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)

THESE TOP 10 Founding Fathers' quotes help us remember America's original vision

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Independence Day is one of the few days when Americans come together to celebrate our country and the continued vision that our Founding Fathers crafted in 1776. But what is that vision? It seems with every passing July 4th, Americans lose even more of a sense of what the original intent of our nation was supposed to be. It's becoming increasingly important to read the Founding Fathers in their own words and to remember the vision that they cast for our nation. Here are our TOP 10 favorite Founding Fathers' quotes to help us remember their original views of government, freedom, and the American vision.

"The advancement and diffusion of knowledge is the only guardian of true liberty." —James Madison

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"Either write something worth reading or do something worth writing." —Benjamin Franklin

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"Truth will ultimately prevail where there is pains to bring it to light." —George Washington

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"The people are the only legitimate fountain of power." —James Madison

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"I agree with you that it is the duty of every good citizen to use all the opportunities, which occur to him, for preserving documents relating to the history of our country." —Thomas Jefferson

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“Human passions unbridled by morality and religion… would break the strongest cords of our Constitution as a whale goes through a net.” —John Adams

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"Those who stand for nothing will fall for everything." —Alexander Hamilton

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“The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse.” —James Madison

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"I fear that in every elected office, members will obtain an influence by noise, not by sense. By meanness, not greatness. By ignorance, not learning. By contracted hearts, not large souls. There must be decency and respect." —John Adams

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“We must go home to be happy, and our home is not in this world. Here we have nothing to do but our duty.” —John Jay

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We live in a dark time, so it is more important now than ever to make sure you are anchored to the truth.

Glenn was recently on the “Chicks on the Right” podcast for a follow-up interview after Amy Jo Clark and Miriam Weaver joined Glenn on his podcast back in March. The three dove into a lively discussion that touched on several things happening in Glenn's personal life, and Glenn delved into the importance of truth in our increasingly Orwellian society.

Glenn told the “Chicks” about his upcoming first novel for young adults, Chasing Embers, which is set in a dystopian world where the wildest WEF fantasies have come true and history has been completely rewritten. Glenn revealed that he was inspired to write the book while reading Karl Marx. He reflected on how Karl Marx was, and still is in many cases, considered this articulate revolutionary, but when compared to the words of the Founding Fathers, his articulation and arguments pale in comparison. He wanted to explore the idea, "What if Jefferson was the revolutionary again, not Marx?" Chasing Embers asks how we preserve the philosophies of the founders and the values of the Constitution so that our children have a chance to discover it if the world turns completely upside down.

Glenn also discussed how important it is to learn history, to anchor yourself in truth, God, and the Constitution, and our responsibility to preserve them in the face of the dystopian movement that is increasingly encroaching on Western civilization. Glenn described the country as "suicidal" and posited whether we can rein in a nation that is hurdling itself towards the brink. He said we can do our part to help, but unless the country decides it wants to live, it will die. We have to be prepared to endure such a scenario with our morals intact and the necessary knowledge to rebuild on hand.

Towards the end of the conversation, Glenn revealed some of the lessons he's learned in his decades on radio. He said that you have to know yourself--both the good and bad--be ready to defend your beliefs, and admit when you are wrong.

This is a podcast you won't want to miss. Click here to listen to the FULL discussion.

Pay no attention to that man behind the curtain!

For the past four years, the mainstream media has been covering for Biden, claiming that he is "fit for duty," despite the strong evidence to the contrary. But after the whole world saw just how "fit" Biden truly is during last night's disastrous debate, the illusion was completely shattered, and the media is scrambling to save face.

Glenn pointed out in his post-debate reaction on his radio show this morning that the mainstream media is in a panic. Biden's performance was so catastrophic that it seems like the Democrats might have to jump ship and find a new candidate. Meanwhile, the question is what to do with Biden between now and the election. Glenn pointed out that as commander-in-chief, Biden has the sole ability to respond to a nuclear threat to America, yet he can hardly complete a sentence.

People from across the political spectrum are reeling from this absolute disaster, weighing in on just how bad it was and making suggestions on how to move forward. We highlighted 10 of these responses below:

1. The Democratic Party is panicking 

2. Undecided voters lean away from Biden

3. Chip Roy calls on Kamala Harris to invoke the 25th Amendment

4. The Democrats look for a replacement 

5. The White House is called out on lies about Biden's health

6. Politico calls out Biden's "uneven" performance 

7. Joy Reid and Obama's crew panic over Biden's display of feebleness 

8. BU historian calls Biden debate 'worst performance by a candidate'

9. Van Jones calls Biden's debate performance 'painful'

10. Biden looked exactly like how conservatives claimed he looks 

​YOU made Target​ choose between profit and 'progress'

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Have you seen Target's newest pride month collection? Don't worry, you don't have to break your hard-won boycott streak to satisfy your morbid curiosity. Glenn took a look during a recent radio show. If you remember last year's display, you might be expecting horrors such as tuck-friendly bathing suits, chest binders for girls, and apparel made by a transgender Satan apologist. Fortunately, that's not what Glenn found. Instead, the collection was very tame, with one item being a charcuterie board with the phrase, "It's giving charcuterie" printed on it. So what happened? Did Target have a come-to-Jesus moment over the last year?

You. You are what happened.

The Target boycotts did exactly what they were supposed to do, they punched Target right in the wallet. According to the New York Post, Target lost a whopping TEN BILLION dollars in just ten days. You stood up for what you believed and Target had no choice but to listen. And this year's pride collection is proof that they heard you loud and clear.

"The inmates are now in charge of the asylum."

Now, this doesn't represent some change in the ethos of the company, but rather a desperate step back to protect their financial interests. The problem Target is now facing is that they don't have a whole lot of room to step back, as they have spent years cultivating a left-wing, progressive culture that really wants Target to take two steps forward instead. As Glenn said, "The inmates are now in charge of the asylum." These progressive activists within their company that they have pandered to for years don't take being told "no" very well. So when Target rolled back its pride collection, the internal backlash was immense.

Glenn's team was given access to leaked internal messaging within Target's Slack channel. The messages show the outcry of Target employees after Target announced they would be reducing the pride collection. Based on their reactions you would think they had just witnessed a national tragedy unfold. Some employees questioned if they could still work for Target after what had happened (remember, Target is still a VERY progressive company), and other employees discussed submitting ethics complaints. About a month after the internal firestorm, Target employees sent the following list of demands to leadership so that Target could atone:

  • An acknowledgment in writing, of the harm Target caused to the LGBTQ+ community.
  • A sincere apology.
  • To partner with prominent LGBTQ advocacy groups.
  • To immediately reinstate the Pride collection in full.
  • To donate to LGBTQ causes.
  • To implement sensitivity training for employees.
  • To cease all contributions to politicians and organizations that do not support the LGBTQ community.

Target has made a mistake.

By cultivating such a radical progressive community, they have placed themselves in a precarious position. On one side, there's the progressive monster they cultivated, with its ever-growing, ever-changing list of demands. On the other side, there are people like you—people who just want to shop without having to walk by transgender children's underwear. The more Target gives to the woke monster, the more they alienate their customers. Now Target is trapped—if they give in further to the woke mob, they'll lose billions of dollars, but if they don't, they'll be attacked from the inside.

So let Target serve as an example to other companies. Customers have a voice too, and when you stand up and use it, a great many things can happen.