What the Crypto Crash and Stock Market Plunge Have in Common

Today saw Jerome Powell sworn into office as the new Chairman of the Federal Reserve, replacing Janet Yellen. Looking at the sea of red across Monday's financial markets, Mr. Powell is very likely *not* having the sort of first day on the job he was hoping for...

Also having a rough start to the week is anyone with a long stock position or a cryptocurrency portfolio.

The Dow Jones closed down over 1,200 points today, building off of Friday's plunge of 666 points. The relentless ascension of stock prices has suddenly jolted into reverse, delivering the biggest 2-day drop stocks have seen in years.

But that's nothing compared to the bloodletting we're seeing in the cryptocurrency space. The price of Bitcoin just broke below $7,000 moments ago, now nearly two-thirds lower from its $19,500 high reached in mid-December. Other coins, like Ripple, are seeing losses of closer to 80% over the same time period. That's a tremendous amount of carnage in such a short window of time.

And while stocks and cryptos are very different asset classes, the underlying force driving their price corrections is the same -- a change in sentiment.

Both markets had entered bubble territory (stocks much longer ago than the cryptos), and once they did, their continued price action became dependent on sentiment much more so than any underlying fundaments.

The Anatomy Of A Price Bubble

History is quite clear on how bubble markets behave.

On the way up, a virtuous cycle is created where quick, outsized gains become the rationale that attracts more capital into the market, driving prices up further and even faster. A mania ensues where everyone who missed out on the earlier gains jumps in to buy regardless of the price, desperate not to be left behind (this is called fear of missing out, or "FOMO").

This mania produces a last, magnificent spike in price -- called a "blow-off" top -- which is then immediately followed by an equally sharp reversal. The reversal occurs because there are simply no remaining new desperate investors left to sell to. The marginal buyer has suddenly switched from the "greater fool" to the increasingly cautious investor.

Those sitting on early gains and looking to cash out near the top start selling. They don't mind dropping the price a bit to get out. So the price continues downwards, spooking more and more folks to start selling what they have. Suddenly, the virtuous cycle that drove prices to their zenith has now metastasized into a vicious cycle of selling, driving prices lower and lower as panicking investors give up on their dreams of easy riches and increasingly scramble to limit their mounting losses.

In the end, the market price retraces nearly all of the gains made, leaving a small cadre of now-rich early investors who managed to get out near the top, and a large despondent pool of 'everyone else'.

We've seen this same compressed bell-curve shape in every major asset bubble in financial history:

And we're seeing it play out in real-time now in both stocks and cryptos.

The Bursting Crypto Bubble

It's amazing how fast asset price bubbles can pop.

Just a month ago, the Internet was replete with articles proclaiming the new age of cryptocurrencies. Every day, fresh stories were circulated of individuals and companies making overnight fortunes on their crypto bets, shaking their heads at all the rubes who simply "didn't get" why It's different this time.

Here at PeakProsperity.com the demand for educational content on cryptocurrencies from our audience rose to a loud crescendo.

We did our best to provide answers as factually as we could through articles and webinars, though we tried very hard not to be seen as encouraging folks to pile in wantonly. A big reason for this is we're more experienced than most in identifying what asset bubbles look like.

After all, we *are* the ones who produced Chapter 17 of the The Crash Course: Understanding Asset Bubbles:

To us, the run-up in the cryptocurrencies seen over 2017 had all the classic hallmarks of an asset price bubble -- irrespective of the blockchain's potential to unlock tremendous long-term economic value. Prices had simply risen way too far way too fast. Which is why we issued a cautionary warning in early December that concluded:

So, if you've been feeling like the loser who missed the Bitcoin party bus, you've likely done yourself a favor by not buying in over the past few weeks. It is highly, highly likely for the reasons mentioned above that a painful downwards price correction is imminent. One that will end in tears for all the recent FOMO-driven panic buyers.

And now that time has shown this warning to have been prescient in both its accuracy and timeliness, we can clearly see that Bitcoin is following the classic price trajectory of the asset price bubble curve. The chart below compares Bitcoin's current price to that of several of history's most notorious bubbles:

 

This chart (which is from Feb 2, so it doesn't capture Bitcoin's further decline below $7k) shows that Bitcoin is now about 2/3 of its way through the bubble life-cycle, and about half-way through its fall from its apex.

Projecting from the paths of previous bubbles, we shouldn't be surprised if Bitcoin's price ends up somewhere in the vicinity of $2,500-$3,000 by the time the dust settles.

Did The Stock Market Bubble Just "Pop"?

Despite the extreme drop in the stock market over the past two days, any sort of material bubble retracement has yet to begin -- which should give you an appreciation of how overstretched its current valuation is.

Look at this chart of the S&P 500 index. Today's height dwarfs those of the previous two bubbles the index has experienced this century.

The period from 2017 on sure looks like the acceleration seen during a blow-off top. If indeed so, does the 6% drop we've just seen over the past two trading days signify the turning point has now arrived?

Crazily, the carnage we've seen in the stock market over the past two days is just barely visible in this chart. If indeed the top is in and we begin retracing the classic bubble curve, the absolute value of the losses that will ensue will be gargantuan.

If the S&P only retraces down to the HIGHS of its previous two bubbles (around 1,500), it would need to fall over 43% from where it just closed today. And history suggests a full retracement would put the index closer to 750-1,000 -- at least two-thirds lower than its current valuation.

How Spooked Is The Herd?

As a reminder, bubbles are psychological phenomena. They are created when perception clouds judgment to the point where it concludes "Fundamentals don't matter". 

And they don't. At least, not while the mania phase is playing out.

But once the last manic buyer (the "greatest" fool) has joined the party, there's no one left to dupe. And as the meteoric price increase stops and then reverses, the herd becomes increasingly skittish until a full-blown stampede occurs.

We've been watching that stampede happen in the crypto space over the past 4 weeks. We may have just seen it start in the stock markets.

How much farther may prices fall from here? And how quickly?

History gives us a good guide for estimating, as we've done above. But the actual trajectory will be determined by how spooked the herd is.

For a market that has known no fear for nearly eight years now, a little panic can quickly escalate to an out-of-control selling frenzy.

Want proof? We saw it late today in the complete collapse in XIV, the inverse-VIX (i.e. short volatility) ETN that has been one of Wall Street's most crowded trades of late. It lost over 90% of its value at the market close:

The repercussions of this are going to send seismic shockwaves through the markets as a tsunami of margin calls erupts. A cascading wave of sell-orders that pushes the market further into the red at an accelerating pace from here is a real possibility that can not be dismissed at this point.

Those concerned about what may happen next should read our premium report Is This It? issued over the past weekend.

In it, we examine the congregating perfect storm of crash triggers -- rising interest rates, a fast-weakening dollar, a sudden return of volatility to the markets after a decade of absence, rising oil prices -- and calculate whether the S&P's sudden 6% rout is the start of a 2008-style market melt-down (or worse).

Make no mistake: these are sick, distorted, deformed and liquidity-addicted bubble markets. They've gotten entirely too dependent on continued largess from the central banks.

That is now ending.

After so many years of such extreme market manipulation finally gives way, the coming losses will be staggeringly enormous. 

The chief concern of any prudent investor right now should be: How do I avoid being collateral damage in the coming reckoning?

Click here to read 'Is This It?', Part 2 of this report (free executive summary, enrollment required for full access)

What do clay pots have to do with to preserving American history?

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Editor's note: This article was originally published on TheBlaze.com.

Why should we preserve our nation’s history? If you listen to my radio program and podcast, or read my columns and books, you know I’ve dedicated a large part of my life and finances to sourcing and preserving priceless artifacts that tell America’s story. I’ve tried to make these artifacts as available as possible through the American Journey Experience Museum, just across from the studios where I do my daily radio broadcast. Thousands of you have come through the museum and have been able to see and experience these artifacts that are a part of your legacy as an American.

The destruction of American texts has already begun.

But why should people like you and me be concerned about preserving these things from our nation's history? Isn’t that what the “big guys” like the National Archives are for?

I first felt a prompting to preserve our nation's history back in 2008, and it all started with clay pots and the Dead Sea Scrolls. In 1946, a Bedouin shepherd in what is now the West Bank threw a rock into a cave nestled into the side of a cliff near the Dead Sea. Instead of hearing an echo, he heard the curious sound of a clay pot shattering. He discovered more than 15,000 Masoretic texts from the third century B.C. to the first century A.D.

These texts weren’t just a priceless historical discovery. They were virtually perfect copies of the same Jewish texts that continue to be translated today. Consider the significance of that discovery. Since the third century B.C. when these texts were first written, the Jewish people have endured a continued onslaught of diasporas, persecutions, pressures to conform to their occupying power, the destruction of their temple, and so much more. They had to fight for their identity as a people for centuries, and finally, a year after the end of the Holocaust and a year before the founding of the nation of Israel, these texts were discovered, confirming the preservation and endurance of their heritage since ancient times — all due to someone putting these clay pots in a desert cave more than 2,000 years ago.

I first felt a prompting to preserve our nation's history back in 2008, and it all started with clay pots and the Dead Sea Scrolls.

So, what do these clay pots have to do with the calling to preserve American history? I didn’t understand that prompting myself until the horrible thought dawned on me that the people we are fighting against may very well take our sacred American scriptures, our Declaration of Independence, and our Bill of Rights. What if they are successful, and 1,000 years from now, we have no texts preserved to confirm our national identity? What kind of new history would be written over the truth?

The destruction of American texts has already begun. The National Archives has labeled some of our critical documents, like our Declaration of Independence, Constitution, and Bill of Rights, as “triggering” or “containing harmful language.” In a public statement, the National Archives said that the labels help prepare readers to view potentially distressing content:

The Catalog and web pages contain some content that may be harmful or difficult to view. NARA’s records span the history of the United States, and it is our charge to preserve and make available these historical records. As a result, some of the materials presented here may reflect outdated, biased, offensive, and possibly violent views and opinions. In addition, some of the materials may relate to violent or graphic events and are preserved for their historical significance.

According to this statement, our founding documents are either “outdated, biased, offensive,” “possibly violent,” or a combination of these scathing descriptions. I’m sorry, the Declaration of Independence is not “triggering.” Our Constitution is not “outdated and biased,” and our Bill of Rights certainly is not “offensive and possibly violent.” They are glorious documents. They should be celebrated, not qualified by such derogatory, absurd language. Shame on them.

These are only the beginning stages of rewriting our history. What if they start banning these “triggering” documents from public view because they might offend somebody? Haven’t we torn down “triggering” statues before? What if we are no longer able to see, read, and study the actual words of our nation's founding documents because they are “harmful” or “possibly violent”? A thousand years from now, will there be any remnant to piece together the true spirit behind the nation that our founders envisioned?

The Declaration of Independence is not “triggering.”

That is why in 2008, I was prompted to preserve what I could. Now, the American Journey Experience Museum includes more than 160,000 artifacts, from founding-era documents to the original Roe v. Wade court papers. We need to preserve the totality of our nation’s heritage, the good, the bad, and the ugly. We need to preserve our history in our own clay pots.

I ask you to join with me on this mission. Start buying books that are important to preserve. Buy some acid-free paper and start printing some of the founding documents, the reports that go against the mainstream narrative, the studies that prove what is true as we are continually being fed lies. Start preserving our daily history as well as our history because it is being rewritten and digitized.

Somebody must have a copy of what is happening now and what has happened in the past. I hope things don’t get really bad. But if they do, we need to preserve our heritage. Perhaps, someone 1,000 years from now will discover our clay pots and, Lord willing, be able to have a glimpse of America as it truly was.

Top 10 WORST items in the new $1.2 TRILLION spending bill

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Biden just signed the newest spending bill into law, and Glenn is furious.

Under Speaker Johnson's leadership, the whopping $1.2 TRILLION package will use your taxpayer dollars to fund the government through September. Of course, the bill is loaded with earmarks and pork that diverts money to fund all sorts of absurd side projects.

Here is the list of the ten WORST uses of taxpayer money in the recently passed spending bill:

Funding venues to host drag shows, including ones that target children

David McNew / Contributor | Getty Images

Money for transgender underwear for kids

Funding for proms for 12 to 18 year old kids

Bethany Clarke / Stringer | Getty Images

Border security funding... for Jordan and Egypt

Another $300 million for Ukraine

Anadolu / Contributor | Getty Images

$3.5 million for Detroit's annual Thanksgiving Day parade

Icon Sportswire / Contributor | Getty Images

$2.5 million for a new kayaking facility in Franklin, New Hampshire

Acey Harper / Contributor | Getty Images

$2.7 million for a bike park in White Sulfur Springs, West Virginia, a town with a population of less than 2,300 people

$5 million for a new trail at Coastal Carolina University

$4 million the "Alaska King Crab Enhancement Project" (whatever that means)

FRED TANNEAU / Stringer | Getty Images

There is no doubt about it—we are entering dark times.

The November presidential election is only a few months away, and following the chaos of the 2020 election, the American people are bracing for what is likely to be another tumultuous election year. The left's anti-Trump rhetoric is reaching an all-time high with the most recent "Bloodbath" debacle proving how far the media will go to smear the former president. That's not to mention the Democrats' nearly four-year-long authoritarian attempt to jail President Trump or stop his re-election by any means necessary, even if it flies in the face of the Constitution.

Meanwhile, Biden is doing worse than ever. He reportedly threw a tantrum recently after being informed that his polls have reached an all-time low. After Special Counsel Robert Hur's report expressed concerns over Biden's obviously failing mental agility, it's getting harder for the Democrats to defend him. Yet he is still the Democratic nominee for November, promising another 4 years of catastrophic policies, from the border to heavy-handed taxation, should he be reelected.

The rest of the world isn't doing much better. The war in Ukraine has no clear end in sight, drawing NATO and Russia closer and closer to conflict. The war in Gaza is showing no sign of slowing down, and as Glenn revealed recently, its continuation may be a sign that the end times are near.

One thing is clear: we are living in uncertain times. If you and your family haven't prepared for the worst, now is the time. You can start by downloading "Glenn's Ultimate Guide to Getting Prepared." Be sure to print off a copy or two. If the recent cell outage proved anything, it's that technology is unreliable in survival situations. You can check your list of supplies against our "Ultimate Prepper Checklist for Beginners," which you can find below:

Food

  • Canned food/non-perishable foods
  • Food preparation tools
  • Go to the next level: garden/livestock/food production

Water

  • Non-perishable water store
  • Water purification
  • Independent water source

Shelter

  • Fireplace with a wood supply
  • Tent
  • Generator with fuel supply
  • Go to the next level: fallout shelter

Money

  • Emergency cash savings
  • Precious metals

Medicine

  • Extra blankets
  • Basic first aid
  • Extra prescriptions
  • Extra glasses
  • Toiletries store
  • Trauma kit
  • Antibiotics
  • Basic surgery supplies
  • Potassium Iodate tablets

Transportation

  • Bicycle
  • Car
  • Extra fuel

Information

  • Birth certificates
  • Insurance cards
  • Marriage license
  • Immunization records
  • Mortgage paperwork
  • Car title and registration
  • House keys, car keys
  • Passports
  • Family emergency plan
  • Prepping/survival/repair manuals
  • Go to the next level: copy of the Bible, the U.S. Constitution, and other important books/sources

Skills

  • Cooking
  • Gardening
  • Sewing
  • First Aid
  • Basic maintenance skills
  • Go to the next level: farming/ranching
  • Self-defense training

Communication

  • Family contact information and addresses
  • HAM radio

Miscellaneous

  • Flashlights and batteries
  • Lamps and fuel
  • Hardware (tools, nails, lumber, etc)
  • Extra clothes
  • Extreme weather clothes and gear
  • Gas masks and filters
  • Spare parts for any machinery/equipment

Is Trump's prosecution NORMAL?  This COMPLETE list of ALL Western leaders who served jail time proves otherwise.

PhotoQuest / Contributor, The Washington Post / Contributor, Win McNamee / Staff | Getty Images

Mainstream media is on a crusade to normalize Donald Trump's indictments as if it's on par with the electoral course. Glenn asked his team to research every instance of a Western leader who was jailed during their political career over the past 200 years—except extreme political turmoil like the French Revolution, Napoleonic Wars, Irish Revolution, etc.—and what we discovered was quite the opposite.

Imprisoning a leader or major political opponent is not normal, neither in the U.S. nor in the Western world. Within the last 200 years, there are only a handful of examples of leaders in the West serving jail time, and these men were not imprisoned under normal conditions. All of these men were jailed under extreme circumstances during times of great peril such as the Civil War, World War II, and the Cold War.

What does this mean for America? Are Trump's indictments evidence that we are re-entering times of great peril? Below is a list of Western leaders who were imprisoned within the last 200 years. Take a look and decide for yourself:

Late 1800s

The Washington Post / Contributor | Getty Images

Jefferson Davis: The nearest occurrence to a U.S. President to serve jail time was in the case of Jefferson Davis, the first and only president of the Confederate States of America. Jefferson was captured in Georgia by Northern Soldiers in 1865 and locked up in Fort Monroe, Virginia for two years. He was offered a presidential pardon but refused out of his loyalty to the confederacy.

Early 1900s

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Eugene V. Debs: Debbs, a Midwestern socialist leader, became the first person to run for president in prison. He was locked up at a federal penitentiary in Atlanta having been convicted under the federal Sedition Act for giving an antiwar speech a few months before Armistice Day, the end of World War I. Many of his supporters believed his imprisonment to be unjust. Debs received 897,704 votes and was a distant third-part candidate behind Warren G. Harding, the Republican winner, and James M. Cox, the second-place Democrat. Harding ordered Debs’s release from prison toward the end of 1921.

Nazi sympathizers and collaborators: After the end of World War II in 1945, several European leaders who had "led" their countries during the Nazi occupation faced trial and imprisonment for treason. This list included Chief of the French State Philippe Pétain, French Prime Minister Pierre Laval, and Minister-President of Norway Vidkun Quisling. The latter two were also executed after their imprisonment. President of Finland Risto Ryti and Prime Minister of Finland Johan Wilhelm Rangell were also tried and jailed for collaborating with the Nazis against the Allied Powers.

Late 1900s

The Washington Post / Contributor | Getty Images

The end of the Cold War: The fall of the Berlin Wall in 1989 was one of the pivotal moments that brought the Cold War to a close and marked the end of Communist East Germany. With the fall of the wall and the collapse of the German Democratic Republic (East Germany), the former leaders were brought to trial to answer for the crimes committed by the GDR. General Secretary Erich Honecker and General Secretary Egon Krenz were both put on trial for abuse of power and the deaths of those who were shot trying to flee into West Germany. Honecker was charged with jail time but was released from custody due to severe illness and lived out the rest of his life as an exile in Chile. Krenz served 4 years in jail before his release in 2001. He is one of the last surviving leaders of the Eastern Bloc.

Lyndon LaRouche: Larouche was a Trotsky evangelist, public antisemite, and founder of a nationwide Marxist political movement, became the second person in U.S. history to run for President in a prison cell. Granted, he ran in every election from 1976 to 2004 as a long-shot third-party candidate. When he tried to gain the Democratic presidential nomination, he received 5 percent of the total nationwide vote. Even though in 2000 he received enough primary votes to qualify for delegates in a few states, the Democratic National Committee refused to seat his delegates and barred LaRouche from attending the Democratic National Convention.