The Ecstasy and The Agony of Market Bubbles

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by Gary Christianson, Miles Franklin:

At a glance:

  • Tesla stock, Bitcoin, and others have blasted higher into a bubble.
  • Bubbles implode. Watch out below following the top, whenever that occurs.
  • The crazy silver bubble of 1979—1980 was LESS OUTRAGEOUS than the Tesla stock price bubble of today. Oops!

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BREAKING NEWS:

  • Gold fell $59 to $1,835 for the week ending January 8, 2021.
  • Silver fell $1.69 to $24.64 for the week.
  • The DOW exceeded 31,100. QE created $trillions, and The Fed injected fake money into the stock market.
  • Bitcoin almost reached $42,000. Bubble?
  • Tesla stock reached $884. Definitely a Bubble!

MARKET BUBBLES ARE AMAZING. 

  • They inspire feelings of ecstasy on the way up and agony on the way down, like PCP, meth, cocaine, and QE4ever.
  • Bubbles have occurred before and will happen again.
  • Every bubble feels new, special, and exciting. After the peak, the hangover, the consequences, the agony, the “regression to the mean,” the balancing, the “chickens coming home to roost” … torment us.
  • The crash after the bubble peak can be devastating. The wealth that seemed real… disappears, like morning mist.
  • Bubbles appear believable, inevitable, and justified… like desert mirages, until they implode.
  • But this time is not different, bubbles will pop, implosions occur, the agony becomes real, tears flow, and life goes on.

Before we discuss current bubbles, look at historical examples.
SILVER – 1979 – 1980:
The silver bubble was amazing. In January 1979, silver sold for under $6.00. In January 1980, silver prices exceeded $50 for a few moments. The media blamed the Hunt brothers, but gold bubbled higher at the same time and the Hunts were not invested in gold. Silver retraced 100% of the bubble rally, and sold for $11 in May 1980, under $5 in June 1982, and $3.51 in 1991.

CISCO SYSTEMS IN 1999 – 2000:

Cisco rose during the Internet bubble, reached amazing prices, and crashed. Cisco stock sold for $15 in April 1997, $30 in 1998, and exceeded $230 in March 2000.

By October 2001 it had crashed back to $9.00, retracing 100% of its rise from 1995.

THE NASDAQ 100 BUBBLE OF 1996 – 2000:
The Dow peaked in January 2000, but the NASDAQ 100 rose until March 2000. The index was priced at 400 in January 1995, under 1,100 in October 1998, and peaked over 4,800 in March 2000.
The index fell to 1,100 in September 2001, and 810 in October 2002, a fall of over 80% from top to bottom. The index retraced to levels last seen in 1996.

CRUDE OIL BUBBLE OF 2008:
Crude oil sold under $11 in December 1998, and $51 in January 2007. It bubbled higher in 2008 and reached $147 in July 2008. The bubble imploded and prices fell to $36 five months later in December 2008. The implosion retraced to prices last seen in 2004.

MODERN BUBBLES – BITCOIN AND TESLA STOCK:
Bitcoin bubbled higher in 2017 and 2018, selling for $750 in January 2017, and peaking near $20,000 in December 2017.
By December 2018, the bubble had burst, and Bitcoin fell to under $3,300.

In 2020 and 2021 Bitcoin did it again—another bubble. From $4,000 in March 2020, Bitcoin exceeded $41,900 in early January 2021. It may rise further.
Will Bitcoin reach $100,000 or fall under $5,000? Your call… My concerns are:
a) What is the intrinsic value of a Bitcoin?

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