Summing Up The Week

Inflation shows positively no sign of letting up, and now with global economic concerns in the form of potential sovereign debt crises rearing their heads, the stock market continues its trek through dark days during the year’s spookiest month.

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

Market News

JPMorgan CEO warns of recession in 6-9 months

On Monday, Jamie Dimon, CEO for JPMorgan Chase (JPM), warned the current economic condition is “serious stuff” and that the U.S. is likely to tip into a recession in 6-9 months, reported CNBC.

In an interview, Dimon explained that he felt the economy is “actually still doing well” currently, however the interest rate hikes by the Federal Reserve Bank would likely take effect in the coming year, causing a recession. 

“These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” said Dimon in an interview with CNBC. “And, you know, from here, let’s all wish [Fed Chairman Jerome Powell] success and keep our fingers crossed that they managed to slow down the economy enough so that whatever it is, is mild — and it is possible.”

When asked for predictions about the stock market, Dimon said he could see the S&P 500 benchmark fall by “another easy 20%” from current levels. Yikes!

Bank of England intervenes to prevent ‘material risk’

On Tuesday, the Bank of England intervened into the bond (gilt) markets again in an emergency-bond buying operation to prevent a “fire sale dynamics,” reported CNBC. Shortly after new Prime Minister Liz Truss’s new government caused the gilt market in Britain to go haywire, the Bank of England had to step in to stabilize it. Apparently, the damage done was so severe that B of E had to remain in play.

“The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” the bank said in a statement Tuesday.

Wholesale prices rose more than expected in September

On Wednesday, the Bureau of Labor Statistics’ Producer Price Index (PPI) showed wholesale prices rose 0.4% in September versus the estimated 0.2% gain, reported CNBC. The PPI measures how much businesses receive for the goods and services they produce, and an increase means inflation continues to persist.

This persistent inflation led Cleveland Fed President Loretta Mester to say in a speech on Tuesday that “there has been no progress on inflation,” not a good sign for bulls who were hoping that the Fed might opt for less than a 75-basis point rate hike at their next meeting in early November.

INFLATION! CPI increased 0.4% in Sept vs 0.3% expected

On Thursday, the Bureau of Labor Statistics released its Consumer Price Index (CPI) for September which showed an increase of 0.4% for the month versus the Dow Jones estimate of 0.3%, indicating inflation is still raging despite the Fed’s rate hikes, reported CNBC.

The food index rose 0.8% for the month, the same as August, and was up 11.2% from a year ago. Closely watched shelter costs, which make up about one-third of CPI, rose 0.7% and are up 6.6% from a year ago. Transportation services also showed a big bump, increasing 1.9% on the month and 14.6% on an annual basis. Medical care costs rose 1% in September.

Naturally, such a hot CPI number caused the stock markets (and crypto, for that matter) to sell off in a big way as there seems to be little question that the Federal Reserve will be forced to hike interest rates by a minimum of 0.75% at their next meeting in early November, where bulls were hoping for 0.5% and some were actually hoping for a pause or pivot on the Fed’s tightening strategy.

Next Week’s Gameplan

It’s time to batten down the hatches and prepare for an epic storm. With very little possibility of positive news catalysts anywhere on the horizon for at least the rest of October, the likely move for the markets is downward.

As always, the best way to prepare is to make your plan in advance, stick with it, and, when all else fails, do not look at your portfolio if you can’t handle the pain.

In the meantime, stay calm, carry on, and I’ll see you all here next week!

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… not an inflation hedge!

I know I keep beating the same dead horse, but the fact that Bitcoin is absolutely not an inflation hedge and is, instead, directly correlated with risk assets is a notion that absolutely must be hammered into the head of anyone interested in speculating in the crypto space.

When the CPI report showed higher inflation than expected, Bitcoin positively collapsed with the rest of risk/growth assets, much lower than last week’s weekly low at $18,923.81 and even breaking the monthly low at $18,153.13 before finding support slightly lower, setting a new monthly low $18,131.00.

Then, with the rest of the market, Bitcoin positively rocketed higher, finishing the week virtually where it finished last week which was also virtually where it finished the week prior! In other words, Bitcoin is very much trading within a range right now… until it breaks one way or another.

The Bullish Case

Bulls remain steadfast that 2022’s low at $17,567.45 will hold, if tested, claiming that the Crypto Winter is closer to the bottom than it is to another leg down. Accordingly, many Bulls are actually looking forward to the Fed’s rate hike in November as they believe the market will “price it in” and head higher shortly.

The Bearish Case

Bears adhere to the adage “History doesn’t repeat itself, but it often rhymes” and believe that Bitcoin will see another leg down in accordance with expectations for the broader investment world.

Bitcoin Trade Update

Current Allocation: 16.538% (+0.256% since last update)
Current Per-Coin Price: $23,455.26 (-0.429% since last update)
Current Profit/Loss Status: -16.206% (+0.745% since last update)

Bitcoin filled a number of my buy orders during its collapse early Thursday morning, giving me an average buy price of $18,430.94 (after trading fees).

Since I continue to use small quantities as I expect a much larger selloff is coming, the buys only lowered my per-coin cost -0.429% from $23,556.39 to $23,455.26 and raised my allocation +0.256% from 16.282% to 16.538%.

Since 2022 is starting to feel a lot like 2018, I will increase my buy quantities very slowly on the way down in anticipation of a potential epic selloff. In 2018, Bitcoin dropped ~50% from its stabilization point around $6,200 down to its ultimate low at $3,130. If the crypto makes a similar move this year, we could be looking at a low between $9K-11K (if not lower given how the space has a lot more leverage and weak hands this time around…)

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:

0.144% @ $17,719
0.144% @ $17,071
0.289% @ $16,788
0.722% @ $15,980
0.867% @ $15,304
1.445% @ $14,545
1.445% @ $13,904
1.445% @ $12,806
1.445% @ $11,916
2.890% @ $10,426

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.
• In August 2022, Bitcoin rallied +44% to a high of $25,214.57.
• In October 2022, Bitcoin dropped -28% to a low of $18,131.00.

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

What if Bitcoin’s headed to zero?