then the $1.5 trillion fuse starts working in reverse.

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