Can the Fed Engineer a Soft Landing for the Biggest Bubble Since $12,000 Tulip Bulbs?

By Pam Martens and Russ Martens: January 21, 2022 ~

In her 2007 book, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, Anne Goldgar writes that a tulip bulb in 1637 sold for the equivalent of $12,000 in 2007 money. Now think about the tens of millions of dollars that were spent last year for one NFT.  It’s pretty clear that Tulipmania has nothing on the Fed-induced Bubblemania that is currently in the early stages of The Great Unwind.

Goldgar points out that as historians have looked back, the tulip mania of the 1630s in Holland has become a “byword for idiocy.”

At least a tulip bulb is a thing of beauty that reblooms year after year. Bitcoin, called “rat poison squared” by Warren Buffett, one of the smartest investors of all time, is not a thing of beauty, has nothing backing it, and is currently in free fall. After trading as high as $69,355 in November on the CME’s futures market, its front month futures contract closed at $36,725 on the CME today, a dive of 47 percent from its previous high.

Bitcoin was supposed to be the digital replacement for gold – a safe haven in a financial selloff. But Bitcoin, which along with other crypto currencies can be leveraged by hedge funds on a 100 times to 1 basis, closed down 13.94 percent on the CME today while the tech and SPAC bubble known as the Nasdaq stock market, closed down 2.72 percent on the day.

In early July 2019, economist Nouriel Roubini effectively summed up Bitcoin as this era’s “byword for idiocy,” stating the following on Bloomberg News:

“Crypto currencies are not even currencies. They’re a joke…The price of Bitcoin has fallen in a week by how much – 30 percent. It goes up 20 percent one day, collapses the next. It is not a means of payment, nobody, not even this blockchain conference, accepts Bitcoin for paying for conference fees cause you can do only five transactions per second with Bitcoin. With the Visa system you can do 25,000 transactions per second…Crypto’s nonsense. It’s a failure. Nobody’s using it for any transactions. It’s trading one sh*tcoin for another sh*tcoin. That’s the entire trading or currency in the space where’s there’s price manipulation, spoofing, wash trading, pump and dumping, frontrunning. It’s just a big criminal scam and nothing else.”

Today’s unwinding bubble has plenty of folks attempting to pump air back into it as it deflates. Consider the crazy headline that ran at 9:49 a.m. this Tuesday at Bloomberg News. It read: “Tech Stocks Unravel While Banks Are Hot in 2022 Rotation.” The first paragraph of the article read: “Technology stocks are out of favor, while previously shunned bank shares are popular again, as a persistent jump in bond yields is turning markets upside down this year.”

We knew that was a crazy theory so we decided to chart it. (See below.) Since November 1, 2021, shares of Goldman Sachs (which became a bank holding company in 2008) have lost 17 percent; JPMorgan Chase, the biggest bank in the U.S., has lost almost 15 percent, while the tech-laden Nasdaq stock market is down 12 percent. Rotating out of Big Tech into Big Banks is like the definition of insanity: doing the same thing over and over again and expecting a different outcome. You don’t trade one bubble for another bubble and find your way out of this corn maze of bubbles.

Share Prices of Nasdaq Versus JPMorgan Chase and Goldman Sachs Since November 1, 2021.

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