Summing Up The Week

Despite the ongoing concerns in the Russia-Ukrainian war, this week’s attention was completely dedicated to news from the Federal Reserve… and the news was not good. Raging inflation rates have caused the Fed to become more aggressive, with even the most-dovish Fed governors coming out in favor of more hawkish monetary policy.

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

Market News

Fed’s Brainard turns hawkish, scares market

On Tuesday, Federal Reserve Governor Lael Brainard, typically the most dovish on the Fed, announced the central bank could start reducing its balance sheet as soon as May and would do so at “a rapid pace,” reported CNBC.

Long-time readers may noticed I rarely (if ever) mention any of the Fed governors, instead focusing on Fed Chair Jerome Powell, however, it is important to note that the Fed is made up of several governors at different Federal Reserve Bank branches throughout the United States. Brainard has typically been one of the most “dovish,” in other words, she usually suggests less stringent moves by the Fed.

That changed on Tuesday.

In a speech given at a Minneapolis Fed discussion, Brainard said policy tightening will include a speedy reduction in the balance sheet and a steady pace of interest rate increases. Her comments indicated that rate moves could be higher than the traditional increments of 0.25 percentage point.

“Currently, inflation is much too high and is subject to upside risks,” she said in prepared remarks. “The [Federal Open Market] Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”

The market sold off quite a bit following the release of her comments with the Dow closing down -0.80%, the S&P down 1.26%, and the Nasdaq down -2.26% on the day.

Fed’s Patrick Harker piles on… “acutely concerned”

On Wednesday, Philadelphia Fed Governor Patrick Harker warned about inflation and spoke of “deliberate” rate hikes to control inflation, reported CNBC. Often, when the Fed is concerned about inflation, it will send out several governors to speak about the importance of controlling inflation with rate hikes.

Believe it or not, this approach of scaring the market with words – called “jaw-boning” – often works, causing the market to sell off which, in turn, typically cools the economy.

Mortgage rates surge over 5%, first time since 2011

On Tuesday, the interest rate for a 30-year fixed rate mortgage popped to 5.02%, its first increase beyond 5% since 2011, and, on Wednesday, mortgage rates settled at 4.90% with a 20% down payment, causing mortgage demand to drop to 40% lower than a year ago, reported CNBC.

“Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months,” said Joel Kan, an MBA economist. “As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019.”

As many homeowners (and potential homeowners) know, the housing market has been on fire since the beginning of the pandemic. While 5%+ mortgages are no fun, the market most certainly needs to be cooled, and, hopefully, the rising interest rates will do so.

Fed meeting minutes cause market freak-out

On Wednesday, the Fed’s March meeting minutes showed the central bank intends to reduce the balance sheet by $95 billion a month, far more aggressive than anticipated by economists, reported CNBC.

Officials “generally agreed” that a limit of $60 billion in Treasurys and $35 billion in mortgage-backed securities would be allowed to roll off, phased in over three months. “Many participants noted that — with inflation well above the Committee’s objective, inflationary risks to the upside, and the federal funds rate well below participants’ estimates of its longer-run level — they would have preferred a 50 basis point increase in the target range for the federal funds rate at this meeting,” the minutes said.

Next Week’s Gameplan

As if we haven’t had enough exciting news to move the markets, next week kicks off the start of Earnings Season for TY2022-Q1. Earnings Season starts with the banks, and their reports often dictate the “mood” for the rest of earnings, so we’ll see what happens when JP Morgan (JPM) reports on Wednesday.

Hang on to your hats… it’s sure to be a wild ride!

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

Will support hold Bitcoin’s retreat?

Bitcoin pulled back this week, breaking through previous weekly lows to form a tentative new low at $42,734.69 on Thursday which the crypto then tested on Friday. Should that low not hold, the next support level is around $37,500 followed by the monthly low at $34,322.00, the 2022 low at $32,933.33, and then the 2021 low at $28,800.00.

The Bullish Case

Bulls point to optimistic statements made at Miami’s “Bitcoin2022” conference held this week as signs that institutions and governments are accepting Bitcoin and cryptocurrency as here to stay. These Bulls believe the positive sentiment will provide support and that Bitcoin will head higher following this recent pullback.

The Bearish Case

Bears believe this week’s pullback, especially the strong rejection from the Downtrend? macro downward trendline, indicates that the overall bearish theme on the longer timeframes is still intact and that Bitcoin is headed lower. From a Technical Analysis perspective, history would imply the Bears have it on this one, however, Bitcoin has definitely thrown the idea of “what it should do” to the wind in the past.

Bitcoin Trade Update

Current Allocation: 2.930% (-0.816% from last update)
Current Per-Coin Price: $39,457.04 (-2.564% from last update)
Current Profit/Loss Status: +8.858% (-4.506% from last update)

It was time for more profit-taking as Bitcoin continued to bounce around between $45K and $50K over the past week with yet another stop-sell limit order that went through at $46,238.88. The order lowered my per-coin cost -2.564% from $40,495.46 to $39,457.04 and reduced my allocation -0.816% from 3.746% to 2.930%.

This trade started on November 11, 2021 (it’s now nearly six months old), and over the course of that time, I have reduced my per-coin cost a total of -39.323% from the initial starting price of $65,027.96 down to $39,457.04 by Buying and Selling in Stages while still maintaining a very conservative risk profile.

Not bad at all.

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:

0.059% @ $39,089
0.088% @ $38,578
0.117% @ $36,135
0.146% @ $34,652
0.176% @ $32,527
1.242% @ $30,029
1.260% @ $28,476
3.735% @ $25,026
4.408% @ $22,818
9.276% @ $20,507

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 April 2021, Bitcoin rallied +51% to a new all-time high of $64,896.75.
• In June 2021, Bitcoin crashed -56% to a low of $28,800.00.
• In November 2021, Bitcoin rallied +140% to a new all-time high of $69,000.00.
• In January 2022, Bitcoin crashed -52% to a low of $32,933.33.

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.