Summing Up The Week

The market’s whipsaw volatility continued this week with a mixture of good news and bad news ranging from potential signs of inflation peaking to credit issues and a potential significant weakening of the U.S. consumer. The result was a bipolar market that flew up one day only to sell off the next.

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

Market News

Fed to slow pace of rate hikes “soon?”

The Federal Reserve was back in the news this week with Vice Chair Lael Brainard saying, “I think it will be appropriate soon to move to a slower pace of rate increases” to Bloomberg News in an interview Monday, reported CNBC.

While I normally choose news stories that are “market-moving,” the fact that the markets stayed flat following Brainard’s comments was telling. The market rallied spectacularly late last week on the back of weaker-than-feared inflation data with hopes that the Fed might pause its rate hikes.

While Brainard vaguely suggested the Fed might consider decreasing its rate hikes and frequency of hikes, without a timeframe, her comments remained too obscure. However, rather than selling off in a hawkish panic, the market took the comments in stride, indicating that, for the moment at least, the stock market has priced in the likely approach the Fed will take over the near term.

PPI comes in cool, hints at inflation easing

On Tuesday, the Bureau of Labor Statistics’ Producer Price Index (PPI), rose 0.2% for October versus the Dow Jones estimate of a 0.4% increase, reported CNBC. The PPI measures the prices companies receive for finished goods in the marketplace, and while any positive figure indicates inflation still increasing, a smaller-than-expected number means that inflation may finally be peaking.

Whereas the Consumer Price Index (CPI) measures the price that end-consumers pay for products, the PPI measures the price companies receive at wholesale. While economists did expect the PPI to cool at least somewhat, the figure coming even cooler than expected caused markets to spike higher once more in hopes that the Fed may finally tone down its hawkish approach to rate hikes and tightening.

Household debt soars at fastest pace in 15 years

On Tuesday, the Federal Reserve released a report showing, in the third quarter of 2022, households increased debt at the fastest rate in 15 years primarily due to credit card usage and mortgage balances, reported CNBC.

“Credit card, mortgage, and auto loan balances continued to increase in the third quarter of 2022 reflecting a combination of robust consumer demand and higher prices,” said New York Fed Economic Research Advisor Donghoon Lee. “However, new mortgage originations have slowed to pre-pandemic levels amid rising interest rates.”

Should we be concerned about the economy in 2023?

Maybe. Some economists have pointed out disturbing similarities between October 2022 and October 2007. Shortly before the Great Recession, the data seemed the same: we had a low unemployment, a strong job market, and the yield curves have inverted dramatically, indicating the potential for a recession.

In 2007, the Federal Reserve assumed that the markets must have something wrong. While they had reduced the benchmark rate to deal with the weakening economy, the Fed had no additional plans to reduce the rate further since the data they reviewed seemed fine. A year later, and the (financial) world nearly came to an end and the U.S. plummeted into the greatest recession seen since the 1930s.

Now, we do not have the same credit risks in the housing market now in 2022 that we had in 2007, of course, so the likelihood of such a disaster scenario playing out is much slimmer. However, the similarities in economic data indicate we should be wary, and, as alwayss, be prepared for any possible outcome.

Target disappoints, warns of weakening consumer

Normally, a single company’s earnings report doesn’t move the market, particularly when a competitor released a positive earnings report just a day or two earlier. However, on Wednesday, Target warned that families are making trade-offs between what they need and what they want, reported CNBC.

Naturally, a weakening consumer terrifies the markets since the growth of the U.S. economy almost solely depends on consumer spending, and the market sold off, despite Wal-Mart (WMT) reporting a blowout quarter to the upside just two days earlier.

In its conference call, Target reported seeing a significant sales decline and warned about the all-important upcoming holiday shopping season. “It was a precipitous decline [in spending] and, frankly, we’ve seen those trends in the early part of November as well,” said Target Chief Growth Officer Christina Hennington.

Fed’s Bullard says hikes had “only limited effects” on inflation

The dueling banjoes that are the Federal Reserve presidents continued this week on Thursday when , St. Louis Federal Reserve President James Bullard said there’s a lot of work to do before inflation is controlled, reported CNBC.

“Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” said Bullard. “To attain a sufficiently restrictive level, the policy rate will need to be increased further.”

The Fed’s longstanding playbook remains to keep the markets off-balance by having a dovish FOMC member’s comments followed by a hawkish ones later, and this week proved to be no different as Bullard’s comments contradict the somewhat positive remarks made by Brainard on Monday.

Naturally, Bullard’s hawkish comments caused the markets to sell off as investors and traders once again became concerned the Fed will continue with aggressive hikes.

Next Week’s Gameplan

With the market rallying the last few weeks despite a sheer tidal wave of geopolitical and macroeconomic concerns on the horizon, I’ve been regularly taking profits throughout my entire portfolio – both in individual stocks and Exchange Traded Funds (ETFs) held in other portfolios.

What can I say? I’m just not feeling the bullish spirits that seem to be enrapturing investors and traders. This bear cycle has been following very predictable seasonal and historical trends, and while seasonality tells us to expect a bull rally through the end of the year, it also tells us that bear markets don’t typically reach an absolute bottom until March or April of the following year.

In other words, the bottom we saw in October may not be the actual low for this bear cycle – it’s highly likely that we could see an even lower low than what we’ve already seen in 2022. How low? It’s hard to say. Sometimes, the market finds a final bottom within a 5% drop from its last bottom and, other times, the market will drop an additional 10%+ from its previous low.

Once again, it’s time to make a plan for every one of my positions. When do I start buying and how much do I buy? Do I want to be all-in at a -10% lower low, or do I want to save cash on the sidelines? It’s different for every investor.

In the meantime, remember to keep calm. Remember to have a plan for both directions. And, remember – this isn’t the most important thing going on in your life.

With that, I’ll see you all back here next Friday.

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

Is all hope lost for Bitcoin and Crypto?

While there were plenty of grumbling news stories about Sam Bankman-Fried, ex-CEO of failed FTX broker, and the cascading bankruptcies of institutions it promised to save such as BlockFi and Voyager, those stories had little effect on crypto as it maintained its rangebound price action for the week.

After its bounce to last week’s high of $18,140.62, Bitcoin retreated once more. While it did not break its 2022 low, its subsequent recovery also did not break the high of last week’s high before it found resistance and set a new weekly high at $17,169.68 on Monday. Analysts will point out that a sequence of lower-highs and lower-lows is a bearish indicator for any investment asset.

The Bullish Case

Bulls continue to exhibit blind optimism that Bitcoin will not head lower with many claiming on Twitter that they “have never been more bullish on Bitcoin.”

I’m baffled.

While, personally, I am long-term bullish on Bitcoin (not so much the cryptocurrency sector as a whole), I do see the all of crypto staying under pressure until broader macroeconomic concerns are resolved at the very least, maybe not recovering until a total overhaul of regulation on this fledgling space has been implemented.

The Bearish Case

Bears continue to predict further downside for Bitcoin and the rest of crypto as bad news keeps rolling in. The consensus seems to be for a low test of between $10K-11K, with some theorizing that might not be a bottom, but just a waystation until Bitcoin heads to even lower lows in the four-digits.

Bitcoin Trade Update

Current Allocation: 18.333% (+0.384% since last update)
Current Per-Coin Price: $22,670.42 (-0.652% since last update)
Current Profit/Loss Status: -26.445% (-2.911% since last update)

My buy plan started back up relatively quick after last week’s update, with buys starting throughout the weekend with an initial fill at $16,877.40 and proceeding all the way down to my low buy at $16,270.20, giving me an average buy price of $16,613.54 (after trading and transfer/withdrawal fees).

The buys lowered my per-coin cost -0.652% from $22,819.13 to $22,670.42, and raised my allocation +0.384% from 17.949% to 18.333%.

A quick note about trading Bitcoin (or any crypto) safely): In light of everything happening with brokerages, I no longer keep any of my crypto on an exchange and I only keep enough USD on the exchange to execute my next few buys. I use multiple cold wallets from the brand Ledger and Trezor to hold my crypto (click the links to access the direct sites, and, no, I receive no sponsorship or affiliate benefits from these links).

Additionally, I have now divided my allocated USD between two different exchanges – Gemini and Coinbase – in case one (or both) becomes insolvent. Disclaimer: We both receive a bonus if you use either my Gemini or Coinbase referral link above to open an account.

Given everything that happened with FTX and Sam Bankman-Fried claiming customer funds were safe only to have it go completely bankrupt, I do not trust anyone in the space, even with Coinbase being publicly traded (and one of my own positions).

From here, I continue to have very little confidence in Bitcoin’s ability to maintain strength above its next key area of true support, the $10K-11K range, so you’ll notice while I have many buy targets, the quantities remain extremely small until we near key support.

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:

0.124% @ $15,884
0.124% @ $15,035
0.124% @ $14,228
0.124% @ $13,614
0.124% @ $13,151
0.124% @ $12,351
0.124% @ $11,889
0.124% @ $11,509
0.872% @ $10,985
2.713% @ $10,502

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 November 2022, Bitcoin crashed -78% to a low of $15,512.00.

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

What if Bitcoin’s headed to zero?