Summing Up The Week
Seasonal weakness, a meeting of the Federal Reserve, and a fear of Chinese real estate giant, Evergrande, collapsing entirely caused a market panic and selloff in the first few trading days of the week before the entire thing blew over by Wednesday.
Talk about a fickle market!
Let’s look at the news that moved the markets (or didn’t) this week…
U.S. housing starts advanced +3.9% in August
On Tuesday, the Commerce Department reported that housing starts increased 3.9% in August, beating expectations, reported CNBC. The report showed 1.615 million units started in August versus economists’ estimates of 1.555 million units.
Given that housing is in short supply and materials needed to build homes were also limited, a surprise increase in new homebuilding could indicate a good economic rebound.
The news was not enough to prevent further selling in the markets as all eyes were turned to China and what they would do with the trillion-dollar Evergrande real estate developer which was expected to become insolvent later in the week.
Evergrande escapes collapse… for now…
Markets roared on Wednesday when Chinese-realty company Evergrande announced it would make its interest payments this week which many investors believed it would be unable to do, reported the Financial Times.
While the company’s payment will stave off collapse for now, many pundits believe that should Evergrande be unable to fix its financial situation, the Chinese government will let the copmany fail as a demonstration of the country’s newfound dedication to communism and “common prosperity.”
Evergrande holds a wide variety of real estate projects and has been funding its construction by pre-selling apartments. Reports show 80 million unfinished apartments in China, and, should Evergrande go out of business, those Chinese families would lose their substantial deposits – full price, in some cases – unless the Chinese government steps in.
Political experts believe that China will step in to bail out the individuals, however, those same pundits believe the government will not bail out bond-holders, shareholders, or the company itself, instead letting the massive company (it’s the second-largest real estate developer in the world) fail entirely.
On Thursday, the Wall Street Journal reported that Chinese authorities have been telling local authorities to “get ready for the possible storm” and that the government will only step in at the last minute to prevent spillover effects from Evergrande’s demise.
The report indicates that China’s government does, indeed, have the intent to prevent dramatic effects of Evergrande’s collapse, should it happen, but also that the authorities have no intent to fully bail out the company.
Existing home sales drop 2% in August
On Wednesday, the National Association of Realtors released existing home sales data showing a drop of -2% in August, reported CNBC. The NAR pointed to first-time homebuyers being priced out of the market as the reason for the decline. First-time buyers dropped to 19% of all sales, the lowest level since January 2019.
The data also led Lawrence Yun, the NAR’s Chief Economist, to believe that the housing market may finally be cooling down, “We do expect more inventory coming up, maybe with the end of the eviction moratorium.”
Investors think it’s time to take risk off the table, but is it?
On Wednesday, a CNBC survey showed the majority of investors to believe now to be a conservative time in the stock market. Of the 400 chief investment officers, equity strategists, portfolio managers, and CNBC contributors polled, 76% answered “now is a time to be very conservative in the stock market” with only 24% answering “now is a good time to be very aggressive in the stock market.”
While CNBC suggests that a more cautious view would be appropriate right now, I take the opposite tact. Historically, when a large majority of investors have the same opinion, taking the contrarian view often results in more profitable outcomes.
That being said, I’m still adding to my positions the same way I always do – in stages and with consistent quantities. I don’t believe in “backing up the truck” and buying my entire quantity of a position all at once; I’d rather miss an opportunity than not have cash on the sidelines to add more if a selloff continues.
The Fed to taper bond buying “soon”
Many investors were concerned the Fed might decide to reduce, or “taper,” its bond-buying plan in the near future, however, following the Fed meeting on Wednesday, Fed officials gave no date, simply saying they expect to reduce monthly purchases “soon,” reported CNBC.
“While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate,” said Fed Chairman Jerome Powell at his post-meeting news conference.
While many referred to the Fed meeting minutes as hawkish – indicative that the Fed intends to tighten monetary policy – I disagree. As long as U.S. debt remains astronomical, I don’t see how the Fed can ever raise interest rates, despite Powell announcing a rate hike may happen before 2022.
Raising the interest rate increases the cost of the U.S. debt, and limits the government’s ability to service said debt. Many economists and pundits believe the Federal government would be unable maintain its interest payments – much less reduce the actual debt itself – if interest rates increased.
The markets appeared to agree with my assessment – instead of selling off on such hawkish Fed reports, the markets rallied to the point that they were actually up on the week on Thursday – a week that saw a 2.5%+ selloff on Monday!
Next Week’s Gameplan
Even with the market near its all-time highs, the dip-buying investors and traders seem to be out there in force.
Accordingly, I’m adjusting my buying price targets to pick up shares in my favorite stocks when they sell off, but, as always, I’m keeping cash on the sidelines just in case the next dip is the one no one buys.
Get Irked contributors are not professional advisers. Discussions of positions should not be taken as recommendations to buy or sell. All investments carry risk and all readers must accept their own risks. Get Irked recommends anyone interested in investing or trading any asset class consult with a professional investment adviser to determine if an investment idea is suitable to them and their investment goals.
Click chart for enlarged version
Bitcoin Price (in USD)
Bitcoin Price Action
“Not correlated to the stock market?” Yeah, right…
From Sunday’s high to Tuesday’s low, Bitcoin sold off more than -17%, once again disproving the Bitcoiners who claim the crypto is not correlated to the stock market. Not only is Bitcoin almost directly correlated, it’s often a leading indicator, selling off in advance of a big market decline as it did this week.
On Tuesday, a huge swoon took Bitcoin below $40,000 before it found support at $39,600 and recovered later in the week until Friday, when CNBC reported that China was banning all cryptocurrency activities, not just mining.
The Bullish Case
Bulls point to the support at $39,600 as a sign that institutional and retail buyers won’t let the crypto crash too far before buying up the dip. Some optimistic analysts believe Bitcoin’s price will top $100K by the end of 2021.
The Bearish Case
Bears point to a variety of indicators (I just use my Line That Shall Not Be Crossed trendline) as significant resistance proving that Bitcoin won’t be able to make or break its all-time high before the end of the year. Most bearish analysts still believe a test of the $20,000 mark is in order before Bitcoin will attempt any new all-time highs.
Bitcoin Trade Update
Current Allocation: 0.701% (+0.489% since last update)
Current Per-Coin Price: $43,688.64 (-5.292% since last update)
Current Profit/Loss Status: -4.084% (-6.638% since last update)
A number of buy orders went through on Sunday and Monday during Bitcoin’s big drop which started late in the weekend. The combined orders gave me an average buying price of $44,352.66, lowered my per-coin cost -1.809% from $46,108.91 to $45,274.73, and raised my allocation +0.225% from 0.212% to 0.437%.
On Monday evening, two additional buy orders went through with an average buying price of $41,125.09 after fees. The orders lowered my per-coin cost -3.503% from $45,274.73 to $43,688.64 and increased my allocation +0.264% from 0.437% to 0.701%.
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:
0.140% @ $39,907
0.140% @ $36,662
0.140% @ $35,766
0.140% @ $34,449
0.140% @ $33,131
0.374% @ $31,158
0.348% @ $29,964
0.294% @ $29,153
0.685% @ $27,537
2.100% @ $23,890
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:
- In 2017, Bitcoin rose +2,707% from its January low of $734.64 to make an all-time high of $19,891.99 in December.
- 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, Bitcoin dropped -32% to a low of $28,732.00.
- In February 2021, Bitcoin rallied +103% to a new all-time high of $58,367.00.
- Later in February, Bitcoin dropped -26% to a low of $43,016.00.
- In March 2021, Bitcoin rallied +44% to a new all-time high of $61,788.45.
- Later in March, Bitcoin dropped -19% to a low of $50,305.00.
- In April 2021, Bitcoin rallied +29% to a new all-time high of $64,896.75.
- In June 2021, Bitcoin crashed -56% to a low of $28,800.00.
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.
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Suicide Hotline – You Are Not Alone
Studies show that economic recessions cause an increase in suicide, especially when combined with thoughts of loneliness and anxiety.
If you or someone you know are having thoughts of suicide or self-harm, please contact the National Suicide Prevention Lifeline by visiting www.suicidepreventionlifeline.org or calling 1-800-273-TALK.
The hotline is open 24 hours a day, 7 days a week.