Summing Up The Week

Any hopes that the Federal Reserve was winning the war against inflation were dashed this week when the Consumer Price Index came in red-hot and JP Morgan (JPM) terrified markets with earnings that portrayed dire consequences looming for the global economy.

In other words, it was a fun week. /sarcasm

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

Market News

US Dollar hits parity with Euro for 1st time in 20 years

On Tuesday, the big news was the U.S. Dollar hitting parity (meaning 1 U.S. Dollar exchanges for 1 Euro), indicating a sign of international weakness as investors flee into the global reserve currency, reported CNBC.

Historically, the Euro, the currency of the European Union, has a higher value than 1:1 or “parity.” When the Euro weakens, it approaches a 1:1 exchange rate with the U.S. dollar. In the rare occasion where the exchange rate is even, it indicates a strength discrepancy between the two currencies.

While the layman might think, “Hey, a strong dollar is a good thing because I can buy more international goods for my same dollar,” the inverse is actually true. Most U.S. companies have international operations and when they make money in other countries, they must convert the native currency back to USD. A stronger dollar means weaker profits.

One bright spot is for international travelers. An approach to parity can provide a nearly 15% discount to travelers heading to Europe as they will be able to exchange fewer American dollars for more Euros.

Inflation surprises! Highest in 40 years!

You’d think we would have come to expect shocking inflation numbers, however this obviously isn’t the case as Wednesday’s Consumer Price Index (CPI) showed a 9.1% year-over-year increase from last June, much higher than 8.8% Dow Jones estimate, reported CNBC. To make matters even more difficult for the American consumer, workers’ hourly wages fell 1% during June and are down 3.6% from last year.

“CPI delivered another shock, and as painful as June’s higher number is, equally as bad is the broadening sources of inflation,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Though CPI’s spike is led by energy and food prices, which are largely global problems, prices continue to mount for domestic goods and services, from shelter to autos to apparel.”

Naturally, the market sold off on the release of the news as ever-increasing inflation figures indicate that the Federal Reserve’s attempts to tamp down the rate of inflation haven’t been extreme enough, virtually guaranteeing another 0.75% benchmark rate increase when the Fed meets in the last week of July with the market actually pricing the potential of a full 100-basis-point (1.00%) rate hike!

Bellwether JP Morgan earnings scare markets

Going into Thursday, many pundits believed the money-center banks, specifically best-of-breed JP Morgan (JPM) would report stellar earnings. Personally, I was skeptical given the current macroeconomic environment and the weakness in the markets earlier in the week.

Unfortunately, as a shareholder of JPM, it turned out I was right to be wary as JP Morgan (JPM) earnings fell short of analyst expectations as the bank needed to build reserves to cover bad loans, reported CNBC.

 “The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy,” said CEO Jamie Dimon in a release.“But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road.”

With so many investors and trading pinning their hopes on an earnings quarter with surprises to the upside, JPM’s downside disappointment sent the markets spiraling even further following Wednesday’s selloff.

Next Week’s Gameplan

This week was the perfect example of the reason I maintain a plan for Buying and Selling in Stages – no one can predict the future. Some of my most favorite analysts believed inflation had peaked and that JP Morgan would report positive earnings, neither of which was true.

If there’s one thing I’ve learned in my nearly 25 years investing for myself, it’s this – no one knows anything. Rather than hope for something to happen and be wrong, it’s better to have a plan for both directions and execute. What am I going to do if the market goes up tomorrow? What am I going to do if the market goes down tomorrow?

If the market doesn’t move enough to hit my buy targets or my sell targets, then I simply sit on my hands and wait. It’s not glamorous. It’s not exciting. But it works.

Have a great week, everyone, and remember to stay calm and carry on!

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

Bitcoin loses $20K, trades in tandem with… gold?!

Bitcoin continued to act more like a risk asset than an inflation this week, losing the $20K support and dipping below $19,000 to create a new higher weekly low at $18,892.00 and turning $18,603.00 into our monthly low.

However, the drop means last week’s high of $22,490.54 now becomes Bitcoin’s monthly high, and the crypto completely fell below the Next Support of Last Resort (?), turning this long-followed trendline back into resistance which it tested Friday morning before pulling back once more.

Even though I lend very little credence to fundamentals in the cryptocurrency space since Bitcoin and its brethren tend to ignore them, the “funnymentals” are not good, either. Crypto lender Celsius informed state regulators that its filing for bankruptcy is imminent, reported CNBC on Thursday. 

This news comes on the heels of last week’s bombshell of Voyager Digital declaring bankruptcy, claiming all users’ crypto on the platform to pay off its own debts, and the FDIC denying Voyager’s users had any protections despite the platforms claims otherwise, reported CoinTelegraph.

To make matters worse, news broke this week that roughly $3 billion worth of Bitcoin will be released into the market as Mt. Gox, the failed crypto platform from 2014, is expected to finally distribute funds to creditors who have been waiting nearly a decade to liquidate their assets, reported Yahoo! Finance.

While it’s feasible that some of these users will continue to HODL based on how much their remaining crypto has appreciated since it was frozen eight years ago, the higher likelihood is that they will sell what remaining Bitcoin they receive in order to recoup at least some of their losses.

Certainly, all of that is bad news, so why do I call them “funnymentals?” In my experience, Bitcoin ignores any negative news catalysts (it also ignores positive news catalysts). The crypto acts on the whims of the whales that control the space and typically respects the technicals of the charts instead of news (of course, this is also not always the case).

The Bullish Case

Bulls argue that all of the failing institutions represent a positive news catalyst as the overleveraged space will clear all the poor investments. According to Bulls, this will lead to buying by sterner hands who will HODL for the long term instead of simply following the “Greater Fool Theory” and hoping someone will buy their crypto at higher prices to turn a quick profit.

The Bearish Case

Bears believe there is still significant leverage left in the space that has yet to be shaken out. Additionally, the potential for Mt. Gox’s nearly 200K Bitcoin to be sold quickly willl almost certainly put extreme selling pressure on the entire cryptocurrency sector.

Bitcoin Trade Update

Current Allocation: 16.026% (Unchanged since last update)
Current Per-Coin Price: $23,780.95 (Unchanged since last update)
Current Profit/Loss Status: -12.331% (-2.158% since last update)

Mind your risk keeping your crypto and USD on any crypto exchange!

Before I talk my trade, I wanted to let my readers know that the recent news about Voyager Digital has made me rethink where I keep my assets. Unfortunately, both Coinbase (COIN) and Gemini, the two major U.S. crypto brokers, have similar verbiage in their user agreements to Voyager’s – in the event of bankruptcy, any crypto held on the platforms may be used to pay down the platforms’ debts.

Additionally, the FDIC currently provides no way on their website to confirm whether or not brokers (crypto, stocks, or otherwise) are actually insured. Their robust search engine only searches the organization’s bank registry, not its investment registry.

As a result, I have adjusted my asset strategy. Typically, I only transfer my crypto profits onto cold storage, leaving any crypto involved in the current trade in my brokerage account. Thanks to Voyager’s bankruptcy, I now hold the vast majority of crypto – both in and out of current trades – off-network, keeping only a fraction of my crypto on network to use when it’s time to take profits over the potential short-term upward moves. If Bitcoin heads even higher, I will transfer crypto onto the brokerage account as needed.

Unfortunately, there is a fee to transferring crypto both to and from my cold wallets, and this fee will eat into the profits of my trades. However, avoiding the potential of having large sums of my crypto confiscated is worth the relatively small cost of transfers.

Additionally, I have withdrawn the vast majority of my USD from the crypto brokers I use. Since the time required to perform USD transfers from banks-to-brokers has been reduced to virtually instant (you can request a transfer to a brokerage and use the funds to trade nearly immediately following the transfer request), there is no reason to risk having USD frozen (or forfeited) in light of recent exchange failures.

I will only keep a relatively small amount of USD on my brokerages for the next few trades and will then add to it, as needed. Naturally, all of this creates more work and is a bit of a pain, but not nearly the pain I imagine some Voyager Digital account-holders are experiencing currently, virtually guaranteed to have lost most if not all of their crypto and potentially all of their USD, too. Yikes!!

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Since last week, there have been no changes to my Bitcoin trade as it continues to stay within a range between where I will add and where I will take profits. So be it. I can be patient. 😉

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:

0.155% @ $18,961
0.155% @ $18,320
0.155% @ $18,071
0.155% @ $17,609
0.465% @ $16,229
1.241% @ $15,277
3.103% @ $14,276
3.103% @ $12,165
3.103% @ $10,612
3.103% @ $9,529

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 (possible moves include drops of -90% or more and gains of +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.
• In December 2019, Bitcoin crashed -54% to a low of $6430.00 in December 2019.
• In February 2020, Bitcoin rallied +64% to $10,522.51.
• 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 June 2022, Bitcoin crashed -75% to a low of $17,567.45.

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

What if Bitcoin’s headed to zero?