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Red Screen at Morning, Investor Take Warning

February 12, 2018
Adam Taggart

Peak Prosperity

Growing up as I did in coastal New England, this old rhyme was drilled into us as children:

Red sky at night, sailor's delight;

Red sky at morning, sailor take warning.

Because many of the people in town still made their living on the sea, the safety of person and property depended on being able to recognize the signs of approaching danger.

A notably red sky at morning is usually due to sunrise reflection off of moisture-bearing clouds, signifying an arriving a storm system bringing rain, wind and rough seas. Those who ignored a red sky warning often did so at their peril.

Red Sky In The Markets

I'm reminded of that childhood rhyme because the markets are giving us a clear "red sky" warning right now. One that comes after (too) many years of uninterrupted fair winds and smooth sailing.

The markets have plunged nearly 8% over just a single week. And the losses are across the board. Nearly every asset class from stocks to bonds to commodities to real estate are participating in the pain. Market displays are a sea of red.

We've written so often and recently of the dangerous level of over-valuation in asset prices (caused by years of central bank intervention) that to re-hash the premise again feels unnecessary.

But the chart below is worth our attention now, as it really drives home just how dangerously over-extended the markets have become. It's a 20-year chart of the S&P 500, showing how it has traded vs its 50-month moving average (the thin green line).

Importantly, the chart also plots the Bollinger bands for this moving average. These are the thin red (upper) and purple (lower) lines above and below the green one.

The simple definition of Bollinger bands is that they are measurements of volatility, and serve as indicators of "highness" or "lowness" of price relative to trading history (a more complex explanation can be found here).

What that means is, when the price of the S&P 500 trades near the upper (red) Bollinger band, that's an indication it's over-priced vs its historic trading behavior. And vice-versa when it trades near the lower (purple) band.

Now, the chart below is important because it shows that over the past 20-years, the S&P 500 has *never* traded above the its 50-month upper Bollinger band -- EXCEPT for the 7 months preceding this one. Simply put, the market had not been more overvalued in (at least) the past 20 years as it was last month:

(click here for an expanded view)

But just as frightening, though, is how the 7% drop the S&P has experienced over the past week has only brought it back to just touch the upper Bollinger band. Despite its recent losses, the S&P is still wildly over-valued.

Said another way: it still has further to fall. A LOT further.

If indeed this is the start of a major correction, one that clears out all  "excessive exuberance" as happened in 2001 and 2008, we could well see a retracement down past the 50-month moving average, all the way to (and possibly, briefly, below) the lower Bollinger band.

That would put the S&P somewhere around 1,500-1,600 -- a drop of around 40% from where it closed today.

And as we made the case earlier this week when looking at classic asset price bubble curves, a return of the S&P to a price level below 1,000 can't be ruled out.

Time To Batten Down The Hatches

When a storm arrives at sea, sailors hunker down. They strip, tie fast, and stow everything they can -- then they ride out the storm and re-emerge once it has passed.

This is an excellent model for today's investor. If this week's plunge indeed accelerates into a bear market, simply surviving the carnage with a substantial percentage of your capital intact will constitute "winning".

So, if you still have long positions in your personal or retirement portfolios, what should you be doing at this point?

1) Move To Cash

Get your money to the sidelines. Remember that everything is relative during periods of extreme volatility like now. When everything around you is dropping in value, the relative value of your cash position rises.

Those who had already moved to cash now find they can buy 7% more of the S&P with it than they could a mere week ago. That relative rise in purchasing power will only increase should the markets fall farther from here.

Cash is also offering an improving absolute return as well these days, as interest rates rise. Not that you'd know it from what your bank is offering you (surprising no one, banks have kept depositor rates near 0% despite receiving higher interest payments themselves from the Federal Reserve).

But holding your cash in short-term T-Bills (durations of less than 1 year) through a program like TreasuryDirect is now returning yields of close to 1.5%. That's 25-50 times(!) more than what the average bank savings account interest rate is right now.

Given this high relative payout and the extreme safety of Treasurys (the last financial instrument in the world likely to default, as the US will simply print the money to repay, if necessary), this strategy is a clear no-brainer for those with a material amount of cash.

Those looking to learn more about the TreasuryDirect program, including how to open an account there, can read this primer we created.

2) Prepare Your Action Plan

We have long been loud advocates of working with a professional financial advisor. Now, more than ever, you want to review your action plan with him/her.

If you have remaining long positions, battle test them. How do you expect them to perform in a bear market? If the market falls another 10% from here, what will be the expected impact to your overall portfolio? What if the market falls 25%?

Does hedging make sense as a risk management strategy for you? How about building up a short position with a minority percentage of your portfolio?

Now is the time to address and answer these questions, because if indeed a major correction is nigh, it very well may happen so fast you don't have time to act. (Just ask those holding Bitcoin in January how quickly 50% of your position can vaporize.)

As always, if you're having difficulty finding a firm willing or able to engage in the above with you, consider scheduling a free consultation with Peak Prosperity's endorsed financial advisor.

Also, folks frequently underestimate the effort and time it takes to set up accounts, get funds transferred, etc. Don't set yourself up for the frustration and disappointment of delays should you wait until the midst of a market melt-down to get all this in place. The market may be moving so fast at that point as to make your efforts moot. (Again, talk to the crypto crowd here about their challenges funding accounts and trading through the exchanges last month.) 

Instead, get everything set up and prepared now. You don't need to necessarily transfer any funds at this point. But do yourself the service of getting all the administrative hurdles behind you today.

3) Track The Risks & Opportunities Closely

As we've warned for years, we've been living through The Mother Of All Financial Bubbles. When it bursts, the damage is going to be truly horrific.

The ride down in the markets is going to be painful and scary. There are going to be many knock-on effects that are impossible to forecast with precision -- or even to identify -- right now. What will happen with housing, jobs, pensions, entitlement programs, social services, the banking system? All could be impacted.

To what degree? We don't know at this point. Which is why tracking developments in real-time and assessing their likely impacts will be critical.

Similarly, in crisis there is opportunity. There will be speculative opportunities that present themselves during a melt-down (e.g., shorting mortgage insurers during the 2008 crash). And one markets find their bottom and stabilize, there will be the chance to invest in quality assets at fire-sale values compare to today's prices.

Know when to deploy your dry powder, and what to deploy it into, will be key.

We'll be doing our best here at PeakProsperity.com every week to offer essential insights to help you stay well-informed and on top of these fast-moving events.

To that mission, we're swiftly assembled a webinar on this coming Tuesday, February 13, 2018 at 8pm EST with Chris Martenson, Lance Roberts, Axel Merk and several other financial experts to provide in-depth context into the recent market plunge and their best assessment of what to expect from here in the near term. (To learn more about the webinar, click here)

Markets are warning us that even stormier seas lie ahead. Heed that warning, sailor, and hold fast!


Warning: Stop letting TikTok activists think for you

Spencer Platt / Staff | Getty Images

Bad-faith attacks on Israel and AIPAC warp every debate. Real answers emerge only when people set aside scripts and ask what serves America’s long-term interests.

The search for truth has always required something very much in short supply these days: honesty. Not performative questions, not scripted outrage, not whatever happens to be trending on TikTok, but real curiosity.

Some issues, often focused on foreign aid, AIPAC, or Israel, have become hotbeds of debate and disagreement. Before we jump into those debates, however, we must return to a simpler, more important issue: honest questioning. Without it, nothing in these debates matters.

Ask questions because you want the truth, not because you want a target.

The phrase “just asking questions” has re-entered the zeitgeist, and that’s fine. We should always question power. But too many of those questions feel preloaded with someone else’s answer. If the goal is truth, then the questions should come from a sincere desire to understand, not from a hunt for a villain.

Honest desire for truth is the only foundation that can support a real conversation about these issues.

Truth-seeking is real work

Right now, plenty of people are not seeking the truth at all. They are repeating something they heard from a politician on cable news or from a stranger on TikTok who has never opened a history book. That is not a search for answers. That is simply outsourcing your own thought.

If you want the truth, you need to work for it. You cannot treat the world like a Marvel movie where the good guy appears in a cape and the villain hisses on command. Real life does not give you a neat script with the moral wrapped up in two hours.

But that is how people are approaching politics now. They want the oppressed and the oppressor, the heroic underdog and the cartoon villain. They embrace this fantastical framing because it is easier than wrestling with reality.

This framing took root in the 1960s when the left rebuilt its worldview around colonizers and the colonized. Overnight, Zionism was recast as imperialism. Suddenly, every conflict had to fit the same script. Today’s young activists are just recycling the same narrative with updated graphics. Everything becomes a morality play. No nuance, no context, just the comforting clarity of heroes and villains.

Bad-faith questions

This same mindset is fueling the sudden obsession with Israel, and the American Israel Public Affairs Committee in particular. You hear it from members of Congress and activists alike: AIPAC pulls the strings, AIPAC controls the government, AIPAC should register as a foreign agent under the Foreign Agents Registration Act. The questions are dramatic, but are they being asked in good faith?

FARA is clear. The standard is whether an individual or group acts under the direction or control of a foreign government. AIPAC simply does not qualify.

Here is a detail conveniently left out of these arguments: Dozens of domestic organizations — Armenian, Cuban, Irish, Turkish — lobby Congress on behalf of other countries. None of them registers under FARA because — like AIPAC — they are independent, domestic organizations.

If someone has a sincere problem with the structure of foreign lobbying, fair enough. Let us have that conversation. But singling out AIPAC alone is not a search for truth. It is bias dressed up as bravery.

Anadolu / Contributor | Getty Images

If someone wants to question foreign aid to Israel, fine. Let’s have that debate. But let’s ask the right questions. The issue is not the size of the package but whether the aid advances our interests. What does the United States gain? Does the investment strengthen our position in the region? How does it compare to what we give other nations? And do we examine those countries with the same intensity?

The real target

These questions reflect good-faith scrutiny. But narrowing the entire argument to one country or one dollar amount misses the larger problem. If someone objects to the way America handles foreign aid, the target is not Israel. The target is the system itself — an entrenched bureaucracy, poor transparency, and decades-old commitments that have never been re-examined. Those problems run through programs around the world.

If you want answers, you need to broaden the lens. You have to be willing to put aside the movie script and confront reality. You have to hold yourself to a simple rule: Ask questions because you want the truth, not because you want a target.

That is the only way this country ever gets clarity on foreign aid, influence, alliances, and our place in the world. Questioning is not just allowed. It is essential. But only if it is honest.

This article originally appeared on TheBlaze.com.

A nation unravels when its shared culture is the first thing to go

Spencer Platt / Staff | Getty Images

Texas now hosts Quran-first academies, Sharia-compliant housing schemes, and rapidly multiplying mosques — all part of a movement building a self-contained society apart from the country around it.

It is time to talk honestly about what is happening inside America’s rapidly growing Muslim communities. In city after city, large pockets of newcomers are choosing to build insulated enclaves rather than enter the broader American culture.

That trend is accelerating, and the longer we ignore it, the harder it becomes to address.

As Texas goes, so goes America. And as America goes, so goes the free world.

America has always welcomed people of every faith and people from every corner of the world, but the deal has never changed: You come here and you join the American family. You are free to honor your traditions, keep your faith, but you must embrace the Constitution as the supreme law of the land. You melt into the shared culture that allows all of us to live side by side.

Across the country, this bargain is being rejected by Islamist communities that insist on building a parallel society with its own rules, its own boundaries, and its own vision for how life should be lived.

Texas illustrates the trend. The state now has roughly 330 mosques. At least 48 of them were built in just the last 24 months. The Dallas-Fort Worth metroplex alone has around 200 Islamic centers. Houston has another hundred or so. Many of these communities have no interest in blending into American life.

This is not the same as past waves of immigration. Irish, Italian, Korean, Mexican, and every other group arrived with pride in their heritage. Still, they also raised American flags and wanted their children to be part of the country’s future. They became doctors, small-business owners, teachers, and soldiers. They wanted to be Americans.

What we are watching now is not the melting pot. It is isolation by design.

Parallel societies do not end well

More than 300 fundamentalist Islamic schools now operate full-time across the country. Many use Quran-first curricula that require students to spend hours memorizing religious texts before they ever reach math or science. In Dallas, Brighter Horizons Academy enrolls more than 1,700 students and draws federal support while operating on a social model that keeps children culturally isolated.

Then there is the Epic City project in Collin and Hunt counties — 402 acres originally designated only for Muslim buyers, with Sharia-compliant financing and a mega-mosque at the center. After public outcry and state investigations, the developers renamed it “The Meadows,” but a new sign does not erase the original intent. It is not a neighborhood. It is a parallel society.

Americans should not hesitate to say that parallel societies are dangerous. Europe tried this experiment, and the results could not be clearer. In Germany, France, and the United Kingdom, entire neighborhoods now operate under their own cultural rules, some openly hostile to Western norms. When citizens speak up, they are branded bigots for asserting a basic right: the ability to live safely in their own communities.

A crisis of confidence

While this separation widens, another crisis is unfolding at home. A recent Gallup survey shows that about 40% of American women ages 18 to 39 would leave the country permanently if given the chance. Nearly half of a rising generation — daughters, sisters, soon-to-be mothers — no longer believe this nation is worth building a future in.

And who shapes the worldview of young boys? Their mothers. If a mother no longer believes America is home, why would her child grow up ready to defend it?

As Texas goes, so goes America. And as America goes, so goes the free world. If we lose confidence in our own national identity at the same time that we allow separatist enclaves to spread unchecked, the outcome is predictable. Europe is already showing us what comes next: cultural fracture, political radicalization, and the slow death of national unity.

Brandon Bell / Staff | Getty Images

Stand up and tell the truth

America welcomes Muslims. America defends their right to worship freely. A Muslim who loves the Constitution, respects the rule of law, and wants to raise a family in peace is more than welcome in America.

But an Islamist movement that rejects assimilation, builds enclaves governed by its own religious framework, and treats American law as optional is not simply another participant in our melting pot. It is a direct challenge to it. If we refuse to call this problem out out of fear of being called names, we will bear the consequences.

Europe is already feeling those consequences — rising conflict and a political class too paralyzed to admit the obvious. When people feel their culture, safety, and freedoms slipping away, they will follow anyone who promises to defend them. History has shown that over and over again.

Stand up. Speak plainly. Be unafraid. You can practice any faith in this country, but the supremacy of the Constitution and the Judeo-Christian moral framework that shaped it is non-negotiable. It is what guarantees your freedom in the first place.

If you come here and honor that foundation, welcome. If you come here to undermine it, you do not belong here.

Wake up to what is unfolding before the consequences arrive. Because when a nation refuses to say what is true, the truth eventually forces its way in — and by then, it is always too late.

This article originally appeared on TheBlaze.com.

Shocking: Chart-topping ‘singer’ has no soul at all

VCG / Contributor | Getty Images

A machine can imitate heartbreak well enough to top the charts, but it cannot carry grief, choose courage, or hear the whisper that calls human beings to something higher.

The No. 1 country song in America right now was not written in Nashville or Texas or even L.A. It came from code. “Walk My Walk,” the AI-generated single by the AI artist Breaking Rust, hit the top spot on Billboard’s Country Digital Song Sales chart, and if you listen to it without knowing that fact, you would swear a real singer lived the pain he is describing.

Except there is no “he.” There is no lived experience. There is no soul behind the voice dominating the country music charts.

If a machine can imitate the soul, then what is the soul?

I will admit it: I enjoy some AI music. Some of it is very good. And that leaves us with a question that is no longer science fiction. If a machine can fake being human this well, what does it mean to be human?

A new world of artificial experience

This is not just about one song. We are walking straight into a technological moment that will reshape everyday life.

Elon Musk said recently that we may not even have phones in five years. Instead, we will carry a small device that listens, anticipates, and creates — a personal AI agent that knows what we want to hear before we ask. It will make the music, the news, the podcasts, the stories. We already live in digital bubbles. Soon, those bubbles might become our own private worlds.

If an algorithm can write a hit country song about hardship and perseverance without a shred of actual experience, then the deeper question becomes unavoidable: If a machine can imitate the soul, then what is the soul?

What machines can never do

A machine can produce, and soon it may produce better than we can. It can calculate faster than any human mind. It can rearrange the notes and words of a thousand human songs into something that sounds real enough to fool millions.

But it cannot care. It cannot love. It cannot choose right and wrong. It cannot forgive because it cannot be hurt. It cannot stand between a child and danger. It cannot walk through sorrow.

A machine can imitate the sound of suffering. It cannot suffer.

The difference is the soul. The divine spark. The thing God breathed into man that no code will ever have. Only humans can take pain and let it grow into compassion. Only humans can take fear and turn it into courage. Only humans can rebuild their lives after losing everything. Only humans hear the whisper inside, the divine voice that says, “Live for something greater.”

We are building artificial minds. We are not building artificial life.

Questions that define us

And as these artificial minds grow sharper, as their tools become more convincing, the right response is not panic. It is to ask the oldest and most important questions.

Who am I? Why am I here? What is the meaning of freedom? What is worth defending? What is worth sacrificing for?

That answer is not found in a lab or a server rack. It is found in that mysterious place inside each of us where reason meets faith, where suffering becomes wisdom, where God reminds us we are more than flesh and more than thought. We are not accidents. We are not circuits. We are not replaceable.

Europa Press News / Contributor | Getty Images

The miracle machines can never copy

Being human is not about what we can produce. Machines will outproduce us. That is not the question. Being human is about what we can choose. We can choose to love even when it costs us something. We can choose to sacrifice when it is not easy. We can choose to tell the truth when the world rewards lies. We can choose to stand when everyone else bows. We can create because something inside us will not rest until we do.

An AI content generator can borrow our melodies, echo our stories, and dress itself up like a human soul, but it cannot carry grief across a lifetime. It cannot forgive an enemy. It cannot experience wonder. It cannot look at a broken world and say, “I am going to build again.”

The age of machines is rising. And if we do not know who we are, we will shrink. But if we use this moment to remember what makes us human, it will help us to become better, because the one thing no algorithm will ever recreate is the miracle that we exist at all — the miracle of the human soul.

This article originally appeared on TheBlaze.com.

Shocking shift: America’s youth lured by the “Socialism trap”

Jeremy Weine / Stringer | Getty Images

A generation that’s lost faith in capitalism is turning to the oldest lie on earth: equality through control.

Something is breaking in America’s young people. You can feel it in every headline, every grocery bill, every young voice quietly asking if the American dream still means anything at all.

For many, the promise of America — work hard, build something that lasts, and give the next generation a better start — feels like it no longer exists. Home ownership and stability have become luxuries for a fortunate few.

Capitalism is not a perfect system. It is flawed because people are flawed, but it remains the only system that rewards creativity and effort rather than punishing them.

In that vacuum of hope, a new promise has begun to rise — one that sounds compassionate, equal, and fair. The promise of socialism.

The appeal of a broken dream

When the American dream becomes a checklist of things few can afford — a home, a car, two children, even a little peace — disappointment quickly turns to resentment. The average first-time homebuyer is now 40 years old. Debt lasts longer than marriages. The cost of living rises faster than opportunity.

For a generation that has never seen the system truly work, capitalism feels like a rigged game built to protect those already at the top.

That is where socialism finds its audience. It presents itself as fairness for the forgotten and justice for the disillusioned. It speaks softly at first, offering equality, compassion, and control disguised as care.

We are seeing that illusion play out now in New York City, where Zohran Mamdani — an open socialist — has won a major political victory. The same ideology that once hid behind euphemisms now campaigns openly throughout America’s once-great cities. And for many who feel left behind, it sounds like salvation.

But what socialism calls fairness is submission dressed as virtue. What it calls order is obedience. Once the system begins to replace personal responsibility with collective dependence, the erosion of liberty is only a matter of time.

The bridge that never ends

Socialism is not a destination; it is a bridge. Karl Marx described it as the necessary transition to communism — the scaffolding that builds the total state. Under socialism, people are taught to obey. Under communism, they forget that any other options exist.

History tells the story clearly. Russia, China, Cambodia, Cuba — each promised equality and delivered misery. One hundred million lives were lost, not because socialism failed, but because it succeeded at what it was designed to do: make the state supreme and the individual expendable.

Today’s advocates insist their version will be different — democratic, modern, and kind. They often cite Sweden as an example, but Sweden’s prosperity was never born of socialism. It grew out of capitalism, self-reliance, and a shared moral culture. Now that system is cracking under the weight of bureaucracy and division.

ANGELA WEISS / Contributor | Getty Images

The real issue is not economic but moral. Socialism begins with a lie about human nature — that people exist for the collective and that the collective knows better than the individual.

This lie is contrary to the truths on which America was founded — that rights come not from government’s authority, but from God’s. Once government replaces that authority, compassion becomes control, and freedom becomes permission.

What young America deserves

Young Americans have many reasons to be frustrated. They were told to study, work hard, and follow the rules — and many did, only to find the goalposts moved again and again. But tearing down the entire house does not make it fairer; it only leaves everyone standing in the rubble.

Capitalism is not a perfect system. It is flawed because people are flawed, but it remains the only system that rewards creativity and effort rather than punishing them. The answer is not revolution but renewal — moral, cultural, and spiritual.

It means restoring honesty to markets, integrity to government, and faith to the heart of our nation. A people who forsake God will always turn to government for salvation, and that road always ends in dependency and decay.

Freedom demands something of us. It requires faith, discipline, and courage. It expects citizens to govern themselves before others govern them. That is the truth this generation deserves to hear again — that liberty is not a gift from the state but a calling from God.

Socialism always begins with promises and ends with permission. It tells you what to drive, what to say, what to believe, all in the name of fairness. But real fairness is not everyone sharing the same chains — it is everyone having the same chance.

The American dream was never about guarantees. It was about the right to try, to fail, and try again. That freedom built the most prosperous nation in history, and it can do so again if we remember that liberty is not a handout but a duty.

Socialism does not offer salvation. It requires subservience.

This article originally appeared on TheBlaze.com.