It’s no secret that President Trump’s business skills have put America first which was the overall theme of the President’s Davos speech
DAVOS, Switzerland (INTELLIHUB) — President Donald Trump gave an amazing speech to investors at the World Economic Forum on Friday, and even scooped up a group of ultra-elite who plan to invest hundreds of billions of dollars into America’s newfound robust economy.
With the DOW Jones Industrial Average sitting at over 26,000, the highest level in history, President Trump has retained full-on bragging rights, after policies his administration implemented are now allowing individuals and businesses to reap the benefits.
INDEXDJX: .DJI
The Commander-In-Chief explained to the Davos crowd how the DOW is up nearly fifty percent from what it was at the time of the election and pointed out that if the opposing party would have won it likely would have been down fifty percent.
“The stock market is up over fifty percent since my election,” he said. “Had the Democrat would have won, I believe that we would have been down fifty percent.”
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.
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?
The Dow Jones plunged Monday by 1,175 points and continued that slide Tuesday morning. Not surprisingly, many investors are confused by the freefall.
Here are five things you should know about the present panic on Wall Street:
1. The Dow Jones industrials suffered its worst one-day point drop ever on Monday. It even was down by 1,600 points at one point. This was actually worse than the memorable decline on Sept. 29, 2008, during the Great Economic Meltdown, CNBC reported. The market lost 777 points back then. Still, as a percentage of the market (4.6 percent), it was not a record.
2. Interest rates might be to blame. Bond traders believe the sell-off, which began Friday, was triggered by speculation that the U.S. Federal Reserve is set to raise interest rates. The fear is that higher interest rates would lead to lower home sales and less new construction, which can trigger a downturn.
3. This might not be a correction. A correction would require the Dow to lose around 10 percent of its value, Vox pointed out. The Dow only lost 6.5 percent of its value on Monday. However, stock market strategist Steve Stovall told Vox that a 20 percent drop in the market is possible.
4. The real estate market might be worse than stocks right now. U.S. home sales fell sharply in December, the National Association of Realtors reported. Home sales fell by around 3.5 in the final month of 2017. The number of previously owned homes fell by 11.4 percent to 1.8 million, the lowest number since January 1999.
5. Advisors are telling people to sell their stocks. Bank of America Merrill Lynch analysts gave investors a “sell indicator” Friday, CNBC reported. The indicator means that the market is overheated and primed for a big fall.
The Bank of America Merrill Lynch Bull & Bear or sell indicator is one of the most accurate predictors of market activity, CNBC reported.
What do you think? Share your thoughts in the section below:
Many analysts have predicted an economic crisis is just over the horizon. Could the stock market’s recent plunge be the recession they’ve said is long overdue?
Although stocks went into a freefall yesterday, the Dow had been down 1,600 points. A small rally recovered some of the losses. According to CNN Money,the rout in U.S. markets continued to ripple around the globe. Japan’s Nikkei index plunged 4% in Tuesday morning trading while the S&P/ASX 200 in Australia dropped 3%. The recent sell-off wiped out the Dow and S&P 500 gains for the year and left the Nasdaq barely in positive territory for 2018.
The trouble in the market began early last week when investors began focusing on a number of lingering concerns. If the economy gets much stronger, it could touch off inflation, which, according to CNN, has been mysteriously missing for the nine years of the post-crisis recovery. But Peter Schiff has begged to differ, saying that the United States has not experienced a “growth story” but an “inflation story.”
“People are dealing with the shock of seeing real inflation for the first time in a while,” said Bruce McCain, chief investment strategist at Key Private Bank. Investors have also been nervously watching the bond market, where yields have been creeping higher. But many analysts claim the next recession will begin in the bond market. As yields rise, bonds offer better returns, which makes them more attractive to investors compared with risky stocks.
The White House said in a statement that President Trump was focused on “our long-term economic fundamentals, which remain exceptionally strong.” The statement cited strengthening economic growth, low unemployment and increasing wages for workers.
Experts have warned that an economic crash may be imminent after US stocks dropped to a two-year low on Friday. But this time, the crash would be massive and go global.
US stock indexes ended last week with their worst performance since June 2016 after the Dow Jones industrial average futures dropped more than 200 points, the S&P 500 dropped by nine points, and Nasdaq 100 futures saw 37.75 points fall. Jason Draho, head of tactical asset allocation for the Americas at UBS, described the “growing pains” in the market to be at fault for the low performance. “Markets are likely to remain choppy as they adapt to this new growth and interest rate environment,” Draho said.
But the stock markets wobbly performance at the end of last week is not the only sign to analysts that there is trouble ahead. In a separate warning, economist Allison Schrager explained that the global economy could be about to suffer a setback. Americans’ lack of money in savings could indicate massive overconfidence in the market. “The economy may be booming now but there are plenty of reasons to be skeptical it will last,” said Schrager. “Productivity numbers don’t justify the headline growth figures. Many people think the stock market is overvalued and due for a correction. It has been eight and a half years since the last recession and the natural oscillation of the business cycle suggest we may be due for another one soon.”
Speaking in January, Joachim Fels from Pimco also sounded the alarm. “The fact that the fear is gone is the main reason why we should be worried,” he said. “That means most investors are now pretty fully invested and that means they will want to get out if the markets start to correct – exacerbating the downdraft.”
We have never seen a better year for stocks in all of U.S. history. Just five days after Donald Trump entered the White House, the Dow Jones Industrial Average hit the 20,000 mark for the first time ever. On Monday, the Dow closed at 24,792.20, and there doesn’t seem to be any end to the rally in sight. Overall, the Dow Jones Industrial Average is up more than 5,000 points so far in 2017, and that absolutely shatters all of the old records. Previously, the most that the Dow had risen in a single year was 3,472 points in 2013.
Yes, I know that it may seem odd for a website that continually chronicles our ongoing “economic collapse” to be talking about a boom in stock market prices. But of course there has not been a corresponding economic boom to match the rise in stock prices. This artificial stock market bubble has been created by unprecedented central bank intervention, and every previous stock market bubble in our history has ended with a horrible crash.
But for the moment, it is certainly appropriate to be in awe of what has transpired in the financial markets in 2017. Never before have we seen the Dow close at a record high 70 times in a single year, and we still have almost two weeks to go.
Stocks have risen every single month in 2017, and that is the very first time that has ever happened as well. No matter how much bad news has come out, stock prices have just kept climbing and climbing and climbing.
Since Donald Trump’s surprise election victory last November, the Dow is up a whopping 34 percent.
34 percent!
Wall Street has never seen better times than this. Overall, U.S. stockholders have seen more than 5 trillion dollars in paper gains since Trump was elected, and this has created a real estate boom in some of the wealthier areas of the nation.
Of course markets go down a lot faster than they go up, and that 5 trillion dollars in paper gains could be wiped out very rapidly in the event of a major disaster, but for the moment investors are absolutely thrilled with what has been happening.
Of course there are red flags all over the place, but not too many people are even paying attention at this point. Right now the S&P 500 is the most overbought that it has been since 1958, and earlier today a CNBC article declared that U.S. stocks are “very, very overbought”, but this will probably just encourage people to buy even more.
These days, if stocks are up that is a signal to buy, and if stocks are down that is a signal to buy.
Of course we witnessed similar euphoria just before the dotcom bubble burst and just before the financial crisis of 2008, but most Americans have extremely short memories.
For most of us, those crashes might as well be ancient history.
But just like in each of those cases, market euphoria tends to hit a peak before things completely fall apart. Bill Stone, the chief investment strategist for PNC Asset Management Group, recently made this point very succinctly…
“It is going to get to a point where it can’t get any better anymore,” he said. “In the market it’s always brightest before it gets dark.”
“Yes. Everyone knows that the markets are overvalued. The Schiller PE ratios rival those of the pre-1929 stock market crash and the Dot-Com bubble…The Black Swan Event: When war breaks out in the Middle East, the equity markets around the world are going to crash. The Black Swan that is going to create ‘Market Shock’ is going to be an outbreak of war in the Middle East. And when that happens, you are going to see gold and silver skyrocket. That’s our forecast for one of the top 10 trends of 2018.”
Personally, I never believed that the stock market bubble could ever be inflated to such absurd proportions, and so I am just in awe at what is taking place on Wall Street.
Since the last financial crisis our national debt has doubled, corporate debt has doubled, U.S. consumers are now 13 trillion dollars in debt, our economic infrastructure continues to be gutted, more than 40 million Americans are living in poverty and our financial institutions are being more reckless than at any other point in our entire history.
But for the moment, it is working. We have been on the greatest debt binge in world history since the end of the last recession, and most people seem to believe that the debt-fueled standard of living that we are currently enjoying is somehow going to be sustainable.
Nothing about our long-term economic outlook has fundamentally changed. Just because the authorities were able to extend this bubble for a little while longer does not mean that we are going to get to escape the consequences of decades of incredibly foolish decisions.
We just keep on mortgaging the future, but the funny thing about the future is that eventually it shows up.
And when our day of reckoning finally does arrive, the pain that it is going to cause is going to be absolutely off the charts.
Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream.
The absurdity that we are witnessing in the financial markets is absolutely breathtaking. Just recently, a good friend reminded me that the Dow peaked at just above 14,000 before the last stock market crash, and stock prices were definitely over-inflated at that time. Subsequently the Dow crashed below 7,000 before rebounding, and now thanks to this week’s rally we on the threshold of Dow 24,000. When you look at a chart of the Dow Jones Industrial Average, you would be tempted to think that we must be in the greatest economic boom in American history, but the truth is that our economy has only grown by an average of just 1.33 percent over the last 10 years. Every crazy stock market bubble throughout our history has always ended badly, and this one will be no exception.
And even though the Dow showed a nice gain on Wednesday, the Nasdaq got absolutely hammered. In fact, almost every major tech stock was down big. The following comes from CNN…
Meanwhile, big tech stocks — which have propelled the market higher all year — were tanking. The Nasdaq fell more than 1%, led by big drops in Google (GOOGL, Tech30) owner Alphabet, Amazon (AMZN, Tech30), Apple (AAPL, Tech30), Facebook (FB, Tech30) and Netflix (NFLX, Tech30).
Momentum darlings Nvidia (NVDA, Tech30) and PayPal (PYPL, Tech30) and red hot gaming stocks Electronic Arts (EA, Tech30) and Activision Blizzard (ATVI, Tech30) plunged too. They have been some of the market’s top stocks throughout most of 2017.
Many believe that the markets are about to turn down in a major way. What goes up must eventually come down, and at this point even Goldman Sachs is warning that a bear market is coming…
“It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,” Goldman Sachs International strategists including Christian Mueller-Glissman wrote in a note this week. “All good things must come to an end” and “there will be a bear market, eventually” they said.
As central banks cut back their quantitative easing, pushing up the premiums investors demand to hold longer-dated bonds, returns are “likely to be lower across assets” over the medium term, the analysts said. A second, less likely, scenario would involve “fast pain.” Stock and bond valuations would both get hit, with the mix depending on whether the trigger involved a negative growth shock, or a growth shock alongside an inflation pick-up.
Nobody believes that this crazy stock market party can go on forever.
These days, the real debate seems to be between those that are convinced that the markets will crash violently and those that believe that a “soft landing” can be achieved.
I would definitely be in favor of a “soft landing”, but those that have followed my work for an extended period of time know that I do not think that this will happen. And with each passing day, more prominent voices in the financial world are coming to the same conclusion. Here is one recent example…
Vanguard’s chief economist Joe Davis said investors need to be prepared for a significant downturn in the stock market, which is now at a 70 percent chance of crashing. That chance is significantly higher than it has been over the past 60 years.
The economist added,“It’s unreasonable to expect rates of returns, which exceeded our own bullish forecast from 2010, to continue.”
A stock market crash has followed every major stock bubble in our history, and right at this moment we are in the terminal phase of one of the greatest stock market bubbles ever. There are so many indicators that are screaming that we are in danger, and one of the favorite ones that I like to point to is margin debt. The following commentary and chart were recently published by Wolf Richter…
This chart shows margin debt (red line, left scale) and the S&P 500 (blue line, right scale), both adjusted for inflation to tune out the effects of the dwindling value of the dollar over the decades (chart by Advisor Perspectives):
Stock market leverage is the big accelerator on the way up. Leverage supplies liquidity that has been freshly created by the lender. This isn’t money moving from one asset to another. This is money that is being created to be plowed into stocks. And when stocks sink, leverage becomes the big accelerator on the way down.
Markets tend to go down much faster than they go up, and I have a feeling that when this market crashes it is going to happen very, very rapidly.
The only reason stock prices ever got this high in the first place was due to unprecedented intervention by global central banks. They created trillions of dollars out of thin air and plowed those funds directly into the financial markets, and of course that was going to inflate asset prices.
Even Federal Reserve Chair Janet Yellen says that she is concerned about causing “a boom-bust condition in the economy”, and yet she insists that the Fed is going to continue to gradually raise rates anyway…
Federal Reserve Chair Janet Yellen said the central bank is concerned with growth get out of hand and thus is committed to continuing to raise rates in a gradual manner.
“We don’t want to cause a boom-bust condition in the economy,” Yellen told Congress in her semiannual testimony Wednesday.
While Yellen did not specifically commit to a December rate hike, her comments indicated that her views have not changed with her desire for the central bank to continue normalizing policy after years of historically high accommodation.
I never thought that this stock market bubble would get this large. We are way, way overdue for a financial correction, but right now we are in a party that never seems to end.
But end it will, and when that happens the pain that will be experienced on Wall Street will be unlike anything that we have ever seen before.
Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream.
Former Congressman and presidential candidate Ron Paul thinks the stock market might lose 50 percent of its value this year.
“A 50 percent pullback is conceivable,” Paul said on CNBC’s “Futures Now” last week. “I don’t believe it’s 10 years off. I don’t even believe it’s a year off. “
If Paul is correct, the Dow Jones would plummet to 10,851.71 and the S&P 500 would fall to 1,214.185. The S&P Index was at 2,428.37 and the Dow at 21,703.75 on Monday.
It also would be the greatest crash in history – even larger than the Great Crash of 1929 when the Dow lost 12 percent of its value. The stock market did not recover from the crash of 1929 until 1945, after World War II.
“I see the foundation of our system built on sand, and a big wind comes along to blow it down,” Paul said.
Wall Street, he said, is overestimating the strength of the U.S. economy.
“It’s all man-made,” Paul said. “It’s not the fault of Donald Trump … If the market crashes tomorrow and we have a great depression, he didn’t do it in six months. It took more like six or 10 years to cause all these problems that we’re facing.”
What do you think? Share your thoughts in the section below:
Shepard Ambellas is an opinion journalist, analyst, and the founder and editor-in-chief of Intellihub News & Politics (Intellihub.com). Shepard is also known for producing Shade: The Motion Picture (2013) and appearing on Travel Channel’s America Declassified (2013). Shepard is a regular contributor to Infowars. Read more from Shep’s World. Follow Shep on Facebook. Subscribe to Shep’s YouTube channel.
Although the stock market is at an all-time high, Americans owe more, save less, and are poorer than they have been in decades.
