Summing Up The Week

Even with record deficits and unemployment continuing to slam the U.S. economy, the stock market rocketed to all-new highs across all of the major indexes including the Dow Jones Index (DJI), the NASDAQ Composite (IXIC), the S&P 500 (SPX), and the Russell 2000 Small-Cap Index (RUT). 

While outsiders may be baffled to the stock market’s strength, the reality is simple – with the Federal Reserve Bank keeping interest rates at all-time lows, investors who would normally hold bonds have moved further out on the risk curve (i.e. they’re investing in stocks).

The influx of money combined with trillions of dollars still on the sideline in cash accounts has led many advisers to believe there’s even more upside left in the market’s record rally.

Let’s look at the news that moved the markets this week…

Market News

CBO says $15 minimum wage would cost 1.4M jobs

On Monday, the Congressional Budget Office (CBO) released a report showing that raising the federal minimum wage from $7.25 per hour in annual increments to $15 per hour would cost 1.4 million jobs, reported CNBC. While doing so, the increased minimum wage would effectively lift 900,000 people out of poverty. The hike would also add to the budget deficit.

President Joe Biden has prorposed such a plan in an effort to address the wealth inequity problem in America.

Tesla buys $1.5B in Bitcoin, accepted as payment

On Monday, Tesla (TSLA) announced in an SEC filing that it has bought $1.5 billion worth of Bitcoin (BTCUSD) and plans to accept it as a payment method for its products, reported CNBC.

While normally,  I try to keep the stock market news separate from the cryptocurrency news, when one of the market’s arguably most hyper-overvalued darlings buys a metric ton of one of the world’s arguably most hyper-overvalued assets of all time, it makes markets move.

In the filing, Tesla said it bought the crypto for “more flexibility to further diversify and maximize returns on our cash.” With more than $19 billion on-hand at the end of last year, the purchase represents nearly 10% of the company’s cash reserves.

As a result of the announcement, Bitcoin added popper nearly 15% to a new all-time high of $44,900.00 on Coinbase before consolidating on Monday.

Rep. Ron Wright (R-Texas) dies of Covid-19

A grim reminder of the mortality of the novel coronavirus Covid-19 and the fact that the pandemic is still very much a reality, Representative Ron Wright of Texas died Monday after contracting the disease weeks ago, reported CNBC. Wright, a Republican, was only 67 years old.

Texas was one of the last states in the union to take the disease seriously, with many of its citizens believing the disease only affected colder states, that their population was strong enough to resist the disease, and some claiming the pandemic was a fraud, referring to it as a “plandemic.”

Fortunately, the majority of the country, including Texas, now takes the disease seriously with proper precautions, however, Wright’s passing serves as a reminder that herd immunity and proper treatment may still be a long way off.

Fed Chair Powell reiterates rates will stay low

In a speech at the Economic Club of New York on Wednesday, Federal Reserve Chairman Jerome Powell once again emphasized that rates will stay low for “awhile,” pointing to the unemployment rate and other economic factors, reported CNBC.

Improving the economy and increasing employment will require a “patiently accomodative monetary policy that embraces the lessons of the past.”

Powell also acknowledged that the misclassifcation errors taking place at the Labor Department means the unemployment rate is likely closer to 10% rather than the 6% reported, “Despite the surprising speed of recovery early on, we are still very far from having a strong labor market whose benefits are broadly shared.”

U.S. 2021 deficit projected at $2.3T, says CBO

On Thursday, the Congressional Budget Office (CBO) released a report projecting the U.S. deficit to be $2.3 trillion in fiscal 2021 without additional stimulus, reported CNBC.

While 2020’s $3.13 trillion deficit still takes the cake as the biggest single-year deficit in the country’s history, 2021 will easily be a close second, and that’s if the government doesn’t pass additional stimulus. Comparatively, last year’s deficit was 14.9% of the Gross Domestic Product (GDP) for the country where this year’s is projected to be 10.3%, so that’s something… I guess?

In the report, the CBO attempts to make the argument that the large deficits will be offset by faster economic growth: “Those deficits, which were already projected to be large by historical standards before the onset of the 2020-2021 coronavirus pandemic, have widened significantly as a result of the economic disruption caused by the pandemic and the enactment of legislation in response.”

Weekly jobless claims at 793K vs. 760K expected

Last week’s new jobless claims totaled 793,000 versus the 760,000 estimate from Dow Jones, reported CNBC. More-than-expected newly-unemployed Americans would be bad enough, however, the total filings for assistance jumped to 20.44 million amid a surge of applications for benefits under pandemic-related programs.

The increasing figures of newly unemployed combined with millions of Americans in need emphasizing the ongoing message that the U.S. economy is not improving. Economists and health experts alike point to the vital importance of vaccine rollout if the American economy is ever going to reopen at the rate it needs to in order to prevent a collapse.

Next Week’s Gameplan

As I’ve said since the beginning of 2021, I’ve set more aggressive price targets to add to my core positions, however I’m limiting my risk by reducing the quantity I would typically buy at key levels.

The market feels frothy and I feel as though I can hear its branches creaking, but we still know very little about how all the variables of this unprecedented situation fit together – it’s a heck of a puzzle.

I’ve also been ramping up investments in hedging plays – investments that will supposedly outperform in event of a downside turn. For me, this includes goldminers, emerging markets, consumer staples, and utilities, all played through a variety of ETFs to limit single-company exposure.

What will next week bring? We will certainly find out!

This Week in Play

Stay tuned for this week’s episodes of my two portfolios Investments in Play and Speculation in Play coming online later this weekend! 

Crytpo Corner

Bitcoin Price Action

The Elon Musk Effect?

Following Tesla (TSLA) CEO Elon Musk’s announcement that the company purchased $1.5 billion in Bitcoin earlier this week, Bitcoin rocketed to a new all-time high of $48,912.00. The move shattered through The Moneymaker trendline, a line drawn through all of Bitcoin’s peaks since 2015 (when it first became publicly traded on U.S.-based brokerages).

Since then, you can see in the charges that Bitcoin bounces between new all-time highs and using that same trendline as support, rather than resistance.

Bitcoin’s new weekly low is $37,371.35 (more than -20% lower than today’s price) and its monthly low is $28,732.00 with additional resistance at $27,678.00.

The Bullish Case

Technical Analysis Bulls will point to the breakthrough of this long-held resistance trendline indicates that Bitcoin has even more upside in store. In addition, Fundamental Bulls will argue that Tesla’s investment in the space helps to legitimize the cryptocurrency which will also provide fuel for future upward moves.

In fact, an article from CNBC on Friday suggested that even the bigger financial institutions may be getting closer to adopting Bitcoin.

The Bearish Case

Bears argue that while Tesla’s move into the space did cause the price of Bitcoin to rise dramatically, Tesla’s company stock plummeted nearly 10%.

Some analysts suggest that investors who are bullish in Tesla aren’t necessarily bullish on Bitcoin and are now bailing on the name to avoid exposure to the nascent cryptocurrency space.

The Bears say that since Tesla’s stock lost value after investing in crypto, other companies may now be less likely to put cash reserves into the space for fear of upsetting their investors, too.

Bitcoin Gameplan

Still no trade…

Thanks to Tesla’s investment, Bitcoin has yet to see any significant pullback. CNBC journalists flipped out earlier in the week when Bitcoin pulled back a mere -3% one day, coverage that confused even the most bullish Bitcoin enthusiast; a -3% move is nothing and the asset regularly trades within that range in a single day, if not single hours.

As usual, my gameplan requires a pullback of at least more than -10% before I consider entering a trade in this volatile asset, and with Bitcoin bouncing around its all-time highs, I’m in no rush to get into the space as shown by my buying targets below…

Bitcoin Buying Targets

Using Moving Averages and supporting trend-lines as guides, here is my plan for my next ten (10) buying quantities and prices:

0.912% @ $40,365
0.180% @ $37,892
0.180% @ $34,126
0.180% @ $31,692
0.180% @ $29,414
0.180% @ $27,539
0.180% @ $23,665
0.180% @ $19,619
0.180% @ $18,336
0.356% @ $16,338

No price target is unrealistic in the cryptocurrency space – Bullish or Bearish.

While traditional stock market investors and traders may think the price targets in the cryptocurrency space are outlandish due to the incredible spread (sometimes a drop of near -90% or a gain of up to +1000% or more), Bitcoin has demonstrated that, more than any speculative asset, its price is capable of doing anything.

Here are some of Bitcoin’s price movements over the past couple of years:

• Bitcoin rose +2,707% from its January 2017 low of $734.64 to make an all-time high of $19,891.99 in December of the same year.
• Then, Bitcoin crashed nearly -85% from its high to a December 2018 low of $3128.89.
  In the first half of 2019, Bitcoin rallied +343% to $13,868.44.
• From June 2019, Bitcoin crashed -54% to a low of $6430.00 in December 2019.
• From December 2019’s low, Bitcoin rallied +64% to $10,522.51 in February 2020.
• In March 2020, Bitcoin crashed nearly -63% to a low of $3858.00, mostly in 24 hours.
• Then, Bitcoin rallied +988% to a new all-time high of $41,986.37 in January 2021.
• Later in January 2021, Bitcoin dropped -32% to a low of $28,732.00.
• In February 2021, Bitcoin rallied +70% to a new all-time high of $48,912.00.

Where will Bitcoin go from here? Truly, anything is possible…

What if Bitcoin’s headed to zero?

The only reason I speculate in the cryptocurrency space is I truly believe Bitcoin isn’t headed to zero.

I am prepared for that possibility, however, by knowing I could potentially lose all of the capital I’ve allocated to this speculative investment. Professional advisers recommend speculating with no more than 5% of an investor’s overall assets. Personally, I’ve allocated less than that to speculating in crypto.

I feel that anyone who doesn’t fully believe in the long-term viability of cryptocurrency would be better served not speculating in the space.

On a good day, this asset class isn’t suitable for those with weak stomachs. On volatile days, the sector can induce nausea in the most iron-willed speculator. If a speculator isn’t confident in the space, the moves will cause mistakes to be made.

DISCLAIMER: Anyone considering speculating in the crypto sector should only do so with funds they are prepared to lose completely. All interested individuals should consult a professional financial adviser to see if speculation is right for them. No Get Irked contributor is a financial professional of any kind.