Technoking, Bitcoin and the Fed

Technoking of Tesla Elon Musk now gets investors to a very unusual and completely unprecedented series of absurd discussions on what does he mean by his new title. So, the CFO’s new title of ‘Master of Coins’ is more understandable, as it actually refers to the company’s $1.5 billion investment in Bitcoin, its acceptance of the cryptocurrency as a medium of payment. And I won’t be surprised if Tesla accepts payments in Elon Musk’s other crypto darlings, such as Dogecoin for example that he promotes frequently on his Twitter feed. And I would be even less surprised to see Tesla issuing its own cryptocoin, which would be a much more revolutionary move from a company like Tesla, positioned more as a tech company than a car maker, and a Technoking like Elon Musk, which has way broader vision than producing electric vehicles only. And, it would probably drive the crypto fans crazy and pave Bitcoin’s way to $100K per coin? 

More interestingly, Tesla has a new head of heavy trucking. Now that Tesla’s rivals such as Volkswagen step up efforts to become major players in electric car industry, Tesla is one step ahead preparing to enter the heavy truck segment. This is what I love about Tesla. It’s always one step ahead of the game and one buzz ahead of its rivals.

Tesla’s share price gives signs of stabilizing near $700 per share following a 40% plunge last month. The so-called reflation trade which encourages investors to leave growth names and move on to value stocks sure has a negative influence on Tesla’s valuation. But one thing is sure. We have no idea what kind of craziness will come around from Tesla or from its Technoking, but there are certainly more surprises in store, buzz-wise and business-wise.   

One actual trend that goes against Tesla right now is the reflation trade, which pushes investors who are willing to invest in electric car segment to move towards value names such as traditional big automakers, including VW, Peugeot and Renault. Everyone goes electric these days, so having an exposure to electrification outside Tesla is rather simple.  

The US Federal Reserve (Fed) begins its two-day meeting today and will announce its latest policy verdict tomorrow. There will probably be no changes in the Fed’s policy stance, nor the dot plot. One piece of news that could temper the rising inflation expectations is Joe Biden’s plans to raise taxes. According to the latest news, it will be the biggest tax hike since 1993, as the massive Covid aid packages need to be financed at some point. The tax hike would hurt both companies and rich individuals. So, there are two problems that stock investors should face shortly. 

1. The rising funding costs as yields and real rates move higher. 

2. Higher corporate taxes that would eat into revenues. 

So, the only hope for your average stock investor is that the Fed doesn’t tighten its policy too soon, and the Fed says it will do what it can to hold on to its ultra-lose stance as much as possible.  

The US dollar remains strong as the US 10-year yields remain stable a touch above the 1.60% mark ahead of the meeting. And the strong greenback continues pressuring its major peers’ valuation to the downside.  

For traders looking for short-term trade ideas, the EURUSD could be an interesting tactical short at the current levels. From a technical standpoint, the pair has potential to extend losses toward 1.1835 level, which is the 200-day moving average. On the upside, the 1.20 mark will likely continue providing resistance, unless we see a fundamental appetite loss in the US dollar globally. The latest CFTC data confirms that investors continue unwinding their net long speculative positions in the euro at a faster pace, but the pool of long euro positions remain solid, meaning that there is more potential for a further unwind which could continue weighing on the single currency.  

Finally, Bitcoin is down after hitting a fresh record over the weekend. There is a certain profit taking going on right now, but despite an $8000 downside correction over the past three sessions, the size of the correction is not worrying just yet. Because big upside moves also means big downside correction. There is one risk in the Bitcoin setup however. The fact that many investors doubt that the price of a Bitcoin may have gone ahead of itself – and not necessarily because where the price stands right now, but because of its impressive rally. The price dynamics warns that there might be a bubble in this market, therefore, one of these days, or weeks, or years, the downside correction may not find ground rapidly enough, which could give way to an accelerated sell-off and a bubble burst. That’s the main risk. But for those who have solid nerves to stomach risks, it comes with a noteworthy reward.