See below for the relationship between margin debt — money borrowed by retail investors against their stocks and used to buy more stock — where Short has enhanced the visual impact by inverting the margin debt line. As presented here, a downward sloping red line means margin debt is increasing. So when the two lines diverge, that means stock prices and margin debt are both rising.
The gap between them is thus a measure of the divergence between investor expectations and market reality. Note two things: 1) When the gap grows too large, the lines tend to converge via falling stock prices and shrinking margin debt (usually through involuntary liquidation of leveraged stock portfolios). And 2) Today the gap is wider than it's ever been. If history is a valid guide, the two lines will shortly cross somewhere around 1,000 on the S&P, or about 50% lower than current levels.
Quote: "If history is a valid guide.." really is the crux of the matter.
History most certainly is a valid guide in the main. The FEDs response to prevent the obvious catastrophe will be QE4, keeping the circus going a little while longer to buy time for the "economic recovery" i.e. "depression", in common parlance, to take hold. The crash might be later but it will be even bigger.
Of course something else might come along and blow the whole steaming pile of corruption away in the meantime. So get out of the stock and bond markets and into assets with as little cash as you dare remove from the banking system before it is too late.