S&P 500 and Dow briefly enters correction Territory

 

Hello Everybody

Note:  My TSP Allocation/Contribution remains unchanged.  I am closely watching things and yes, my fingers are closer to the G-Fund button than they were before, however I have changed nothing.

The last two weeks have been quite turbulent.  We witnessed thousand point swings on the Dow Jones index, panicky financial headlines and fear mongering by the press, and more importantly, account balances and portfolios being damaged.   Bloomberg Press recently published an article mentioning how the reason behind the selloff is not identified:

Indeed, depending on what channel you watch or which expert you listen to, the theories abound.  I would not get too wrapped up in theory but instead stick to objective, identifiable market behavior and economic data.  The markets indeed went down, that is undisputed.  Allow me to share my opinions on things and it should become apparent why my comfort level is still (mostly) unshaken.

Let’s begin our discussion with the idea, shared by most on Wall Street, that a “Correction” is a 10% minimum decline (from a peak, or high) in an index.  Also lets identify that a “Bear Market” represents a 20% minimum decline, and is also reflective of a new, sustained, downward direction in the markets.   Bear Markets typically last six months to 2 years, Corrections typically last anywhere from one to 12 weeks.  Recent volatility requires tightening up the seat belt and putting the tray tables up, but occasional turbulence is not abnormal.  “Are you telling us that 1,000 point swings in the Dow is normal?”  No, I am not, but as I discussed in my prior post, look at daily percentage losses, not point swings.  Also, keep in mind the Dow is 30 stocks.  Do 30 stocks represent the entire stock market, and health of the economy ?   In my opinion no.

Surprisingly, if you use “Close Only” prices which eliminates intra-day volatility, no indexes are currently in correction territory.   The NASDAQ got close, but never entered it, and the SP-500 and Dow (both containing large cap stocks) touched it briefly but exited on Friday, Feb-9.   Many feel that “closing prices” better represent sentiment, as that was the last price before traders went home for the day.  In my charts, the 10%/Correction level is a horizontal blue line.  The 20%/Bear Market level is a horizontal red line.   Lets look at all three indexes:

Theories aside, my opinion as to why this is happening is:

  1. 10-Year Treasury Yields reaching 3% Level
  2. Fears of interest rate hikes by FOMC
  3. Concerns about inflation

Lets take a look at the Treasury Yield chart, indeed it is on a steady climb.  Many believe that 3% is an important psychological level.  Yields above this fuel fears of interest rate hikes by the FOMC, who will meet in March.

Under new FOMC leadership, a new metric may be used, but under prior FOMC Chairperson Janet Yellen, the FOMC has used 2% PCE Inflation as the trigger point to consider raising rates.  This is discussed in my March 11, 2015 post here.

It should be noted that when inflation is feared, and when stocks go down (dare I say in a “bonafide move down”), Gold Prices (Gold=Inflation hedge and safe haven currency) typically will go up.  This has not happened, while ostensibly the world is crashing around us.   Let’s take a look at the Gold chart since February:

Recall that the FOMC’s preferred measure of inflation is the PCE, not CPI, although the CPI does provide inflation related information.  The next release of CPI data will occur on Feb-14 (Happy Valentines Day…).   Again, the FOMC prefers PCE data.   CPI Chart below, most recent data reflects a CPI of 1.8%.  Ideally it retreats to 1.6% or 1.7% on Valentine’s Day release.  Note that leading up to the recent Bear Markets (sustained downtrends) in  the last 20 years, the Core CPI exceeded 2.25% on  a multi-month, consecutive basis.  We are not there.

Recently we have had panic and negativity, let me introduce some optimism.   Based on my analysis of things, my opinion is a Bear Market (an extended and sustained period of damage) is not immediately ahead.  Yes, we touched correction territory.  The US business environment has arguably never been healthier, and with reforms and tax cuts (Note:  Tax cuts indeed reduce revenue to pay our financial obligations and impact our US Dollar, that is another topic…) will serve to benefit the stock market.    Since 1950, seven out of nine Bear Markets occurred in a recession. Recession is a bad thing, think about foreclosed homes, unemployed people, and lost jobs.  We are not in a recession.

To quickly touch on recent action, Friday Feb-9 witnessed the markets closing strongly up, with Investor’s Business Daily reporting this as “Rally Attempt Day-1.”  This is an important concept, typically after four rally attempts, the market will begin a new uptrend and enter a new bullish phase.  Coincidentally, the dates so happen to line up that Day-4 (if it rallies every day) will be Feb-14, the same day that CPI is released (in the AM).

Some inquired about my comment from my prior post, regarding the indexes below their 50-day Moving Average.  Indeed, this is not preferred, but this just means that “there is work to do”, time to deep-dig analysis on economic data, stock charts, and other information, before any drastic decisions are made.

As a result of the above, my TSP Allocation remains unchanged.   Let’s see how this week plays out, CPI on Feb-14 indeed will be something to watch.

Thanks for reading, talk to you in another week or two.

-Bill Pritchard

   

Stocks down hard – My Allocation remains Unchanged

 

Hello Folks

Bottom Line Up Front:  My TSP Allocation/Contribution remains unchanged.

Most know that the Dow Jones index closed down 665 points on Friday February-2.   This prompted quite a few folks reaching out to me and asking if I was worried, and “why didn’t I see this coming.”   Most panic and emotionally fueled market days are impossible to “predict”, I can’t control if someone screams fire and everyone runs for the exits.   However my methodologies indeed include pro-active smoke detection systems, room temperature changes, visual checks of the structure, and my conclusion is that nothing is burning and nothing is on fire.  In 2018 we indeed have some conditions which will require that we remain vigilant and alert, but for now  I am staying where I am at.  Let’s take a closer look via my opinion based analysis….

A couple of potentially negative things exist in “the background” right now:

  1. FOMC Chairperson hand off, Janet Yellen passing the baton to new chief, Jerome Powell.  Yellen’s last day was Friday.
  2. Never-ending political turmoil at seemingly all levels.
  3. Expected interest rate hikes in March 2018 (FOMC Meeting March 20-21).  This is the leading cause of heartburn in markets.
  4. Some major Dow and S&P index components reporting less than expected quarterly earnings.
  5. Depending on who you ask, an “overextended bull market.”  Others, myself included, believe we may be entering a new uptrend phase and we may see another 1-3 years of gains.
  6. Weak US Dollar.

Now, some positive:

  1.  The Dow Jones loss on Friday represents a 2.5% negative performance.  Point loss was big, percentage loss was not.  In comparison, the Dow Jones lost 22% in one day during the famous 1987 market crash.  Percentage-wise, the loss on Friday, while not desired, was not a big deal.
  2. SP-500 Index had its best January one month return since 1997.
  3. January “sets the tone” for the rest of the year, 95% of the time (chart below).
  4. All indexes above their 50-Day moving averages.
  5. Sell-off volume was not hugely above average levels.

Lets talk about the above points some more.  I will not hit on every one, as most are already self-explanatory, but some need elaboration.  Lets start with the chart of the January’s of prior years.  This chart is from Jeff Hirsch, of the Almanac Investor.  I happened to meet Jeff in person at a Dallas,TX investment meeting two weeks ago; I asked him a couple of questions- turns out he and I both share similar bullish views about 2018.  He is a cool guy and knows his stuff.  The red strike-thru is my edit, as the graphic was last updated on January 26.

Going back to 1950, a strong January sets the tone for the remainder of the year at an approximately 95% success rate.

We indeed had some big name, major, companies report less than expected quarterly earnings.   Google recently reported that their Cloud Platform revenue is way behind expectations, competitor Amazon, with a similar cloud platform, is outperforming revenue-wise Google 5 times.   Google is a MAJOR NASDAQ stock and this dragged things down.  Apple, another major stock, is seeing lackluster Iphone-X sales.  If you didn’t know, the Iphone-X is not much (if at all, unless you are a Mac Addict and Iphone nerd) different from the Iphone-8.   Apparently, the millennial generation (well, probably everyone….) has some heartburn paying $1000 for a Iphone-X (43% costlier) that offers enhancements and improvements over the Iphone-8 of basically zero.   The press and analysts are questioning Apple’s business decision, and the stock is down.  (This is not an Iphone review, so…)

Let’s take a look at some charts:

You will see that the SP 500 index is indeed “overextended some”, a term popular with the financial media, describing when the index departs from its 50-day moving average and other trend-lines.   Note that it still remains above the 50-day, which is approximately 2730.   2730 is an important level.  Any close below 2730 is cause for some alarm.   

In regards to the weak US Dollar and its impact on stocks, ask 20 economists about this and you will get 20 answers.  The theory that “a weak dollar makes international stocks go up” is questionable.  Many believe the weak dollar is a result of international stocks moving higher first, as money goes into overseas investments and non-dollar currencies, causing the dollar to fall.   “Moving to I-Fund because the dollar is weak” probably should be opened up a little more to include consideration of other factors.  My opinion.  Just remember the dollar is a currency, the stock funds are stocks, two different animals.  Keep in mind the world markets are just that:  global in nature.  Toyota (Japan), Samsung (South Korea), Airbus (France), have factories and subcontractors all over the world, and sell to customers all over the world.   The “Japanese” Nissan Titan pickup truck ?  Built in America and sold in America.  Korean Samsung TVs?  Sold in Mexico.  If Toyota Camry’s suddenly fell apart after 1 week of ownership or had a series of gas tank explosions, Toyota stock would go down, weak dollar or not.  Toyota is a Japanese company- Japanese stocks represent 24% of the MSCI-EAFE Index, which is what the I-Fund is based on.  The point here is that the US Dollar, alone and by itself, is not what causes the I-Fund to move up or down, in my view.  Strong Corporate/company performance, quality products, and solving problems are typically the companies whose stock prices go up, no matter what country the HQ is located in.  Some have different interpretations and view things via a different lens, that is fine, I am sharing my opinion, nothing more.

If interest rates rise this year, the US Dollar is expected to recover.   Also, Mr. Trump’s approach of de-regulation, tax reform, and bringing business back to US soil is an approach never seen in history; the resulting effect on the US Dollar is not known, nor will it be seen for 6-12 months.  In basic terms, the US Dollar weakness is probably attributed to the belief that tax reform will result in reduced tax revenue to pay for government programs and financial obligations, thus impacting our economic health as a nation, and it is also weak due to investment taking place overseas.  Money leaves US stocks and currencies (USD) and goes elsewhere, in pursuit of higher returns, especially in China.  China, the world’s factory, does pretty good when the world is doing good.   In the end, our American Greenback has fallen in value.  I am not running a FOREX site or economic think-tank (both are beyond my expertise) so I will stop there.

The main driver, in my opinion, of market panic is the expected interest rate hikes.  However I believe that the multiple efforts by the current administration, on all fronts, to stimulate business growth and effect tax reforms, will mute any negative impact that rising rates will have.

In summary, let’s monitor things but I see last week’s action as panic driven.   I also feel we are in a never-seen-before environment of pro-business politicians, tax reform, and de-regulation.  All economic indicators appear positive.  I feel very confident about 2018.   Let’s keep an eye on SP-500 level of 2730, any close below that, well maybe multiple closes, and I will start to stay up at night.

My TSP Allocation/Contributions remain unchanged.

Thanks for reading….talk to you soon….

-Bill Pritchard

 

Government Shutdown – Market Impact

 

Good Evening Everybody

I have received quite a few messages in regards to how the government shutdown will impact the TSP and the market.  As we know, TSP performance is largely dependent on the US stock markets.  It is my opinion that there will be minimal negative market impact.

Going back 20 years, we have had three shutdowns:

  1. Sept-30 to Oct-17, 2013
  2. Dec-15 1995 to Jan-6, 1996
  3. Nov-14 to Nov-19, 1995

The 2013 shutdown witnessed a slight hiccup in the markets, although it is not known if this was indeed triggered by the shutdown.  The markets rallied the rest of the year, resulting in my conclusion that the 2013 shutdown had little impact on the stock markets.   The “background action” included a strong, uptrending stock market.  See chart:

It should be noted that the 1995/1996 shutdown witnessed the NASDAQ (flashback to AOL, NetScape, AskJeeves) bull market in it’s infancy, and had absolutely no negative impact to the markets.  See chart:

Like today, these shutdowns were due to the inability to reach agreements, and like today, in the “background” existed a strong and healthy stock market.

As we sit today, 2018, the market is arguably healthier than it has ever been.   We are arriving to another shutdown scenario, however based on historical behavior (nothing is guaranteed, but history tends to repeat…), and the strong market in the background, I expect minimal negative market impact.   Note that Monday and Friday tend to be “emotional days”, we may see some panic selling, the world-is-ending, action on Monday.  It is my opinion that this should be disregarded (if it even happens) and instead let’s allow the market to find its footing later in the week.

Please anticipate another post at the end of the month, or early February, discussing January 2018 market action, as the markets “set the tone” for the rest of the year.  All the stock funds are doing well, we are very fortunate.   If your choice is international exposure, domestic large caps, or domestic small caps, whatever your preference, you are being rewarded.   The year has begun very well.

Thank you and take care

-Bill Pritchard

 

 

 

 

 

Merry Christmas Message and last post of 2017

 

Good Afternoon Readers

First, Merry Christmas and Happy New Year.  2017 indeed has been an exciting year, on many fronts, and our TSP is no exception.   Let’s take a look at some of my personal TSP moves.  You may recall my January 13, 2017 post regarding the January Barometer.  I shared my opinion that based on market action in January, that 2017 was setting up to be a strong year.   I am pleased to report that this analysis was indeed correct:  2017 witnessed the SP 500 return 20%, and the NASDAQ return 29%.

Note that both Year to Date and Last 12-months data reflects that the top two funds were the C-Fund, and I-Fund, in 2017.  See graphic:

Further note that I was 100% S-Fund, under the valid belief that small business would benefit most from the variety of economic incentives being advocated by President Trump, however my crystal ball apparently needed calibration as the S-Fund slightly underperformed the C-Fund in 2017.    Additionally, the “international scene”, plagued by 2015 and 2016’s terrorism and North Korea fears, caused me to be gun-shy (no pun intended) on international investments.  It could be said that my TSP reflected an “America First” allocation.  I did shift to 50/50 C-Fund and I-Fund mid-year, believing that was the correct allocation to capture the best performers for the rest of the year.  This analysis, like my January Barometer analysis, was correct:   those two funds were 2017’s top performers.

Finally, in December, I switched to 50/50 S-Fund and C-Fund, my current allocation.   Again, the is performance based, when a new young Quarterback is improving each game and showing promise, I tend to pay attention to him.  This is not some sort of witchcraft, tea leaves, mumbo-jumbo, or reading the past to predict the future, etc (all of which some naysayers claim this site does…).   It is really quite simple.  It is what it is:   Being heads-up and alert and responding to the threats/opportunities in front of you.  Thinking ahead.  Situational Awareness.   Retreating to cover and concealment when required.  Jeff Cooper.  All of the above but applied to our TSP.

Let’s collectively wish for a great 2018.   Merry Christmas and Happy New Year.    God Bless our nation’s public safety, law enforcement, intelligence, and military professionals so that the rest of America remains safe.

Merry Christmas !!!

-Bill Pritchard

 

 

Dow futures up 200 points, my TSP Allocation Changes

 

Hello Folks

On Saturday December 2, at approximately 2AM, the Senate passed their version of the proposed tax bill, which has some slight differences from the House version.   However for the first time in a long time, we are seeing progress forward, and the US market futures have responded enthusiastically.   Please see chart below of E-Mini Dow Jones Futures, which begins trading on Sunday afternoons:

The Dow Jones futures are “trading up” 200 points as of 7:30 PM Central Time, a very positive sign.  Unless sentiment shifts, this should result in a very positive Monday in the US stock markets, which will benefit the S-Fund and C-Fund.   As such, and after an over-abundance of caution and “wait and see” over the prior months, I will be moving my personal TSP allocation to 50% C-Fund and 50% S-Fund.   This reflects a change from my prior allocation of C-Fund and I-Fund, which was fine:  both Last 12-Months data and YTD data reflect those were the two top performing funds:

The fact that my prior personal TSP allocation had been in the top two performing funds, out of ten total fund choices, was not by happenstance, it was the result of careful analysis and monitoring of the markets.  I have said before, and I will repeat again, that one day panics are not reason to dive into G-Fund or run for cover.  I am looking at the overall trend, the structural integrity of the trend, and what stocks within that trend are performing best.  I am also watching for “tomorrow’s winners”- redwood trees don’t sprout overnight, they develop over time.  It is that same analysis that prompts me to change my personal TSP allocation to reflect C-Fund and S-Fund.   S-Fund has been outperforming I-Fund for the last 90 days, for a variety of reasons, and if the final tax bill can clear House and Senate, and get signed by President Trump, all business, large and small, are expected to benefit.  Anyone in a compliance-heavy (and who isn’t these days…) industry, in which more time is spent dotting “i’s” and crossing “t’s” and “getting ready for the next audit” versus spending it on the organization’s core mission of selling widgets, or creating solutions for customers, is expected to benefit from the tax bill and future deregulation initiatives from President Trump.

Let’s take a look at the Gold chart to see if any prior selloffs have resulted in a move into Gold, the standard safe-haven currency:

As can be seen, Gold has been relatively “flat” since October, even in light of recent North Korea flare-ups and recent headlines from Washington.  This reinforces my belief that prior selloffs were indeed panic driven versus representative of structural cracks in the foundation of the uptrend.

Note that the Christmas break for Congress is December 15, 2017 to January 2, 2018.   With that said, Congress has two major to-do items, the Tax Bill, and passing a short-term Continuing Resolution (CR) as the current CR expires on December 8.   While the tax bill progress is positive news, nothing is done until it is done, and this week will be a busy one for Congress.  Note:  Not to be Debbie Downer but any Tax Bill failure (not a delay, but a hard-down, failure) will be a serious problem for the markets.  Ideally the new tax bill is signed before 2018, however a delay to tweak it is much preferred to a failure.

As an additional note, Dan Jamison of the FERS Guide has released another update, I strongly suggest going over to his site and subscribing to his newsletter.  He has some important benefits related information all federal employees could benefit from (no pun intended), so please take a look:   https://fersguide.com/

That is all I have for now, thanks for reading.  Please continue to share this site with your friends, coworkers, and colleagues.

Thank you….

-Bill Pritchard

 

Markets go down on Disagreement

 

Hello Folks

Well, it is about that time- Update Time, numerous folks have emailed me, WhatsApp’ed me, or just found me, and asked if the world is ending and why the market is going down.  Some of the concerns are valid, others are reflective of an “always goes up” market which quite frankly has lulled some of us into a comfort zone.   In this post I will attempt to explain what I believe is happening, and where I believe we are headed, at least near-term.    First, well not first but before I go further, my TSP Allocation and Contributions of  50 percent C-Fund, 50 percent I-Fund remains unchanged.

The markets right now are policy-driven, not economics driven-  I have said this numerous times on this site, and sadly I am being proven correct as we watch the markets decline.   Policy-driven, but more correctly, politics-driven.

Below are charts of the SP 500 Index, my standard barometer to determine market health:

Apparent in the above charts is that the markets were on a fairly intact uptrend prior to Nov-9.   Then what happened ?  Did a report come out indicating that personal bankruptcies are at all time highs ?   Huge unemployment numbers ?  Poor retail sales data ?  GDP data worsening ?   None of the above.  What happened, and is happening, is a lack of agreement in Congress.

On November 9, the Senate Finance Committee stated that the Tax Reform Plan would cut corporate tax rate to 20% no earlier than 2019, versus 2018, as originally believed.   The markets sold off on that news, which served as a reminder that “everything is not as it seems” and that agreement in Congress is clearly lacking.

On November 14, Senate Majority Leader Mitch McConnell announced that a revised tax plan is being proposed, a plan that includes a partial repeal of Obamacare.   If you want about a thousand search results on this topic, feel free to use Google and you will not be disappointed:  numerous theories exist as to what impact a repeal will have to the economy.  I will not attempt to dissect the approximate 1,000 opinions on the internet.   But I will state the obvious:  Yet again, we see discord in Congress.

A review of the charts above will reveal that sell-off volume is not super high, indeed some days it was above average, but we are not talking 50% or greater (150% normal) than average volume.  The SP 500 is still above its 50-day Moving Average, a useful trend identification tool.   Will the month close out with the index, and various TSP funds, in the negative ?   Yes, this is possible.

Should we worry ?   I am not worried, not yet.  A glance at the Gold Futures (Gold is historically a safe-haven investment for investment doomsayers) indicates that nobody is bailing out of stocks and into Gold.   Gold prices are mostly flat (sideways) since mid-October.   See chart:

My frequently broken crystal-ball predicts that our politicians will realize that lack of agreement is impacting both Wall Street and Main Street, and that an 80 percent solution is the best answer.   “I win, you lose” is a binary model that should go the way of the Cold War.   This approach needs to be abandoned in favor of  “You win [some] and I win [some] – everyone wins”.   My opinion.

Thanks for reading….

-Bill Pritchard

 

 

 

 

October closes out / historically positive phase Begins

 

Hello Folks

In true “no news is good news fashion”, I simply had no bad news to write about, or “warning signs” observed this month so far – this is my second October post, albeit at the end of the month.  As such, it will serve as my opinion based analysis on what happened, and what lies ahead.   Bottom Line Up Front:  My TSP Allocation and Contributions of  50% C-Fund, 50 % I-Fund remains unchanged, I will discuss that in a little while.

First, as reported by some of the Government Employee targeted websites out there (Federal News Radio, Government Executive, NARFE, etc):     The 2018 joint budget resolution was passed with no cuts to federal retirement, pay, or other benefits.

With that said, for deeper, more knowledgeable insight into the benefits related perspective and the respective proposed cuts, subscribe to retired FBI S/A and current CPA Dan Jamison’s FERS GUIDE.  A paid subscriber will get email access to Dan who will attempt to answer your questions.  Every couple of weeks Dan and I trade emails in regards to benefits and/or TSP, he is the expert in regards to retirement benefits knowledge.

As it stands, no cuts have occurred however we may see this topic rear its head again down the road.  My opinion is this “flare up” should serve as a gear/equipment check for the folks in the audience, take a look at your financial situation:  if you are eligible to retire now (or soon), then apply that risk-assessment we all do in our day jobs.  I don’t think anyone has the answer, but I think that “Already-Retired status” is more insulated from attempts to erode your benefits than not.

Moving forward,  and returning to the topic of this post, the markets performed very well in October.  My default, market health barometer, the SP 500 Index, made new highs, as did international stocks to include North Korea neighbors of South Korea KOSPI Index and the Japan Nikkei Index.  While the threats from North Korea are clearly a worrisome matter, the Asian markets have apparently discounted them and returned to regular programming-  the aforementioned Asia indexes are uptrending nicely.  See charts with comments:

     

Traveling back home, the US markets are doing very well.   Primary causal factor is the improving Gross Domestic Product (GDP).    GDP is important because it gives information about the size of the economy and how an economy is performing. The growth rate of real GDP is often used as an indicator of the general health of the economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well.   Note that in July, FOMC Chairwoman Janet Yellen advised Congress that achieving 3% GDP would be difficult.  However recent GDP statistics from the Bureau of Economic Analysis indeed appear very positive, third quarter GDP of 3%, previous quarter of 3.1%.   See chart:

Remember, many believe (including me) that the markets are a leading indicator, in other words, they go up (and down), long before the general public understands why.  We saw this in the 2000 market crash, and the 2009 bull market, the market direction changed before most of the audience identified what was happening.  What does that mean for us ?  It means that the current uptrend may be indicative of a longer term bull cycle.  Indeed many have observed that “this never happened before” and believe that the current market is “ready for a pullback” but when in doubt, follow the market itself.   Let’s take a look at some SP 500 Charts:

As mentioned earlier, my TSP Allocation remains the same.   Varying my analysis from different look-back periods, 90 days, 30-days, to weekly, I find it difficult to make “performance tweaks” to my TSP-  all the funds are doing quite well.   Looking ahead, the following dates/events may be noteworthy in the coming weeks:

New pick for FOMC Chairperson:  Expected Oct-30 week

Ways and Means Chairman Kevin Brady introduces Tax Reform Bill:  Nov-1

POTUS Asia Tour:  Nov 3-14

Congress Thanksgiving Break:  Nov-18 to Nov-26

Note that it is my opinion that if the Tax Reform proposals pass, the stock markets will respond with enthusiasm.  Further note that historically, November thru April represents a historically positive phase/cycle, the markets are typically up every month during that time period.

Nothing further to report for now….please continue to share my website with your friends and colleagues, I find it quite rewarding that I am able to raise awareness and share my point of view in regards to the markets and the TSP in general.    Once again, go take a look at Dan Jamison’s site and make sure you subscribe to his newsletter.

Thanks for reading…..

-Bill Pritchard

 

 

 

 

 

 

Rare Positive September – Market uptrend Continues

 

Hello Everybody

My personal TSP Allocation remains 50% C-Fund and 50% I-Fund.

September, historically a “down month”, was indeed positive, with the last trading day resulting in an All Time High (ATH) attained by the SP 500 Index, reaching 2519.44

We have witnessed fairly decent accumulation since mid-September, likely the market’s positive response to President Trump’s tax and deregulation plans.  We are also witnessing an improvement of the global economy, which helps everybody.  The next event watched by the market is a possible change to the Federal Reserve Chairperson, reportedly this will be decided by the end of October, as President Trump is reportedly considering not to renew Chairwoman Janet Yellen.

While official TSP data is not in, we will likely see that the S-Fund was the top performer for the month, with the C-Fund and I-Fund lagging, however still positive.  My personal conviction that the ideal allocation of 50/50 C-Fund and I-fund may change, I will allow October to come and close out, and re-assess my allocation.  To be clear:  “All stock funds are doing great” and it is rather challenging to make performance tweaks to any combination of stock funds.     Note that the I-Fund is leading and C-Fund is next best performing, when considering both YTD and past 12-month performance.   Again, all stock funds are doing fine.   Observe that I am not in the G-Fund, as I see no warning signs ahead or speed-bumps in the road, and thus feel the protection of the G-Fund is not needed for my TSP right now.

Let’s take a look at some charts, both of the SP 500 Index and of the SPY Exchange Traded Fund (ETF), which is useful to monitor volume action.

Evident in the charts is the clear up-trend, again, a rare event in September, a historically negative month.   Also apparent is “more up days than down days” a rather Basic-101 analysis device however sometimes basic is better than not.

I sometimes get asked if I am concerned about the I-Fund being impacted by events in Asia.   This is a great question, but if we look at the South Korea KOSPI Index (“their SP 500”) and Japan’s Nikkei Index (the largest Asian stock market is in Tokyo, Japan…also the country whose airspace was penetrated by North Korea missiles…)-  their markets do not seem too worried.   Lets take a look:

No major downturns or sell-offs in those markets, both next door to North Korea.

As such, I remain in I-Fund and personally am not too worried about things in North Korea, as they relate to my TSP.

With that said, I have no other news to report….I am very pleased with the September performance and as stated above, my TSP remains the same.   I typically re-assess my allocation every 90-days, we are past that point now.   I prefer to let October come and close prior to making any changes, remember I look at things on a 60-90 day cycle (typically…not always…) versus fret over daily volatility.

Hope everyone is doing well…I will post another update when warranted, for now let’s step back and watch how October plays out.

Thanks for reading….

-Bill Pritchard

 

August thankfully coming to an End

 

Hello Folks

Bottom Line Up Front:  My current TSP remains 50% C-Fund and 50% I-Fund.

This month of August has been a painful one, with three major distribution days on the SP 500, indicating that institutional investors were selling shares and exiting positions.   The entire summer has been rather painful, additional distribution days are apparent on the chart of the SPY Exchange Traded Fund (ETF) which is a useful proxy for the SP 500 Index:

You may recall prior postings discussing distribution days:   Numerous days over the span of weeks can serve to end any uptrend which exists.  In simple terms, multiple distribution days can send the market lower.   We indeed have increased risk ahead that the market can go lower.   With that said, here is my reasoning behind my own TSP Allocation, and my logic as to why I am not changing anything.  At least not yet.

  1.  History tells us that summers suck.   “Summer Doldrums” is one term used.   The worst month, is ahead – historically it is September, once we clear September, we may resume an uptrend.  Or not.  With this data point, we should not panic yet:  summers are always difficult.  And summer is almost over.
  2. The US economy is strong.   People are employed, housing/real estate (in most markets) is tight, airline flights are jam-packed, and consumer spending is up.  Note:  Decaying and vacant big box stores and shopping malls are not an indicator.  Consumers are spending like never before, however fighting for a parking space and walking a mile in the sun, risking skin cancer, to the entrance of the mall, only to discover your pant size is out of stock (but “our store across town at Valley Springs Mall has them in stock”) is a thing of the past.   Spending continues – It is called Amazon.
  3. The world economy continues to improve.   At the recent World Central Bankers Meeting in Jackson Hole, Wyoming, which concluded on August 25, the lead economist for the International Monetary Fund (IMF) reports that the world is seeing a broad-based recovery.

With that said, could things go south ?  Sure, anything can happen.  Do I think things will go south ?   No, my opinion is that once we clear September, the markets will resume an upward trajectory.  One speed bump in the path however is the threatened government shutdown, threats which are tied to the Border Wall and the federal budget.  In sum, when the most senior management of world’s most powerful nation cannot agree on a path forward, this hurts our credibility and “brand”, it also costs money$24 Billion was the cost of the 2013 shutdown according to Standards and Poor’s, the same company which created the S&P 500 index.  Contrary to popular belief, shutdowns are never “good” and they are never healthy for an otherwise choppy stock market.

With that said, I am optimistic and remain in the aforementioned TSP funds.  While my personal returns have been less than desired in the I-Fund and C-Fund, I am electing to remain there, as my belief remains that if Congress and the Oval Office can get on the same page, those two funds will see the best returns.   Note that even with the poor summer performance, the markets remain at their 50-day Moving Average lines (a trend identification tool), and well above their 200-day Moving Average lines:

This behavior reflects that the trend of the market remains upward.

I get quite a few messages and questions regarding various magazine and newspaper (print or online versions…) articles that claim the market will crash any day, and that doom is around the corner.   There are even a few internet chat groups out there, dedicated to stock discussions, claiming the same.  The best defense to all the noise is studying the markets and learning how they work.

I invite you to read about the “Magazine Cover Theory” which claims that when a “hot topic” is appearing on magazine covers, then that fad or topic is about to be dead, or reverse course.   A link about this theory is here:  http://www.businessinsider.com/the-fascinating-theory-that-the-economist-magazine-covers-are-like-cabbies-offering-share-tips-2016-10

That is all for now….be safe out there and talk to you soon.

Thank you for reading

Bill Pritchard

 

 

 

 

Fraud Charges Against Former Brokers Targeting Federal Retirees

 

Good Evening

In the news is yet another alleged (innocent until proven guilty disclaimer applies…) case of fraud involving federal retirees.   In this recent (alleged) scheme, four Atlanta, GA brokers allegedly convinced federal retirees to roll their TSP accounts into annuities, which reportedly had very high fees and were reportedly represented as being “approved” by the TSP program itself.

SEC Press Release:  https://www.sec.gov/news/press-release/2017-135

SEC Complaint:  https://www.sec.gov/litigation/complaints/2017/comp-pr2017-135.pdf

For general heads-up and situational awareness, please be suspicious of the following things when investing your money, especially the “nest egg” called the TSP.  Red bold represents major warning signs.

  • High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.  “Too good to be true” rule applies.
  • Overly consistent returns.  As we know, markets go up, markets go down.  You can’t control the waves in the ocean.  Investment values tend to go up and down over time, especially those offering potentially high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.
  • Unregistered investments. Schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
  • Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most schemes involve unlicensed individuals or unregistered firms.
  • Secretive and/or complex strategies Super complicated investment ?   Esoteric, complicated strategy ? Avoiding investments you do not understand, or for which you cannot get complete information, is a good rule of thumb.
  • Issues with paperwork. Do not accept excuses regarding why you cannot review information about an investment in writing. Also, account statement errors and inconsistencies may be signs that funds are not being invested as promised.
  • Difficulty receiving payments.   “Check is in the mail” rule.  “Your money is locked up right now and cannot be accessed” etc.  Be suspicious if you do not receive a payment or have difficulty cashing out your investment. Keep in mind that fraudulent investment promoters routinely encourage participants to “roll over” investments and sometimes promise returns offering even higher returns on the amount rolled over.

Additionally, be wary of investment advisors, financial planners, stock brokers, etc, who are overly eager to get their hands on your TSP balance.   Some valid reasons exist to roll a TSP over, but cheaper fees is not one of them, as the TSP is about the cheapest retirement “holding tank” that exists (TSP, 401k, IRA’s are basically containers for money, inside that container are your individual investments, be it Mutual Funds, Stocks, ETFs, etc.   Consider the TSP a holding tank, or container).    Check out your potential new advisor.  The following sites may be useful:

FINRA Broker Check:    https://brokercheck.finra.org/

SEC Advisor Check:  https://www.adviserinfo.sec.gov/

PACER US Court Records (need an account):  https://www.pacer.gov/

State Comptroller Database checks.   Is the financial advisor claiming to be a registered LLC ?   Database checks will reveal this.   If not located, I would be suspicious.    The State of Texas version is here:  https://mycpa.cpa.state.tx.us/coa/

Would I do all of the above if I was investing $500 in a new hot stock ?  Probably not.   Am I rolling over a $1M TSP balance, along with a $1M IRA balance, into something called the Unlimited Opportunities Fund ?    Operating out of a UPS Store mailbox ?    Managed by a guy who carries a prepaid Trac-Phone ?   Yes absolutely.     Be careful who you listen to, we have some great folks in the federal retirement “information space”, Tammy Flanagan, Dan Jamison are two of them, both vetted and trusted professionals.   If you can’t identify the person behind the investment, website, etc., I would proceed with caution.

Be safe out there folks.    Talk to you soon…

-Bill Pritchard