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)

A town in Sweden is under fire after denying requests to ring church bells in the 1990s and the 2000s but recently approving a mosque's request to conduct a weekly Islamic call to prayer.

RELATED: Media's anti-Israel, pro-Islam bias sweeps THIS fact under the rug

Authorities in the town of Vaxjo in southern Sweden have given the local mosque a one-year permit to recite the call to prayer every Friday for about four minutes. But Fr. Ingvar Fogelqvist of St. Michael's, the local Catholic church located about a mile from the mosque, says similar requests to ring church bells were denied.

On today's show, Pat and Jeffy talked about this story and favorable bias toward the Muslim faith. The issue isn't that the Islamic call to prayer is allowed; it's that all religions are not being treated equally.

Somebody might want to check the temperature in hell, it might be just a tad chillier than normal.

If you missed Friday's episode of The Glenn Beck Program, you missed something you probably never thought you'd see in this timeline or any other. Glenn actually donned President Trump's trademark red "Make America Great Again" hat and laid out the case for why he thinks Trump will win in a landslide in 2020.

RELATED: The media's derangement over Trump has me wearing a new hat and predicting THIS for 2020

Bottom line: Nancy Pelosi and the mainstream media may have pushed Glenn to this point, but believe it or not, Trump's record will make this next election a walk in the park for number 45. At this point, the sitting president has done enough to earn even Glenn's vote.

Glenn broke down what he thought were the 10 biggest campaign promises that — unlike those made by most politicians — Trump actually kept.

10. Impose a 10% repatriation tax to bring jobs back to America

Not all of Trump's promises were good ones, but regardless of what the consequences may be — he did keep this one.

"Now, I think this one is dangerous," Glenn said on radio Friday. "He did it. Ten percent. Bring all of your money back into the United States. It will create jobs. Yes. It will also create inflation. But it's creating jobs."

9. Withdraw from the Trans-Pacific Partnership (TPP)

This has been one of Trump's most passionate issues.

"The stop the TPP. Uh-huh. Right. Sure you are. Uh-huh. Yes. He did," Glenn admitted.

8. Withdraw from the disastrous Paris Climate Accord

Glenn found himself eating crow on this.

"I'm on record saying he will never do that because his daughter is a huge global warming person and he only listens to the family. Eh. Wrong," Glenn said with a puff of crow feathers coming from his mouth.

7. Bring North Korea to the table and rein them in

This looked impossible. Not so.

"'I'm going to bring North Korea to the table.' Are you? Everybody has tried to do that," Glenn said. "Now, they're at the table. We don't know what's going to happen. So the result of that is unknown. But has anybody else done that?"

6. Stop over-regulation and jump-start the economy

It's the economy, stupid.

"Does anybody feel like America is beginning to get on track somewhat economically? You know why? Because he fulfilled another promise," Glenn said. "Stop over-regulating the American people. Give them their money. Give the companies the opportunity to expand and bring their money back into the country, and maybe they'll build buildings. Maybe they'll build offices. Maybe they'll build new products. Maybe they'll build new factories. Maybe they'll hire a bunch of people."

Glenn went on.

"Now, I know Seattle is trying to do everything they can to make sure everybody in their city is homeless and unemployed, but the rest of the country is enjoying the feeling of, wow, maybe things are going to be okay."

5. Reverse Obama's executive orders

If you're like Glenn, you've gotten used to politicians promising "no new taxes," but you can really tell they're lying if their lips are moving. Guess what? That's apparently not Trump.

"The executive orders? Yeah. He's reversed a lot of Obama's executive orders," Glenn said. "These are outrageous promises."

4. Pull out of the Iran nuclear deal

No big deal...

"'I'm going to cancel the Iran Deal.' Yep. None of these are small. You know, I've got maybe ten minutes. I think we can get that done in the first term. And they did," Glenn said.

3. Give tax cuts to middle-class Americans

Maybe this could have been better, but we'll take it.

"I don't like the tax cut. I think he could go a lot further," Glenn said. "But that's not even his job. His job is to sign things that Congress puts in front of him. Not to design it. You Republicans in Congress, you disgust me. You disgust me. 'Imagine what we could do if we had the House and the Senate and the White House.' I can imagine what you'll do — nothing. You'll do nothing."

2. Change strategy and defeat ISIS

The mainstream media have been radio silent on this.

"How about the president's — well, I know I can defeat ISIS. I know I can do it. I'll defeat ISIS. He did," Glenn said. "And did you notice no one in the press even talked about it? All of a sudden, we're not talking about ISIS anymore. How come? Oh, I know. President Trump. That's why."

1. Recognize Jerusalem as the capital of Israel and relocate the US embassy

This one is a true game-changer.

"Now, every president will say to you, when he's running, 'I'm going to make Jerusalem the home.' Well, really? The home of the embassy. Really, are you? Because everybody says that, nobody does it. He did it," Glenn said. "And I think that's going to go down as the biggest game-changer possibly in my lifetime. This is going — it already is — it is changing the game in Iran."

Glenn continued.

"And when it does, this president is going to come out and say something directly to those people, that we support them," he said. "And that's going to add fuel to the fire. And you might see a regime change and a collapse of the Islamic regime in Iran. And it will be 100 percent Donald Trump that made that responsible. One hundred percent. You're going to see changes because of this. He kept that promise. A promise I said, he's not going to do that. Nobody is going to do that. He did."

One chapter of ISIS has ended, but another may be starting

AHMAD AL-RUBAYE/AFP/Getty Images

For the most part, ISIS has fallen in Syria and Iraq. But before we celebrate the demise of this awful terrorist group, before we let our guard down, we should zoom out a bit, because ISIS is spreading. ISIS has largely just scattered out of the region as if someone turned on the kitchen lights and they scrambled.

RELATED: It IS About Islam: This Is a War Against Evil

The Wall Street Journal spoke with Rohan Gunaratna, head of the International Center for Political Violence and Terrorism Research at the Nanyang University in Singapore. “Although Islamic State's ideology has suffered, it still has a huge potential," he told them. “Islamic State has entered a phase of global expansion, very much the same way al Qaeda extended globally in late 2001."

ISIS has spread into West Africa, and throughout much of Southeast Asia, and, as is typical of ISIS, they have done it violently, with a sick venom.

The world is their potential rubble, and their fight is endless.

Again, from the Wall Street Journal: “One chapter of ISIS has finished and another is beginning," said Hassan Hassan, a specialist on Islamic State at the Tahrir Institute for Middle East Policy in Washington. “Their resurgence is coming sooner than expected."

The world is their potential rubble, and their fight is endless.

'The Handmaid's Tale' got it right, just with the wrong religion

Alberto E. Rodriguez/Getty Images

Just in case The Handmaid's Tale's heavy-handed message wasn't already heavy-handed enough, a recent episode made it clear there's always room for further hysteria. Particularly, in relation to depictions of a “patriarchal society" run by Christian doctrine and determined by men — oh those dastardly men.

RELATED: Christian privilege is the new white privilege

The show appropriates Margaret Atwood of the same name, depicting a totalitarian society led by Christian doctrine in which women's bodies are controlled, and they have no rights. The story sounds familiar, but not in the same way Atwood and the show's creators have so smugly assumed.

Just as tone-deaf as 4th wave feminism itself, and tone-deaf in all the exact same places. Most notably, the show's heavy-handed indignation toward Christianity. Toward the patriarchy. Toward conservatives and traditional values. And just like 4th wave feminism, the show completely overlooks the irony at play. Because there is a part of the world where women and children are being raped and mutilated. In fact, in this very real place, the women or girls are often imprisoned, even executed, for being raped, and they are mutilated in unspeakable ways.

Theirs is a cruel, bloody, colorless life.

There is a place, a very real place, where women are forced to cover their entire bodies with giant tarp-like blankets, which is all the more brutal given the endless heat of this place. There is a place where women literally have one-third of the rights of men, a place where women are legally, socially and culturally worth less than men.

They cannot drive cars. They cannot be outside alone. They cannot divorce, they cannot even choose who they marry and often, they are forcibly married at a young age.

They are raped. A lot. Theirs is a cruel, bloody, colorless life. This is the life of tens, perhaps hundreds of millions of women. And, I'll tell you, their religion isn't Christianity.