The Fed Trader

Good Morning folks, I hope this update finds everyone well.  Now that we have the Presidential election behind us, let’s take a look at the markets and surrounding events.   Bottom Line Up Front:   The S&P 500 has risen 9.64% since November 2 (the day before the election), and small cap stocks appear to be the best performing category for the time being.

As many know, a few major events have occurred since the election, which is important because elections are major catalysts which influence the markets (see FAQ# 6):   The US Supreme Court recently denied a Texas lawsuit seeking to overturn the vote in Pennsylvania, Michigan, Georgia and Wisconsin.  Additionally, President Trump signed a stopgap funding bill keeping the federal government open until December 18, and the FDA approved Pfizer’s COVID vaccine.

As stated above, the markets have rallied since the election.  “Why” is a complicated question, however in a very general sense, the markets do not like uncertainty or unknowns.  Let’s take a look at the S&P 500 chart:

On November 2 (the day before the election) the index closed at 3310.24.   Since then, it has risen 9.64%, a respectable number given the fact that it represents approximately one month of days that the markets were open.   The energy and oil sector, an important jobs creator in Texas (and other areas), has witnessed oil prices subsequently rise, as demonstrated by the below Crude Oil and Energy Exchange Traded Fund (ETF) charts below:

I have posted previously on this site that a desirable price per barrel for Crude Oil is $55.   With the current price above $45, we are making some progress towards that desired level, which results in profits for our large oil companies (and jobs), and still keeps the price at the retail gas pump at a level affordable to the consumer.

The energy sector ETF, ticker symbol “XLE”, has risen also, propelled by oil prices and optimism in the energy sector.  Note that oil prices tend to rise in good economic conditions, and tend to fall when the economy is faltering.  Rising prices arguably may be a harbinger of things ahead.

Since the election, small cap stocks have outperformed all others.   Investment in small cap stocks is done via the S-Fund in the Thrift Savings Plan.  The TSP investor may desire to research this further and use that information as he makes his own investment decisions.   On a 30-day thru 90-day basis, the small caps are strongly outperforming the large cap (C-Fund) and international stocks (I-Fund), some weighting in the C-Fund might be a consideration for further research.

With the FDA vaccine authorization (and other countries also authorizing vaccines), this should further help the economy.   Current death rates from COVID, using CDC data, are approaching April 2020 rates:

Airlines, restaurants, in-person retail, hopefully will see a rebound once vaccines are widely available.  Not suffering is E-Commerce, as consumers order online and have everything shipped to their house.  E-Commerce was booming before COVID, now it is on fire; as it solves a problem and makes life easier for millions of people.  In summary, if you have a smartphone, you have a shopping mall, a grocery store, and a movie theater, all in your hand.  Pretty powerful stuff, the future of which is basically unlimited, in my opinion.

Regarding the federal budget, this is a huge unknown, however my opinion is the stopgap funding until December 18 will then expire and the government may see a shutdown after that.   Hopefully Congress can agree on the COVID stimulus package prior to that.  Again, my opinion, but the way I see this, the one week stopgap funding gets the federal workforce a full pay period “worked”, which will get the workforce paid for Christmas (EFT on/about Dec 24).   However after December 18, we have Congress who may wish to go home for Christmas break, and the fact that the “new” Congress takes effect on January 3, 2021 may also complicate things.   The January 20, 2021 inauguration is fast approaching also.  I guess my point/opinion is we have a lot of stuff going on ahead, and I am not sure if a shutdown can be averted.  My prediction (hope I am wrong):  We shut down on Dec 19 thru ??? possibly January 3, 2021.

This concludes my current assessment of the markets.  I hope everybody has a great weekend and is healthy and strong, as we wrap up a challenging year.

Please continue to share this website and email updates with friends and colleagues.  They can subscribe via this link:  http://www.thefedtrader.com/contact-us/

Thank you

-Bill Pritchard

Good Evening Folks

Well here we are.  Arguably one of the most watched elections in recent history, and with record voter turnout.  Let’s talk about what has happened and what the markets have been doing.

First, the Dow Jones “overnight futures markets” the night prior to the election (November 2) traded up, ranging from 150 to 200 points.  This continued into the regular stock market trading day of November 3, with the Dow Jones reaching 600 points to the positive during the morning.  This is a welcome change from the prior week, as it signals the week starting on positive footing.  Please see below S&P 500 chart of the recent roller coaster we have been on:

Tuesday’s action witnessed the Dow having the best trading day since July 14.  This action follows Monday November 2, which was also a strong up day.  On both days, volume was above average, indicating accumulation, or buying of equities by institutional investors.   Please see below chart of the SPY Exchange Traded Fund (ETF):

The day after the election, Wednesday November 4, witnessed the Dow Jones index trading 600 points to the positive.  The I-Fund, interestingly, ended the week as the top performer.  In addition to US markets, stocks in France and Germany also rallied.

Not to be outdone by equities markets, Crude Oil futures also traded higher, rising to $39 a barrel.  Note that crude oil typically behaves in unison with equities.

I have posted on this site before the fact that the markets typically outperform under a Democrat as President.  This is factually correct, however this should be clarified that the best performance is when a Democrat is President, with Congress under Republican control.  The market seems to prefer a checks-and-balance mechanism.  I am not advocating for one party or another (and the stock market is just one part of the universe, which must include law and order and a strong military), nor am I telling you who to vote for in the now-past election.  I am merely posting historical market facts.  See chart:

All of the recent action has been on above average volume, with the QQQ and SPY ETF’s gapping up.  This is a very bullish behavior, and is further explained at this link:  https://www.investors.com/how-to-invest/investors-corner/breakaway-gap-the-art-of-the-breakout/

The solid performance continued into November 5, with the Dow Jones going up 600 points.  That day, the tech heavy NASDAQ had its best 3-day run since April.

On Friday November 6, the markets “sold off” somewhat but this is reasonable to expect as most Fridays witness sell offs prior the weekends.  Combine this with the huge run up during the week- it is normal for folks to take some winnings off the table.

Now that we know what happened with the markets, what do I expect to happen with the election?  Let’s use parties, not names of candidates for this opinion based discussion.

Entering Friday night, the election results are still being processed.  Quite incredible in today’s age of modern technology.  At the center of my crystal ball is the State of Nevada.  Also important is Arizona.  Note that Fox News, my preferred source of news, has Arizona already called for the Democrats, which I agree with.  You cannot win Arizona without winning Maricopa County, period, the end.  62% of Arizona’s voters reside in that county alone.  And Pima County historically always votes Democrat (county overall).  Pima County represents about 16% of Arizona’s voters.  If Maricopa and Pima both prefer the same party, at 78% of the State’s voters, the math simply does not work for the other party to out-climb the wall in front of him via votes from the rural areas.  The various late night cable shows that “Arizona is still in play”….in my opinion it is not.

This takes us to Nevada.  With 6 Electoral College votes, if the Democratic candidate wins here, he wins the election, because per Fox reporting he already has 264 out of the needed 270 votes.  He is already ahead in Nevada.  Nevada is interesting because nobody who lives there, is actually from there.  Well, almost nobody.  Nevada has more residents from California, than from Nevada.   Guess how California typically votes.

We also know that even in Red States, such as Texas, the “metro areas” voted more Democratic than they did Republican.  This did not occur in Oklahoma and other strongholds, but those metro areas indeed were “less red.”   In most all states, outlying rural areas voted Republican.  Hold that thought.   Let’s return to Nevada’s “still counting ballots” situation.  As of Thursday night, Nevada elections officials stated that there were about 190,000 ballots still to be counted as the state continues to remain too close to call in the U.S. presidential election.  About 90% of those remaining ballots, or about 171,000, are from Clark County.  Source:  https://twitter.com/NVElect/status/1324459947493519361?s=20

Clark County is the county that the city of Las Vegas sits in.   With 2M+ population, this is clearly a metro area and as stated above, already has demonstrated a leaning towards the Democratic Party, at 53.7% Democrat, 44.5% Republican as of Friday November 6. 

Short version:  90% of the yet counted ballots are from Clark County, a Democrat leaning county of metro area Las Vegas.  We have documented history reflecting strong Democrat leaning in most metro areas across USA.  Also, most residents of Nevada, are actually from California.  Summary:  My opinion is Nevada goes in favor of the Democrats.  If it does, game over.

Arizona:  already a done deal, per my commentary above.   Per news media, Clark County will finish ballot counting on Sunday (Nov 8), and Pima County will finish on Monday (Nov 9).   So it may be a long wait over the weekend.

Georgia:  Despite a Democrat very slight lead, I expect this to ultimately go in favor of the Republicans.  Going back to 1984, from the electoral college standpoint, Georgia has voted for Republicans, with the exception of 1992 when they voted for Clinton.   For my purposes, I believe Georgia ultimately will finish ballot counting and it will favor Republicans.

In conclusion, we may know something in the coming days.  It will be important to study how the markets respond, and react accordingly.

If you have not already done so, please participate in my reader poll:  https://www.quiz-maker.com/poll3070068x478E43f6-95

Everybody have a good weekend….

-Bill Pritchard

Happy Columbus Day weekend everybody.   More and more I am only finding time to update this free website on major holiday weekends or during a “lull” in numerous family events that are going on right now.   Sports, music, Scouts, etc.  No excuse, so here we go with today’s update, where I share my opinion on what the market has done, and why.

This recent week (10-05 to 10-09) witnessed the market’s best week in 3 (three) months.   This is really great news.  Hence a good time for this update.  My overly conservative (I get beat up over being conservative on this free no-cost site, and about my “over use” of the G-Fund, oh well…) opinion that 75% G-Fund and 25% C-Fund is the ideal allocation is likely being met with frowns from the audience.  As such, the standard disclaimer remains:  Manage your own TSP as you see fit.  If you are a 22 year old Border Patrol Agent, with 35 years ahead of you, most of it at the GS-13 level and higher, maybe 100% G-Fund is not the place to be right now.  If you are 56.998 years old, retiring in a few months, maybe 100% I-Fund is not the best idea either.   Talk to you financial advisor, planner, etc.  With that said, a more aggressive approach, presently, will likely result in more gains, due to the market’s recent strong performance.   On a long term view, the C-Fund has been outperforming the other funds, however more shorter term, the S-Fund has been the top performer.   Sure, you can “invest all of it in the C-Fund and never look back” because “the C-Fund always goes up.”   News flash to thousands of mutual fund managers, CFP’s, retirement counselors, university MBA and finance programs, and Jim Cramer:  you can all quit now, your services are not needed….we have found the magic recipe for investment success.   I digress…

Important:  Historically speaking, when small cap stocks suddenly display a fresh energy, and outperform large caps, this is one indication of a new market uptrend underway.  Let’s take a look at a chart of the S&P 500:

As you can see, the market crashed somewhat, most of September.  Most believe this is associated to political fighting over the COVID stimulus package.  While opinions abound from both sides (and I have my own also…) regarding socialism and “bailing out” businesses, versus letting free market forces take effect, at the end of the day this is America and we have a duty to protect the weak and defenseless.  What does this mean?  It means that we have thousands of unemployed folks, with no medical care, no paychecks, and an uncertain future, because of the COVID situation.  Small, entrepreneurial businesses are especially hit hard.  The bakery that closed because no more birthday parties, and no more cake orders.  The local restaurant that just couldn’t make it thru the shutdown.   Etc.  As such, some positive energy exists that the stimulus package will be signed and put into effect, helping trigger the market’s rebound.

COVID itself appears to be under control, at least overall, across America.  Some states (South and North Dakota) have seen a spike, but if we can keep the COVID cases under control, ideally below 5% positivity rates, more calm will return to the markets.  We only recently went below 5% (overall for the country) in August.  See chart:

So two elements to the market’s continued health include the control of COVID, and the stimulus bill itself.   Which brings us to the next element, the election.  I will attempt to be bipartisan and agnostic as I discuss this market driver, and keep the elements of my discussion to be economic/market focused.  Observe in my FAQ #6, political change indeed is a huge catalyst for the market.

Historically, the markets do better under a Democrat President, versus a Republican.  Lets return to our discussion of the recent uptrend.  It began on September 24, a Thursday, then we had the weekend, then on September 29, a Tuesday, we had the first Presidential debate.  I am not going to comment on who won or who did not win, but the pollsters at Real Clear Politics aggregate all the polls around the country and develop their own score regarding which candidate is seen more favorably by the voters.   Since the debate, Biden has been outperforming Trump in the polls.   Simultaneously, the stock market uptrend which got started a few days prior to the debate, has grown stronger.   See chart:

Is there any linkage between the market uptrend and the recent polls (assuming the polls are accurate) ?   Maybe yes, maybe not.  The polls have not negatively impacted the market uptrend.  So while you and I may have our own personal preference at the voting booth, the stock market may be deciding its own preference right before our eyes.

With that said, the election is 23 days away.  Basically two pay periods and the next Commander in Chief is elected.  In my opinion, the election will rest on the states of Florida, Ohio, and Iowa.  All are “toss up” states and contain a large number of Electoral Votes within.  Most political analysts consider Florida a “must win” for any candidate; one cannot be President without winning Florida.  So once that is done, Ohio and Iowa will be important.  Pennsylvania is important also, with 20 Electoral Votes.  Hence the state’s name was mentioned three times at the first VP debate.  However, sometimes politicians have a detachment from reality- fracking jobs are a direct result of the price of natural gas, a Pennsylvania leading industry.    Natural gas prices have been in a decline since the year 2008, simply a matter of supply, demand, and pipeline infrastructure.  See chart:

Not sure any politician, from any party, can wave a magic wand and bring the natural gas and fracking industry back.

There you go folks….two pay periods of time and we have a new President.  The markets have been doing very well in recent weeks, hopefully this continues.

I wish everyone a great weekend.  If not already done so, please complete my poll regarding your sources of TSP information.  Link:  https://www.quiz-maker.com/poll3070068x478E43f6-95

Thank you for reading !   Talk to you soon…

-Bill Pritchard

Good Afternoon Folks

My apologies for a delayed update- the summer has been very busy for me, it seems that I no longer get “me time” anymore-  I know many are in the same situation.  Add the “lock down effect” into the mix, once the local parks and recreation areas opened up (with appropriate safety measures in place) for use, my family was out of the house.  I even almost near-drowned being towed behind a ski boat (my skills are market analysis, not water sports behind a ski boat) as I enjoyed my freedom.  COVID has reminded me to appreciate the outdoors…just simple walks outside have become very enjoyable.  Before COVID, if my neighbor asked me to “go for a walk” I would look at him like he had five eyes.

Back to the markets and the TSP.   Note that I have included a Poll link at the end of this update.  Please complete this poll, as it helps me stay in tune with my audience.  I had a reader email me regarding “other TSP sites”, as one site (or discussion forum?) he mentioned has demonized being conservative and having the majority of your TSP in the G-Fund.

I do not subscribe to negative energy, so I told the person above who emailed me (he was close to retirement) that he needs to talk to a professional advisor for an official opinion, with that said, he needs to do what he is comfortable doing.  This reader correctly identified the fact that we are in a “pandemic” and in a global recession.  Remember, the TSP site itself identifies the G-Fund as being useful for preservation and stability of your money.  I did not invent or patent the non-cosmic idea of being conservative.  With that said, please complete the Poll at the end.

Let’s continue on to my opinion based analysis of the markets….

Allow me to start with the chart of the “Spider” “SPY” Exchange Traded Fund (ETF) with tracks the behavior of the S&P 500 Index, my default barometer for the markets.  Volume analysis of the SPY is a little easier for me, hence my use of it:

As can be seen, the markets rallied in late March, triggering an uptrend which still exists.   The top performing TSP funds are S-Fund as top performer, and C-Fund as next best performer.  It is important to note that summer volume has been rather light in the markets, adding credence to the theory that retail investors, versus institutional investors, are the active participants in recent months.  This means “smart money” is staying away.   To dispel/prove this, lets take a look at the price of the de-factor safe haven currency, Gold, something most retail investors do not dabble with:

Based on the gold chart, it appears Gold has rallied since March (interestingly, so has the stock market…hence my “retail investor” theory).   Gold rallies when economic conditions are poor or worrisome, which indeed they are.   Allow me to use this as an opportunity to state that the stock market and the economy, are two different things.  Yes, they often behave in unison (RE:  2007-2009 Financial Crisis) but at times they do not.  This is known as “decoupling” and that is in effect now.   To begin my economic discussion, lets take a look at the GDP chart:

Recent economic reports and indicators paint a bleak picture of the economy.   The most recent GDP report reflects a -32.9% contraction in economic activity during the second quarter.  This follows -5% GDP for the prior quarter.   Two consecutive negative GDP reports fulfill the textbook definition of a recession.  As such, the United States is currently in a recession.   Important to note is that this is almost entirely the result of the COVID situation, and not anyone’s “fault” or from any mismanagement.  The CEO of American Airlines cannot be blamed because nobody is flying right now.  When a local bakery closes its doors, and goes out of business, because the town is “locked down” and nobody is buying custom birthday cakes for now-cancelled birthday parties, it is not the bakery owner’s “fault” the business closed.   That is why this COVID situation is so delicate, it threatens our health, our economy, and more importantly, our futures.  With that said, the cold hard truth is that the U.S. is in a recession.  Furthermore, the International Monetary Fund (IMF) has stated a recession exists globally.  Since 1900, no sitting US President has won re-election to a second term during a recession.  None.  This is important as we make investment decisions in October and face a possible change in administration.  Whether the current President gets penalized for this recession, it still yet to be determined.

Unemployment data (again, not anyone’s “fault”) is at all time highs, however has started to recover since March:

Currently, 10.2% of the labor force is capable of being employed, but is jobless and unemployed.  This is down from 14.7% back in April.   Irrespective of cause or “fault”, 16.3M people in our country are unemployed, which impacts discretionary spending and other things, which have impact to the economy.

With that said, school is opening soon and soon we will know if, and to what extent, COVID impacts our youth, as schools have been out of session since March.   This may play into further “shut down” decisions.  Thankfully, kids seem to have a resilience to COVID, typically not getting sick at all.   Some theorize this is associated to numerous vaccines obtained at a young age, for whatever reason, these vaccines may be help keep COVID away.  In any event, we will know soon enough.

For the reasons above, my allocation of 75% G-Fund and 25% C-Fund, similar to an L-Fund, will continue.  I am optimistic about our great country, and about our ability to overcome obstacles.  I hope a vaccine is developed soon, and that we can resume life as we used to know it.

Thank you for reading, I hope everyone has a great rest of their summer.   Please complete the poll below.   Thank you

POLL:   https://www.quiz-maker.com/poll3070068x478E43f6-95

– Bill Pritchard

Hello Folks

Bottom Line Up Front:  Markets resume an uptrend while facing numerous challenges ahead.   The following reflects my opinion based analysis of the market’s behavior in recent weeks.

As many market watchers have observed, the markets have resumed an upward direction since approximately April 23, which coincides with various “reopening” activity across the country.  This indeed is a good thing, however the volume behind the move upward has been lackluster (in my eyes), which tells me that institutional conviction is still largely on the sidelines.   Furthermore, the price of Gold, a typical “safe haven” investment, is also up.  This tells me that the investing universe is still not fully committed to stocks/equities, even in light of the reopen of the world.  The S&P 500 index has approached its late February highs, but is encountering resistance at the 3250 area on the index.

Please see charts of Gold and the S&P 500 Index below:

To analyze volume action, I typically employ the SPY ETF “tracking stock” which mirrors movement of the S&P 500 index.  That chart is below:

Apparent in the chart are volume spikes, coinciding with reopening announcements, and on purported good news on the vaccine front.  While welcome events, the market still has numerous hurdles ahead.

On June 8, the National Bureau of Economic Research (NBER) declared the US economy officially to be in a recession, based on the huge declines in employment and in production.  Other groups classify a recession as two consecutive quarters, or more, of negative GDP.   Our last GDP report on April 29 was -4.8%.  The next report is expected to be released on July 30.  If this is negative, then by all measures, the economy is in a recession.   Interesting factoid is that William McKinley (deceased in 1901) was the last US President to win a re-election after a recession occurred during his first term.   No President since has repeated that.  What this means is political instability later this year may be another threat to the markets.

In addition to declining GDP, another barometer for the economy is the Chicago Business Barometer, summarizing current business activity, which is also known as the Chicago Purchasing Manager Index or Chicago PMI. The Barometer is considered to be a leading indicator of the USA economy.  A recent chart of this barometer reveals that the current 32.3 level is on par with 2008-2009, a period of one of the worst economic downturns of the United States.  Chart:

So we have two indicators, GDP, and Chicago Business Barometer, painting a stark picture of the economy.   Additional action in the form of stimulus and tax cuts may be warranted, however with the Senate out until July 20, this may not happen for many weeks.

Other things threaten the markets, most notable is the Coronavirus/COVID-19 health pandemic.  I will attempt to remain apolitical here, and use my home state of Texas as a discussion point.  Texas, a conservative leaning, pro-NRA, largely Republican governed state, is the largest state of the contiguous United States, and has everything from beaches, ranch land, forests, and urban city environments.  A variety of demographics exist in regards to residents of Texas.  The way COVID is impacting Texas is probably not dissimilar to how it impacts the rest of the USA.   With that said, death counts, and the positivity rate, is increasing in Texas.  Not sure about other states, but Texas has stopped using antibody tests in the calculation of the positivity rate.  Medical experts believe the viral test (nose/throat swab) is the best test for detecting current victims.  The antibody test, merely checks for antibodies and proteins in your blood which may exist because of exposure to the virus.  Ostensibly, one may be exposed, you body fights it off, and you never got infected at all.   Should we lump this into the case counts ?   I believe some states are indeed doing this, with the media not helping as they amplify and enflame the facts.  Quest Labs themselves disclaims the use of their very own test for the purpose of ruling out COVID-19 infection:

Some images from the Texas Department of State Health Services are below:

I am using Texas because I have faith in their reporting, there is no political angle to “spin” the reporting against the current administration, and they have removed antibody testing from the case counts.  If anything, they have a possible tendency to “present” the information in a favorable manner.  With that said, death numbers have increased, as has the positivity rate.

What does this mean?   It means (in my non-medical opinion) that obviously COVID continues to infect others, even in light of social distancing, mask usage, and other measures.  Big picture, this may result in restaurant closures, or another “shut down” either officially declared, or self-imposed, by the consumer.   This will impact the economy, and the stock market.  As we “re-open America”, we are likely to see increased infection rates.   The goal is minimize impact on hospital resources, but if more people get infected, the need for hospital resources only grows.  Fun fact:  We don’t need ICUs or ventilators if nobody is infected. 

In summary, the market is uptrending, but some challenges await ahead.  Some big dates ahead include the “jobs report” on July 2, the return of the Senate to Washington DC on July 20, and the 2nd Quarter GDP report on July 30.  When the Senate returns, we may see additional stimulus and economic measures which may benefit the markets.

Presently, the S-Fund is outperforming the C-Fund.   Participants may want to consider this when making allocation decisions.  My allocation of 75% G-Fund and 25% C-Fund, similar to an L-Fund, has provided me with the ideal risk/reward comfort level for the present time.

That is all for now.  If you find this free site to be informative, please share them with your friends and colleagues.  To subscribe, please use this link. 

Thank you for reading !  I hope everyone has a great weekend and Father’s Day.

-Bill Pritchard

The stock indexes have entered May on negative footing, the Dow Jones index trading 600 points to the negative on the first day of the month of May, with the losses on April 30 (Thursday) and May 1 (Friday) effectively erasing all gains during the week.  Indeed, the last few weeks have been quite turbulent, with the market largely rebounding from the lows witnessed on March 23, 2020.   This rebound has largely resulted from hope and stimulus and not on positive economic news, which is quite lacking.  I will discuss all of the above.  Unfortunately, the damage done by Coronavirus/COVID-19 has resulted in a negative TSP performance for all stock funds, both for the last 12 months, and Year to Date.   My personal TSP Allocation of 75% G-Fund, and 25% C-Fund appears, in my opinion, to be the appropriate allocation for my account, offering me the ability to benefit from the “up days” in the market while still having some G-Fund protection.   My allocation is very similar to the TSP L-Funds.  For additional information on diversification, please visit the TSP site at: https://www.tsp.gov/PlanningTools/InvestmentStrategy/beforeyouinvest/diversification.html

Lets take a look at the S&P 500 Index:

Evident in the chart is the rebound which started after March 23.  This rebound witnessed headwinds on April 30 and on May 1, impacted by negative economic news which included jobless claims and poor corporate earnings.

A variety of events have spurred this rebound, notably hope and stimulus, in the form of fiscal “bail out” styled packages from our Treasury Department. Indeed some of these packages have strings attached, and must be paid back with interest, but if the receiving company goes bankrupt and liquidates, there will be no pay-back that I can see.  Payroll protection, stimulus checks, loans and grants have been provided, and rightfully so.  Clearly our leaders are looking out for America- the COVID-19 virus itself and the resultant federal response has brought us into uncharted territory in many ways.

A variety of vaccine and drug studies are underway, to include Remdesivir, a product used to treat Ebola, that first came into existence in 2009, and produced by Gilead Science, and Hydroxychloroquine, used to treat malaria and Lupus.  These medicines appear to expedite the victim’s “return to service” and recovery, but do not appear to have vaccine properties or other preventative properties.   They are possible treatment drugs. Remdesivir requires intravenous injection, aka IV-bag and hospital bed, etc.  It does not align with mass applications to thousands of people in one setting. Hydroxychloroquine can be administered via a tablet.  These drugs, and others, have provided people with hope, a necessary and desirable thing to have in times of despair and uncertainty.

On the economic front, news is not good.  Let me be clear:  there are no fundamental/economic-based news to send the market higher.  The April 29 Gross Domestic Product (GDP) release reflects that GDP decreased -4.8 percent in the first quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis:

In the event that next quarter’s GDP is negative, that will reflect the “official” start of a recession, which is a GDP decline in two consecutive quarters.  Many economists are already saying a recession is here now, akin to a Category 5 hurricane offshore and declaring the beach house “destroyed”, even before the Hurricane arrives.  In any event, next quarter’s GDP will be telling.  Additional negative news includes 30 million jobless claimed filed in the last six weeks, and a reduction of housing market optimism as reflected in the Housing Market Index, a monthly poll of builders and construction professionals.

So what is going on with COVID, which caused this mayhem?  Most experts agree that our economy was fine until COVID came along.  COVID statistics and metrics are probably the most polarizing topic in modern times, aside from talking about religion and politics itself.   How are death rates calculated ?  Do people die of COPD, lung infections, or is it labeled “COVID?”  If the medical examiner in NYC does things one way, does the medical examiner in Seattle do it the same way ?   What about hospitalizations ?   Reports exist that hospitals “want” COVID patients, to allegedly obtain high value reimbursements from the government.  I doubt this is the case, nobody wants a walking HazMat case to coming into any building.  Hospitals can make money in a lot of other ways anyway.  Others report that this very reason is causing hospitals to turn away patients who are non-critical, thus resulting in a walk-up patient, indeed with COVID, who is sent home to recover.  This is not a “hospitalization.”  A very superficial assessment of Hospital ABC, with no COVID patients (they all got sent home at the door), will cause someone to believe that there is no COVID in that town.  Also, as testing expands across the nation, case counts will naturally increase. One could spend hours reviewing COVID data and still not understand the scope of the problem.  Sensationalist media (basically all channels besides the Food Network) does not help.

For me, all I care about is daily rates.  Not cumulative.  A graveyard is cumulative.   Today it contains 50 deceased persons.  Tomorrow, 3 graves become occupied and the graveyard now has 53 deceased.   Naturally, over time, more people fill the graveyard.  When sensationalist media claims two (2) COVID deaths in January, and 60,000 in April, well, yes, that is correct.   As people die, the numbers increase (sadly).   What I care about is daily rates, of hospitalizations, and of deaths (aforementioned date methods aside).  See charts:

For the weeks ending on April 4 and April 11, the weekly hospitalization rate (there is no daily rate from CDC) was 7.5 and 7.4 persons per 100,000 people.    We obviously do not want that to increase.  My personal “worry level” would be 10 persons per 100,000 people, as that is clearly abnormally high.    Lets move on to death rates:

Evident in the cart is the fact that the daily new death rate (for April) is basically 2,000 to 2,500 a day.  We had a spike of 2,603 a day on April 22, and a huge spike of 6,393 on April 17.  I am not sure if the reporting criteria changed that day or what happened, but if we remove that from consideration, we are looking at 2,000 to 2,500 a day for new deaths.   My “worry level” is if we see 3,000 a day for new deaths.

Which leads to the lock-down discussion.  If we have no vaccine, no preventative medicines, and only via self-quarantine and social distancing, have we managed to reduce daily rates to the above levels, what happens when we “open back up.”  More importantly, what will the decision makers do ?   Hypothetically, lets say USA is “open” (albeit wearing masks, social distancing, etc) on June 1.   Lets say masks and other measures indeed have some positive impact. However, new infections and new deaths are still bound to happen.  Lets say we go all of June then we see hospitalizations and deaths spike in July, as a result of the May/June “re-open.”  I am not being pessimistic here but it is what it is.  School typically resumes late August.   The decision to return to school will probably be mid-August.   So in my opinion, July is a very important month.   It may set the tone for a return to school and other things.   Keep an eye on the above rates.  Elected Governors and Mayors know that you can shut down testing and magically have “No COVID cases” and high five each other that the problem is solved.  But if someone dies from COVID, or is hospitalized with COVID, that is hard to dispute.   My worry levels are 10 hospitalized per 100,000, and 3,000 deaths daily.  By the time July arrives, we should have the May and June data which will paint the picture of where COVID is headed.

Lets keep our fingers crossed as we begin the new trading month of May.  My personal TSP Allocation remains 75% G-Fund, and 25% C-Fund.

Thank you for reading, please share this email with friends and colleagues who may find my opinion based analysis of the markets useful…the link to subscribe is:  http://www.thefedtrader.com/contact-us/

Thank you

-Bill Pritchard

Last week, the stock markets continued their COVID-19 triggered crash, resulting in the worst week for the Dow Jones and S&P 500 indexes since 2008 (12 years ago).   You may recall that I changed my asset allocation in my TSP to 75% G-Fund, and 25% C-Fund, triggered by the deteriorating market and the penetration of 2700 on the S&P 500, resulting in a “official” bear market status.  In mere weeks, the indexes have given up ALL gains from 2018 and 2019.  ALL of them.

Plainly visible in the above charts is the penetration of 2700, resulting in an “official” bear market (20% decline from an all time high), and also the cross of the 50-day and 200-day moving average.  This “cross” is a very common trend identification tool, used by thousands of institutional investors.  I guarantee you that many people are watching these levels and trends, and additional selling will soon follow in the future.

As previously mentioned in my FAQ, major market trends, to include Bull and Bear cycles, are driven by catalysts.  Indeed, a global virus outbreak and pandemic, can serve as a catalyst.

Evidence indeed exists that this is a very dangerous situation- my personal stance has changed somewhat (once presented with facts, I tend to shift my views…usually…) in recent weeks.  The world is on lock-down of varying degrees, for the first time in history, people are encouraged to not go to work, to not socialize, and to stay inside.   The global economic impact of this will be catastrophic.  It is of such proportions, that even Gold is not safe.  Investors are selling gold to raise cash, as “cash is king” right now.   See chart:

Visible above is the mini-crash going on in Gold now.   So when you squeeze the water balloon on one end, the water goes somewhere else, and makes the other end expand, does it not ?   Investors are raising cash, which is driving the “value” of the dollar higher, as indicated on the US Dollar Index chart below:

The increasing strength of the dollar, having begun on March 10,  is not desired by President Trump, who publicly has denounced a strong dollar because it impacts trade.  Fox News Business provided a 2019 article where this can be further explored: https://www.foxbusiness.com/economy/trump-weaker-us-dollar

So stock market aside, there are other cracks in the foundation appearing, notably the strength of the US Dollar.  Furthermore, we still do not know the true impact of COVID-19, but preliminary figures are starting to trickle in.  For example, one sector hugely impacted is the aerospace and airline industry.  Transportation and Security Administration (TSA) checkpoint travel numbers shows that passenger counts are down 50 to 80% from the same time last year:

I imported the data into a simple Excel graphic to allow a visual depiction of things.  Passenger counts are drying up, exasperated by lock-downs and restrictions in major travel states of California (LAX, SFO) and New York (JFK, LGA).  Hawaii will soon impose 14 day quarantines for all inbound visitors. 

Economic talk aside, lets talk about COVID-19.   I am calling March 10, 2020 as the date that USA began to realize that COVID-19 was a threat.  The outflows to the dollar began that date (“smart money” was behind this move), the market attained Bear Market status on March 11 (no doubt driven by decisions on March 10 and prior), and a noticeable uptick in COVID cases began that date:

TSA travel date reflects a drop-off of travel starting March 7, then a clear breakdown March 10 and after.   On March 12, I inputted my asset allocation change to the TSP, and largely avoided the bloodbath which happened last week.

I will not bore you with COVID-19 charts and graphics, plenty exist on the internet.  It is sad to report that we have surpassed Spain in the number of cases.  Communist China, who kicked out reporters, and are the likely culprit for introducing this to the world, is not to be trusted for reliable reporting.   I hear people on the cable news shows state that “China does not have a problem anymore” etc.  I doubt that is the case.

As I stated in a prior post, my opinion is that reported cases for the United States will be drastically higher in April, due to the 14 day incubation period from mid-March, and due to increased (more) testing sites.  Behavior-based measures (self quarantine, social distancing, etc.) did not really begin until mid-March.   Only a few days ago did the majority of people really start to take this seriously (at least in my view).  Hence, I think it is fair to say that we are about to get a huge amount of confirmed cases in the coming weeks.

Moving on….Any federal bailout package will not be without attached strings; cash hand outs (taxpayer funded) to for-profit corporations are less likely than government loans, with qualifying requirements.  Probably every business in America will benefit from assistance.  The hospital industry alone is reportedly in need of $100 billion just to ramp up COVID-19 related capacity and infrastructure.

So how long will this crash/correction last ?   Attached is a chart I made of the S&P 500 index going back 30 years, with comments on the chart:

If history is any guide, the “bottom” is not going to be close until at least 35% to the downside is reached, or 2200, at the very least.   The financial crisis of 2007-2009 and the “Dot Com” bust of 2000 witnessed a decline of 47% until the “bottom” was reached.   A 47% loss today is located at the 1798 level.   We can round this up for simplicity to 1800, and keep an eye on 1800 to 2200 as a possible “bottom zone” with the assumption that history will be a reliable guide for us.

So the next question might be, “Do Bailouts work?”   In the 2007-2009 Financial Crisis, they did not seem to help:

Only time will tell if our elected officials can work together, and put together a package to help the economy.  More importantly in my opinion, is find a solution to COVID-19.

Thank you for reading.  As always, please share this email and my website with those who may benefit from my opinion based analysis of the markets.  You can subscribe via this link:   http://www.thefedtrader.com/contact-us/

Lastly, if you have not already done so, please participate in my poll, which I intend to close after 30 days, located at this link:  https://www.poll-maker.com/poll2788829xc18a487c-82

Thank you….talk to you soon

-Bill Pritchard

Good Evening

On Sunday March 15, Federal Reserve Chairman Powell announced an “emergency” rate cut, resulting in Federal Reserve rates of zero (0) percent.  Most believe the “Fed” is now out of ammunition to further help the economy, and the markets.   Note that while the Fed’s job is not to prop up the stock markets, the do markets pay close attention to monetary policy.   Sadly, the Dow Jones futures traded 1,000 points down after the rate cut was announced:

Indeed the COVID-19 / Corona Virus situation is a catalytic event, discussed in Question #6 my FAQ.  Such an event can clearly send the market down, (and up), and arguably this is the worst global economic event since Sept-11, and since the Financial Crisis 2007-2009.

On Sept 11, 2001, terrorist enemies attacked the United States, killing thousands of people.  Americans were quick to rally and unite, and efforts to defeat the terrorists began.   During the financial crisis of 2007-2009, banks, lenders, and other institutions began to weaken and display structural problems.  These problems subsequently triggered a financial collapse, and a stock market crash.  Indeed a big deal.

The COVID-19 situation is one that requires humans to remain away from each other.  Reduce/eliminate social interaction.  Change our behavior.  Telework is being advocated, as such, side by side collaboration will be reduced.  Workplace productivity, success, and project completion rates will be impacted.  Try designing a rocketship over email and phone conferences.  Selling cars, real estate, medical care, teaching class, sporting events, high school graduations, are traditionally “in person” activities.  For those employees who enjoy working on a team and accomplishing things together, your team is now a bunch of folks on your email TO line.   Some industries are better suited than others for this type of arrangement. 

The International Monetary Fund (IMF) has already come out and stated that global economic growth will be severely impacted.   The Organization for Economic Co-operation and Development (OECD) has stated that global growth may be cut in half. 

With that, let me share my opinions about COVID-19.   Included below is a chart of “Open Table” online restaurant bookings:

Apparent above is the the fact that despite COVID-19 being talked about since January, nobody (myself included) took it very seriously until recently.  If eating in restaurants (which is associated to social activity and being near other people…) is any indicator, the world was eating in restaurants basically until March 1.  Now, the world did not all get sick that day and decide to stop going to restaurants, but I believe a behavior change began on that date.   If you look at March 8 (one week later), restaurant traffic continued to dry up.   Note that the World Health Organization declared COVID-19 a Pandemic on March 11, and on March 13, President Trump declared a National Emergency.    Hopefully “the word got out” by March 14 that this is a serious problem.  Indeed restaurant reservations reflect that.   Which is great, however COVID-19 has an approximate 14 day time lapse to display symptoms.    As of today, real-time reporting from people I personally know in the health field tell me that many testing sites will not test you unless you display multiple CDC promulgated symptoms, said symptoms which do not all appear simultaneously.  In summary, people are likely carrying the virus and do not know it.  Further more, the 14-day time lapse, coupled with the only-recent realization that this is a serious matter, reflects a potential onslaught of positive tests in April. Date check:  Today is March 15.  I may be rambling incoherently (sometimes this happens…) but my point is the world was out in the public until basically today.  Only now are folks begrudgingly changing their behaviors. 

This will further feed the existing fear and paranoia factor (something we don’t need), as “more and more people are getting infected.”  We now know, using my example above, that many indeed are probably infected now, but known infections still not well known or well documented.  This lack of reporting has arguably encouraged a Laissez-faire attitude in the US, since “nobody has it.”   In mid-April, I (sadly) feel things will be more grim.

As many know, I made some adjustments to my TSP Allocation on Thursday March 12.  The “Bear Market” point was attained on the same day, when the S&P 500 traded below 2715.  It is my opinion that the market will continue much lower.  This concludes my opinion based analysis of the markets for now.

If you have not already done so, please participate in my POLL:  https://www.poll-maker.com/poll2788829xc18a487c-82

Also, I have received some emails and messages to “please sign me up, here is my email address.”  I simply cannot manually enter new 125 email addresses into my free site every night.  I request folks take a look at the following link, and share it with anyone who may enjoy reading my opinion based analysis of the stock markets and impact on the TSP.  Subscribe Link:  http://www.thefedtrader.com/contact-us/

Thank you for reading…

-Bill Pritchard

Good Evening

As many know, President Trump spoke during Wednesday evening to the nation.  Apparently his speech did nothing to pacify markets, with Dow Jones futures trading down over 1,000 points.  Common sense has left the room, and pure panic and fear have hit the markets.  As stated previously, (until mere weeks ago), our economy was on solid, strong footing, with full employment, strong housing numbers, and strong GDP.  The economy is now under threat, as various travel bans take effect, tourism ceases, and business travel (the primary source of major airline revenue) slows, instead opting for video conferencing.  As more and more people “self quarantine” (in accordance with government recommendations), retail spending will be impacted, and other areas will be impacted.  Corporate earnings in coming months will indeed be poor.  Which will likely fuel more selling and downward action, resulting in a self-fulfilling bear market crash.

With that I will be changing my Asset Allocation in my TSP to reflect 75% G-Fund, 25% C-Fund.  Why not 100% G ?  Because I still believe: “nothing is (was) wrong” with the underlying economy; I hope (hope is not a strategy, but…) some common sense returns to the markets; and I believe in our country and its entrepreneurial spirit.  We have overcome many things, and we will overcome this.  However simple math also tells me I cannot watch my TSP vaporize.   The above is basically the same thing as the L-Fund, the only difference is my all my non-G fund weighting is in large cap (C-Fund) stocks:

Some will be quick on the trigger that I am “locking in losses” with an asset allocation change..  Fact of the matter is the losses have occurred, and if the particular fund or asset class is not providing the risk/reward balance you desire, you may think about your need to change your asset allocation or an asset rebalance.   Please read my March 8, 2020 post regarding Asset Allocation.  This is not “my” idea, it indeed is “my” action though.   I get some negative fan mail claiming my allocation changes are something I invented, but they are all within the four corners of the TSP handbook, SEC investor education guidance, and trusted financial company publications.

Note that recent action on the S&P 500 has brought it back to 2019 levels:

Also note that the markets are still very elevated and a market crash has still not fully developed.

In the event the markets find some common sense, and the downtrend reverses, my aforementioned allocation of 75% G-Fund and 25% C-Fund (again, very similar to L-Income fund) will see some partial gains.   Observe that Fridays tend to be “sell-off” days…my allocation change should take effect before the market closes on Friday.

I strongly encourage the readership to learn more about asset allocation and making allocation changes.  It is not all about return, investment choices are also about volatility, risk, and time horizon.  A 25 year old employee who plans to retire at age 65 is in a different situation than a 63 year old who plans to retire at 65.  There is not one magic solution for all.

Administrative Notice:  I am posting this because we have a “new generation” of readers, recently coming into the workforce.  Nice folks but the knowledge base and expectation level is different from seasoned long term TSP participants.  This long existing (and free) website, in which I provide my opinion about the markets, and voluntarily disclose my TSP choices, has recently seen an uptick in communications to me with numerous “but why” questions, even some criticism that I “missed some gains” etc.  I get numerous LinkedIn messages asking “Can you answer some questions” or “I know you are busy, but…”   No sweat, thank you for reaching out, but if I spent only one hour a week developing website material, researching the markets, etc., at only one hour a week, that is four hours X $7.25 minimum wage, or $29 a month, in the event I were to put a price on my effort and time.  As such, I plan to stop sharing my TSP allocation choices, and continuing this free site as an analysis-only site of the market’s action.  Before I do this, I wish to poll the readership.   Please take a moment and participate in this poll:

POLL:  https://linkto.run/p/QV49C2P0

Thank you for reading.  Let’s hope the Coronavirus market infection quickly resolves itself.  Talk to you soon.

-Bill Pritchard

Good Evening

With the Dow Jones index losing 2,013 points today, March 9, 2020 was the worst trading day of the year.  This was largely Coronavirus related, however a price war between Saudi Arabia and Russia did not help things.   Since many energy companies occupy the Dow Jones Index, this already wounded index was hurt even more.

In my prior post I commented that I was watching the 2,700 level on the S&P 500, with 2715.20 as being “official” bear market territory.   Let’s take a look at the 20-year chart, and an 18-month chart of the index, with the 2700 level noted:

Apparent in the above chart is the fact that we are basically approaching Year 2018 levels on the S&P 500.  The pain previously inflicted has erased all of 2019’s gains.   What took 12 months to build, took one month to crash. We have seen this in other bear markets, we saw this in 2007-2009, and in 2001-2003.  This is because buying stock, and making investment choices, whether by the private investor or by a major institution, usually is a result of careful decision making and information gathering.  Selling, on the other hand, typically is not done that way, and is usually a mad rush to “get out.”

This evening, President Trump announced a variety of measures, to include:

1. Payroll Tax relief

2. Financial help for hourly wage earners

3. Small Business Administration (SBA) actions to help small business

4. Hotel, Airline, Cruise industry special measures

The Dow Jones evening futures rallied 500 points on this news, however it is yet to be seen how Tuesday’s stock market will behave.   Let’s keep our fingers crossed.

With a close price of 2715.20 or lower, the S&P 500 will be in a Bear Market.  A few other technical things still need to line up, but cracking 2715 will trigger additional selling and rebalancing of assets in the world, which means things will get much worse, before they get better, once the textbook definition of a Bear Market is attained.

Lets see if it can keep its head above the water.

– Bill Pritchard