Summing Up The Week

The markets remain on edge after last week’s regional bank fiasco, and there’s no sign of relief when just a few off-hand comments made by Treasury Secretary Janet Yellen in front of Congress can send the markets reeling out of control!

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

Market News

UBS buys Credit Suisse; causes uproar with investors

Over the weekend, the Swiss government implored UBS, one of its two major banks, to buy out the other bank, the struggling Credit Suisse (CS), in a deal that angered investors by bypassing a shareholder vote, reported CNBC.

The news was predominantly good for the stock market, where investors were concerned the potential collapse of such a large bank as Credit Suisse would almost certainly have far-reaching ramifications and potential international contagion.

However, investors who held high-risk AT1 bonds (also known as contingent convertibles or “CoCos” and are considered part of a bank’s regulatory capital) at Credit Suisse were angered when the Swiss reuglators made decisions which would result in those investments being zeroed out completely.

The decision “can be interpreted as an effective subordination of AT1 bondholders to shareholders,” Goldman Sachs’ credit strategists said in a research note published Sunday. “It also represents the largest loss ever inflicted to AT1 investors since the birth of the asset class post-global financial crisis.”

Home sales spike as median price drops for first time in 10 years

On Tuesday, the National Association of Realtors  (NAR) released their monthly study showing sales of previously owned homes popped +14.5% in February versus January following the first decline median prices in a decade of -0.2% from February of last year, reported CNBC.

Analysts are pointing to the 30-year fixed rate mortgage which dropped to 6.67% at the time of the release. “Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” said Lawrence Yun, chief economist for the Realtors, in a release. “Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs.”

A decrease in home prices could provide an indication, however small, that the Fed’s fight against inflation is making ground.

Fed hikes rates 0.25%, notes hikes coming to an end

On Wednesday, the Federal Reserve raised the benchmark interest rate by 0.25%, as expected, but, more important, Chairman Jerome Powell indicated that the hikes would be coming to an end, reported CNBC.

“The Committee will closely monitor incoming information and assess the implications for monetary policy,” the FOMC’s post-meeting statement said. “The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.“

Initially, the markets rallied during the press conference as Powell delivered an overly dovish perspective, suggesting the Fed only has one more 0.25% rate hike left before they’ll pause and see what happens.

Unfortunately, Treasury Secretary Janet Yellen was testifying before Congress at the same time, and made a comment about how the FDIC hadn’t considered offering blanket depositor protection. This caused the markets to roll over and utterly collapse into the close.

But, here’s the funny thing – Yellen specifically said the FDIC would enact the same protections they used for Silicon Valley Bank and Signature Bank should another bank fail. Plus, the FDIC doesn’t even have the authority to make sweeping changes to depositor insurance – that decision rests entirely with Congress.

So, basically, all deposits are protected, but there’s no reason to pass sweeping insurance increases since you only need your deposits protected if your bank, in particular, goes belly up. Of course, there’s no reasoning with the markets, and stocks really got slammed. 

Treasury ready to take “additional actions if warranted”

On Thursday, Treasury Secretary Janet Yellen tried to perform damage control by explaining the Treasury would take additional actions to protect depositors, if needed, reported CNBC.

After freaking out the markets with her testimony on Wednesday, Yellen once again reiterated that the actions taken by the Treasury in the cases of Silicon Valley Bank and Signature Bank could be deployed again, if needed.

“We have used important tools to act quickly to prevent contagion. And they are tools we could use again,” Yellen said in written testimony before a House Appropriations subcommittee. “The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted.”

Bank crisis not over? Is Deutsche Bank next?

On Friday, Deutsche Bank’s share price slid 11% after a sudden increase in the cost of insuring against its default, reported CNBC. One of the largest banks in Germany, the sudden spike in the bank’s credit default swaps – an insurance instrument designed to insure a company’s bondholders against default – increased +21.83% in one night to 173 basis points from 142 points on Thursday.

As a result, the stock market once again sold off as fears that the banking crisis may be far from over and that spillover risk could be possible shook investors.

“In an uncertain economic environment and with investor confidence remaining fragile, there is a risk that policymakers will be unable to curtail the current turmoil without longer-lasting and potentially severe repercussions within and beyond the banking sector,” said credit agency Moody’s strategy team. “Even before bank stress became evident, we had expected global credit conditions to continue to weaken in 2023 as a result of significantly higher interest rates and lower growth, including recessions in some countries.”

Next Week’s Gameplan

Whenever there’s market volatility like we’ve been seeing, I find it important to remind everyone that not only should you have a plan for both directions, but please make sure to only use limit orders (never use market orders).

With prices whipsawing back and forth in lightning-quick succession, you want to be sure you get the buy and sell prices you intend to receive, not the ones a market order might flip your way.

Oh, and, as always, keep calm and keep investing on!

I’ll see you 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

Bitcoin rallies to $29K going into Fed meeting

Bitcoin’s continued throughout the week up until Wednesday, breaking through last week’s high at $27,033.04 and not finding resistance until $28,937.73 on Wednesday.

The crypto was not exempt from the volatility that visited stocks, either, as Bitcoin sold off more than -7.80% Wednesday afternoon following Janet Yellen’s comments in front of Congress before finding support at $26,678.16. If that support breaks, subsequent supports are at $23,931.01, $19,568.52, and $18,131.00 (before the 2022 low down at $15,460.00, of course).

The Bullish Case

Bulls continue to tout that the scare in regional banks reinforces Bitcoin’s use case as it is a currency with no counterparty risk. Given how well the crypto held up this week, the Bulls definitely seem to have the edge.

The Bearish Case

Bears came out of the woodwork in droves on Wednesday with claims that Bitcoin would collapse to under $10K in a matter of days following the volatility in stocks… until it didn’t. For the moment, the Bearish case needs significantly more support as Bitcoin seems to continually shrug off any bear case thrown at it.

Bitcoin Trade Update: Closed +12.53%

Well, that was a quick run. Shortly after opening my position last week, I ended up closing it on Saturday when Bitcoin made an epic run to nearly $28,000.00.

My average closing price was $26,676.06 (after fees) with left me with a total profit of +12.53%… in three days. Sometimes, it’s better to take the win rather than the risk, and with Bitcoin’s move becoming so parabolic, it’s hard for me not to be quick about closing positions.

Current Allocation: 0.300% (-0.367% since Trade Start)
Current Per-Coin Price: $27,143.75 (-1.983% since Trade Start)
Current Profit/Loss Status: +2.385% (*New Trade*)

With Bitcoin feeling like it might be back in a Bull Market (no matter how much I don’t believe it), I’ve switched my technique from Bear Market to Bull Market, too. That means getting in sooner than I think I should, and adding quantity if Bitcoin pulls back more.

Accordingly, I started a new position with a number of buys over the past week which left me with an average buying price of $27,692.93 (after fees) and a total allocation of 0.667% (I always start very small, particularly after an epic run like Bitcoin has seen).

After Bitcoin rallied into the Fed meeting, I decided to reduce my position (but not close the trade entirely) selling a total of half the position and decreasing the per-coin cost by -1.983% from $27,692.93 to $27,143.75 and an allocation of 0.300%.

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:

0.082% @ $25,854
0.082% @ $24,509
0.136% @ $23,833
0.223% @ $22,439
0.343% @ $21,487
0.310% @ $20,907
0.419% @ $20,321
0.610% @ $19,486
0.817% @ $18,706
0.817% @ $18,375

Not Your Keys, Not Your Crypto…

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 brands Ledger and Trezor to hold my crypto (click the links to access the direct sites, and I receive no 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 links to open accounts.

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 (COIN) being publicly traded (and one of my own Investments in Play positions).

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 $15,460.00.

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

What if Bitcoin’s headed to zero?

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.