The Fed Trader

Good Evening

“Quick publish with minimal proof reading” – Just an FYI that tonight’s Dow Jones futures are trading lower by about 1,200 points.  This clearly is undesirable, and while trading sentiment can change between now (11PM Central) and the morning, it is not likely.   As such, Monday March 9 trading in the US stock markets is likely to be bloody, as investors continue to panic-sell out of response to the Coronavirus and its related economic impact.

Gold, as expected, is at new highs, being a safe-haven investment:

“Great Bill, more charts, what are we supposed to do with this ?” you probably are asking.  Great question, it is one I am asking myself.   Note that retirees cannot contribute into the TSP, as such they are in the most vulnerable camp  in regards to crashing markets.  There is no “continue to make contributions” for a retiree, or “think of it like you are buying shares at a discount” [a belief I have never supported, but…].   A retiree is not contributing, he/she is not buying any more shares.   If I was retired, I might be looking at the G-Fund as an Coronavirus investment option right now.   As a matter of fact, disregard what I said (I will be blamed to inviting flee-to-G-Fund panic), and lets look at what the TSP says for the retirees.  TSP Command Central says:

So there, don’t send me hate mail when I say “consider shifting to the G-Fund”.   Send it to the TSP….

Back to my commentary.

Note that the markets still have a way to go, this correction has not developed into a full blown bear market yet, commonly identified as a 20% decline from the prior high.  On the SP-500, this would be the 2715.20 level, which is 20% from its high of 3394.

Lets take a look at the weekly (versus daily prices) chart of the SP-500:

Lets take a look now at the daily chart, with various support levels noted since May 2019 (approximately 12 months into the past).   You will observe that the 2700 to 2800 zone is where support is found.   My opinion is a CLOSE PRICE (end of day, the market closes) of 2700 or below is cause for alarm.   It also represents an area where an exit to the G-Fund (possibly a partial exit) would still protect earnings accumulated right up to approximately mid-2018.

This is a great time for further discussion on “Asset Allocation.”  For the moment, consider Large Cap stocks (C-Fund), Small Cap stocks (S-Fund), etc. to be “asset classes” or “categories” (terms often used interchangeably).   Do not listen to me, lets look at what our friends at the SEC say about Asset Allocation:

As you can see, asset allocation is indeed a tool in the toolbox for reducing risk and exposure to the markets.  Be cautious when you get advice (especially the retirees) to “buy more, it is on sale.”  1) Retirees are UNABLE to buy more 2) The “sale price” may go even lower, RE: Enron, 3) Once losses exceed 10%, it becomes harder and harder to regain them.  A $100,000 balance that is down 30% is now worth $70,000.   To recover that loss (which was $30,000), a gain of 42% is needed.  Only one time in history (at the beginning of the 2003 bull market) has the TSP ever approached that level.  Remember, that is to break even.   If you get this in your inbox, you might get a second opinion:

I am not going to beat up the “buy and hold forever” crowd, if it works for you, then use it.  I have my opinions though.  There are 9,599 different mutual funds in America, and 6,900 Exchange Traded Funds globally.   So, apparently there are 16,499 various opinions and investment strategies out there….

Summary:  I am watching the 2700-2800 level on the SP 500, which may be a trigger for me to move some, or all, of my TSP, to the G-Fund.

Lets see what happens this week.  Monday March 9 is not looking good…

-Bill Pritchard

Howdy folks

Opinion based commentary….

As we all know, the Coronavirus has infected the markets, resulting in severe down days, losses, and extreme levels of volatility.  Call me crazy but I am maintaining my TSP Allocation of 50% C-Fund and 50% S-Fund, as I consider the Coronavirus to be a “Black Swan Event” (discussed previously on my website in 2013 and 2014) and without prediction.  Furthermore, there is no “lead up” to this type of event:  it is panic in nature, akin to somebody saying “fire” in a movie theater and everybody dies because they got trampled to death at the exits.   I ask that the Wall Street folks breathe for a minute.  There is some argument that mainstream media is over-blowing this topic, which, while important, is possibly being used to steer voter opinion in this current election year.

Note that China is indeed the world’s factory.   If the factory closes, the world economy hurts.  No doubt.  I get it, everybody gets that.  If Apple’s Ipad manufacturing is stopped, and they cannot fulfill orders, Apple does not sell as many this quarter, and quarterly earnings are impacted, and the stock goes down.  Look, I get it.   If Japan Air Lines cannot sell tickets to Japan, they loose money.   I get it.  However that data has not come in yet, we do not know exactly the impact that this virus will have on corporate earnings.

On March 2, 2020, the Dow Jones index rallied 1,293 points, the most it has ever gained percentage wise since 2009.  This was fueled by hope that a global response will occur, via fiscal measures, from the FOMC, IMF, and ECB, to help mitigate downside from the Coronavirus.   Let’s hope this stimulus comes through.

Let’s take a look at the 6 month chart of the S&P 500 Index, then a 20 year chart.  The 6 month chart is painful.  The “big picture” / “long term” chart not so much:

Important !   Does this mean I am going to ride my personal TSP account to zero ?   Watch it vaporize away ?   As most know, I am not a “invest in stocks and leave it forever” guy.   I am also not a TSP day trader.   My strategy calls for an analysis of the fundamental and the technical picture, when that is done, I make allocation adjustments based on my risk tolerance.   When the investor adjusts his allocation, this is called an “allocation strategy.”  Admittedly, going 100% G-Fund may be too risk averse, however for me, myself, and I, this is what helps me sleep at night when it gets stormy outside.

Side note:  Over the years, a few TSP information sites have come and gone, one fairly popular one stopped publishing all together, leaving a bunch of subscribers wondering what happened.   That site, like many others, was run by somebody using a pseudonym name.  Other sites have no identifiable human owner, just some PO Box addresses.   Mine (this one) has existed in various forms since 2001, or almost 20 years.  I believe I am accurate to state that this site has expanded and enhanced a lot of people’s understanding of the TSP and the markets.   I would ask that people stick to who they trust, our (my) opinions may not triple your accounts by next year, and you may disagree with those opinions, but at least you know what you are getting from the start.   I would recommend folks continue to pay attention to Dan Jamison, CPA of the FERS Guide, and Chris Barfield, CPA of Barfield Financial (check LinkedIn or google search).   Both Dan and Chris provide outstanding benefits and TSP related information.  I highly recommend listening to what they say.  They are real humans, and you can trust them.  Kind of a big deal in today’s world of internet, overnight popup websites, and the impersonal advice industry.   Just my opinion…

With that said, my TSP Allocation is unchanged (for now).

Thank you for reading….

-Bill Pritchard

Good Evening

FYI that Dow Jones futures are reflecting a 300 point drop down, attributed to continued coronavirus fears.  If this continues into the morning stock session, the markets will have a painful Monday.   See current futures values:

Gold futures are also trading up, classic “safe haven” behavior when stocks are down:

Note that the “Coronavirus” has many similarities to the common flu, per John Hopkins University: https://www.hopkinsmedicine.org/health/conditions-and-diseases/coronavirus/coronavirus-disease-2019-vs-the-flu

Harvard University Medical School states that preventative measures against the flu will likely also work for coronavirus:  https://www.health.harvard.edu/blog/be-careful-where-you-get-your-news-about-coronavirus-2020020118801

With the hypothesis that the flu and the coronavirus are similar, it is important to note that investment decisions should come with the awareness that flu cases subside in April:

Being that we are soon entering March, I see no reason to panic-bail out of stocks and into safer investments such as the G-Fund, as I see the coronavirus situation as short lived.  Longer lasting economic impact may indeed occur, however it is not known what, if any, effect, this will have (long term) on the stock markets.

For now, my TSP allocation remains unchanged.

Lets hope that April gets here soon, and that the coronavirus cases start to subside.

Thanks for reading….

-Bill Pritchard

Good Evening

Bottom Line Up Front:   Effective this evening, I will be making a change to my TSP Allocation, to reflect 50% C-Fund and 50% S-fund.   Allow me to discuss my opinions regarding this change to my personal TSP.

Before I proceed, allow me to conduct some light discussion regarding some talk about being “too conservative” or “missing gains” due to G-Fund exposure.  As has been mentioned numerous times on this site, the G-Fund is purposed to protect your account from loss, not designed to obtain great gains.  Long term exposure, lasting a year or longer, while not desirable, may satisfy the TSP account holder’s risk tolerance, if the account owner has bonafide and good faith belief that there is heightened market risk to his account.  Low rates of return aside (observe that capital gain is not the purpose of the G-Fund), the G-Fund remains the most popular TSP fund that exists.

Observe that the TSP plan uses the G-Fund heavily in the lifecycle funds, at times 70% allocation is witnessed in the G-Fund: the L-2020 fund distribution is:  https://www.tsp.gov/InvestmentFunds/FundOptions/fundPerformance_L2020.html

My opinion is that numerous “headwinds” are now absent from the market landscape, most notably the US/China tariff war, and the Senate trial regarding the impeachment hearings targeting the President of the most powerful country in the world.   On December 12, 2019, US/China reached an agreement in regards to tariffs, with additional tariff easing to occur on February 14, 2020.   On February 5, 2020, the Senate trial mentioned above ended with an acquittal.

The only major issue impacting the markets, in my opinion, is trade issues associated to the Coronavirus, which has killed over 900 people worldwide as of today.  Sad indeed, but it should be noted that over 59,000 humans die from rabies annually.  I have never met a human with rabies, but statistics reflect a greater chance of meeting one versus a Coronavirus victim.  Am I going to purposely travel to known Coronavirus locations ?  No, nor would I enter an cage with rabid dogs.  With that said, based on the above numbers alone, am I going to panic and worry about normal everyday life, because the Coronavirus is all over cable TV news and morning talk shows?   Probably not.   As such, I believe any market panic associated to the coronavirus is overblown.   The SARS virus, another well known epidemic, dating back to 2002, resulted in minimal market response.  Most academics cannot pin the market downturn in late 2002/early 2003 to the SARS virus, as the downturn was likely tied to post 9-11 issues facing companies and travel. Note that the markets indeed rallied subsequent to the March 2003 invasion of Iraq:

Let’s take a look at some charts of the SP-500 Index and the SPY Exchange Traded Fund:

Apparent is the fact that volume swelled in December 2019, consistent with the market embracing the tariff agreements, this continued until late January 2020, when the Coronavirus sell-off occurred, which then abated in early February.  On February 6, 2020, a new All Time High occurred, when the SP 500 index reached the 3347.96 level.  It then set another All Time High today, February 10, 2020, reaching 3352.26.

I see no headwinds for the markets in the viewfinder at this time.   It is important to note that this is an election year- turbulence can be expected as we approach the Nov 3, 2020 election.

I will readjust my TSP Allocation to reflect 50% S-Fund and 50% C-Fund, due to my opinion that the market headwinds have dissipated.

Thank you for reading, hope everyone is having a great 2020 so far !   Talk to you soon…

-Bill Pritchard

Good Evening 

This will likely be the last post for 2019, as we are mere days away from 2020.  Fortunately, I have plenty of positive things to write about, most notably, the market’s positive behavior as we approach the end of the year.  The market is likely responding to a number of positive developments- with that said, we are also in “Santa Claus rally” mode, which is the time period beginning the last week of the year, and into the first week of the New Year.   Bottom Line up Front:  My TSP Allocation remains 50% G-Fund and 50% S-Fund, however I may return fully invested in stock funds at the end of January, 2020.     

Let’s talk about recent TSP fund performance.  Preliminary data from a variety of sources (not just the historical, it-already-happened, TSP.GOV website), reflect that the S-Fund will likely remain the top performing fund in the near future.  The next runner up will likely be the C-Fund.   Being that the S-Fund represents small cap stocks, and the C-Fund represents large cap stocks, their recent strength is tied to underlying economic conditions and positive news, detailed below.

On December 13, 2019, President Trump announced that a “Phase One” trade deal with China was official; this deal contained the following provisions:

• Tariffs on Chinese goods planned for December 15, 2019 are suspended
• September 1, 2019 tariffs reduced from 15% to 7.5%
• China agreed to purchase $32 Billion in US sourced agriculture over the next two years.  

Not surprisingly, the markets responded strongly to this news:

The above image is a one month view of the SPY Exchange Traded Fund (ETF) which is a proxy for the S&P 500.   Below is a longer term view:

If you take a look at the volume, it is plain as day the fact that volume has increased, indicating “accumulation” or investment by institutional investors such as banks, retirement plans, and mutual funds.  Volume “validates” the move of the index or stock in question.  Sure, a stock can go up, but what is the volume ?   Only with volume can we be confident in regards to what is transpiring.  

A look at the S&P 500 index below, reflects that the “recovery” began the first week of October, with a new All Time High being attained on October 29.   Volume was occasionally above average, I attribute this to nervousness associated to the then-looming US/China Phase One trade talks.

The Yield Curve, with a proven track record of forecasting recessions and bear markets, has also recovered.  It was “negative” all year long, and went above zero, into positive territory on October 11:

Another barometer used to assess the health of the economy is housing data, more specifically, the Housing Market Index (HMI).   This too, has come off a recent downtrend and has made new highs.  The HMI is an assessment of home builder sentiment regarding the real estate situation:

So we now have multiple positive indicators and news that supports my theory that stocks will continue to go higher, with the S-Fund and C-Fund being the likely best performers in the coming months.   With that said, allow me to talk about an investment strategy called “Market Timing.” 

Some have asked me if my approach to the TSP and investing in general falls in the realm of “Market Timing.”  A variety of definitions exist regarding this strategy, most state that market timers use charts, indicators, and other seemingly witchcraft-like methods to try to buy the low, and sell the high.  Which is probably the complete opposite of how I approach my investments:  I prefer to buy the high, and hold it forever, only selling (ideally higher) when a certain criteria is met, and free of emotion.  I liken the “buy the high” approach as being akin to buying a college football player:  If your “indicators” include the award of the Heisman trophy, the SEC player of the year, and the College All-American award, and the player is a college senior, you are “buying high” in stock market lingo (the player has basically won every award possible, and is in his last year of college) but you know this is “just the beginning” of something great.  Nobody in his right mind would say “don’t buy that player, he has already done everything he can do.”  But that is what 80% of investors do.  They try to look for that cheap, bargain basement stock or investment, and time things so that they sell it when it goes higher.   Good luck with that.

This brings us to the TSP itself.   The TSP is simply a box, a container, that contains your retirement money, all of which is always invested in something.   Wait, what ?  “Always invested ?”  First time I have heard that you say ?  There is no “cash option” in the TSP, there is no “cash out my funds and put the money aside” in the TSP.  The closest thing to this is the G-Fund.  But the TSP themselves (not me, the TSP says this…) considers the G-Fund an “investment”:

Thirteen (13) times on the above page alone, the G-Fund is referred to as an “investment” by the TSP (not by me, I did not invent this concept…) themselves.  Furthermore, they come out and say:  Consider investing in the G Fund if you would like to have all or a portion of your TSP account completely protected from loss. Wow, pretty powerful stuff.  Again, the TSP, not me, says this.

Did you know that a few of those TSP Millionaires actually use the G-Fund as part of their strategy?   Here is one:

Once your retirement money goes into the magic container called the TSP, it must be placed somewhere inside (this is called allocation).  It cannot be accessed from this vault (absent severe penalty) until retirement from the federal service, and even then, depending on what age you retire and some other things, additional provisions may exist.  What the TSP looks like, in my mind:

In summary, if you are in the TSP, then like it or not, you are invested in something.  If you are in the TSP, you are spending time in some market, be it international stocks, bonds, small cap stocks, or short term Treasury securities.  In the TSP, you are in “a” market, somewhere.  Which finally gets us closer to this website, and my philosophy.  There is no doubt that I use technical analysis (charts, etc.) in my investment process, but it is not done in a vacuum.  I also use fundamental data and information to help orient my compass in regards to the health of the economy.  GDP, CPI, PCE Inflation, Housing, and other information is used to complement the charts.  It is my opinion that asset allocation choices should be made using data and information, and not emotion.  I would not invest in the I-Fund, which mirrors the MSCI EAFE index, if all of Europe was bankrupt and my charts were not favorable.  Maybe someone else has a crystal ball, and can market-time themselves to European riches, but if my personal information sources are not favorable, then I am not doing it.  Remember:  If you are in the TSP, you are in a market.  And time in the market results in financial success.  The risks along that path to success are different, depending on what fund you are in.      

A few TSP advisory sites have come and gone over the years.  Note that this site is not a TSP Advisory site, it is a “What Bill Pritchard is doing with his TSP, and why” site.  In any event, subscribership continues to grow, year after year.  I hope that by sharing my opinion regarding the TSP and the markets, it helps shed light on things and expands some folks’ understanding of the market. 

Thanks for reading, and from my family to yours, Merry Christmas and Happy New Year…

-Bill Pritchard

Good Morning Folks

Bottom Line Up Front:  Today, Saturday morning, I have submitted a change to my TSP to reflect 50% G-Fund and 50% S-Fund (contribution allocation and interfund transfer).    Let’s talk about this and in the course of doing so, I will share my personal opinion on a variety of things facing both the markets and the economy in general.

Note that the above change comes a little more than a year since my last move, which was 100% to the G-Fund, on October 23, 2018.  As I have discussed in prior posts, my goal is not to day-trade my TSP (good luck with that) but to capture long term trends up when both the technical picture (charts, volume, stock market behavior) and the fundamental “backdrop” (economy in general, financial climate, etc.) reflect a climate indicative of future gains.

The above allocation is not “all in” 100% into stocks, I am basically putting one foot back in the water for now.  Let’s be honest:  the economy indeed has some challenges ahead, to include the ongoing, still unresolved tariff war US/China, interest rates being reduced as “insurance cuts” to counter contamination from weakening global economic considerations, and ongoing riffs, battles, and disputes in the world of politics.

Some may recall I often say that “the market knows all” – indeed it does, and despite numerous setbacks, delays, wordgames, etc from China in regards to a trade agreement, the market has shown resilience and gone up.  Volumes have been weaker than desired, but we have had numerous days of back-to-back “up volume” albeit lower than average volume on each of those days.  I have basically watched the indexes go up all year, and gotten beat up about “missing gains” – I get that, but my personal investment methodology includes discipline and avoiding emotion (for the most part) in my process.  Lets take a look at a chart of the SPY exchange traded fund, a useful proxy for the SP 500 Index:

An important observation is the market has attained All-Time-Highs as of Friday November 2.  If you have followed earlier posts, those who adhere to a technical analysis approach (like me) will conclude that this is a positive sign and that there is no “overhead support” for the index to “fight thru” in order to climb higher.   It also made all time highs on Oct 28 and Oct 29.

Fueling this uptrend appears to be the reversal of the inverted Yield Curve, an oft-used signal for a recession, and an apparent acceptance that no solution to the US/China trade dispute is near.  The Yield curve returned positive on October 10, as reflected by the below charts:

A glance at the 20 year chart will support the notion that the yield curve indeed was inverted/negative in times of market crashes.  The facts are before your eyes in the chart.

In summary, I am 50% S-Fund and 50% G-Fund in my personal TSP.  I may go to all stock funds in another month or two.  I think that is enough reading for a Saturday morning…thanks for being a subscriber.   Let me reaffirm my respect and support of retired FBI S/A (current CPA) Dan Jamison’s FERS Guide, he is a very knowledgeable expert in regards to federal retirement, especially for the 6(c) law enforcement audience.  Retirement benefits, life insurance, survivor/beneficiary rules, these are all answered by Dan and his FERS Guide which I encourage you to sign up for.  When I have questions, I talk to Dan.

I appreciate the readership and support of this site, where I share my personal opinion and analysis of stock market action and factors affecting the TSP.    Please share this site with your friends and coworkers.  Thanks for reading and have a great weekend….

-Bill Pritchard

Hello Everybody

Unfortunately my personal TSP Allocation remains 100% G-Fund.   Indeed I am risk averse, and possibly closer to retirement than others in my subscriber base, however allow me to provide my opinions regarding my decision.  You may recall prior posts regarding my concerns about the US/China trade talks- it is expected that tariffs on $250 Billion worth of Chinese goods will go into effect on October 15 (these were originally planned for October 1).  Being that numerous banking experts, Fortune 500 CEOs, and various economic indicators all are nervous regarding the tariff situation, I am taking a watchful-waiting stance, yes it is painful to see potential gains go unrealized in my account.   Let’s talk about some of the things that I am watching.

Starting with the primary, gold standard indicator, the market itself, we can see that the S&P 500 has indeed climbed in recent months but volume has been mostly below average.   As has been mentioned numerous times in the past, volume is the rocket fuel that powers any move.   Volume is currently unimpressive and lethargic, see chart:

As can be seen, the index was basically “sideways” for all of August (the date of my last post) and went nowhere.  We had some above average volume selling in June, in late July/early August, and again on August 9.  We have not seen any huge buying volume going on.  Indeed the market has gone higher, but I wonder if this is akin to a motor-less boat on a lake: merely by a stroke of luck it is drifting in a certain direction.  Which prompts me to look at other “investment vehicles” – if money is not flowing into stocks, where is it going ?   Lets take a look at Gold, the “safe haven” investment in times of chaos and turmoil.

Evident in the graphic above, is that Gold is near all time highs of $1500 per ounce.   Prices were “sideways” until June 2019, then various catalysts propelled Gold higher.  What happened in June ?   Some things were:  Iran downed a US drone, the G-20 summit occurred with no US/China trade progress, and we sanctioned Iran.  So for whatever reason, institutional money aka “smart money” decided to move into Gold, resulting in the price being driven higher.  So if “smart money” is nervous about the investment climate, I wonder if I should be ?

Moving forward, the Yield Curve remains inverted.   Yet another term that I have talked about on this site ad-nauseam, the bottom line being that the Yield Curve is a proven indicator of a recessionary climate.   Lets take a look:

Seen above is the behavior of the Yield Curve prior to every recession since 1990, or over the last 30 years.  You can see the Yield Curve “go negative” (below zero), then recover, then a recession is declared months later.  Important to note is that stock markets will collapse prior to the official declaration of any recession.   Many “experts” in the financial media will be quick to naysay the Yield Curve, claiming “sure, but a recession may not be immediate.”   Sure, maybe not.  But stock market sell-offs and crashes occur before recessions occur.  This is known as a leading indicator.   The body tasked with “declaring” recessions is the National Bureau of Economic Research, via the Business Cycle Dating Committee (BCDC); any such declaration will be made long after it starts:

In my opinion, if anybody wants to wait until someone “declares” a recession, prior to modifying their investment allocations, they will be very late to the party.  Is the Yield Curve “early” (by months…) at indicating a recession ?  It sure is.   And that is what we want.

I would be remiss to post an update without talking about the recent interest rate cuts.   In July and September, the Federal Reserve cut interest rates, known as “insurance cuts” (a term used by FOMC officials themselves) as a protective measures against economic threats.   The stock market’s response was largely muted, again, by looking at the chart of the S&P 500, no huge volume came into the markets.

Inflation data seems to indicate that inflation is on the uptick, which in layman’s terms, means that your paycheck (or fixed income retirement check) is not getting bigger but the cost of products is more expensive.   And here is where we circle back to tariffs.   If products become more expensive, and your income remains the same, you start feeling pain in the pocketbook, which triggers reduced spending.   One measure of inflation is “Core CPI”, lets take a look at the most recent chart:

Data for August 2019 reflect a Core CPI measure of 2.4%, the highest amount since July 2018.   The highest amount prior to that was 2.5% in September of 2008.   In summary, any exceedance above 2.4% in Core CPI will be a ten year high for inflation.

In regards to US/China trade talks, as we approach late September, no progress has been made.  Last week, China officials were in the United States at our request (they did not decide to come visit themselves….), with planned tours to US farms as part of their visit.   These were cancelled at the last minute for unknown reasons.

Until we see a “signed trade deal” (with terms favorable to the US), and in light of the above indicators (none of which are perfect, error-free crystal balls…), I opt to remain 100% G-Fund in my personal TSP account, both current allocation and ongoing contributions.

Thank you for reading.  If you find this website helpful or informative, please share it with your friends and colleagues.

Thank you

-Bill Pritchard

Good Evening

As you may know, the Dow Jones Index Futures trading resumes electronically on Sunday evenings.  It appears that traders have returned from the weekend, having absorbed the US/China lack of trade progress and the continued tariff concerns.

Dow Jones Futures are “trading down” (to the negative) over 300 points as of 10:45 PM Central time August 4.

How the regular stock markets will do on Monday is yet to be seen.   I remain 100% G-Fund in my personal TSP, a very conservative approach, with minimal returns, however a path I have self-assessed and determined that “works for me” out of an abundance of caution.

Talk to you soon…

-Bill Pritchard

Good Evening

Likely attributed to the July 31 “small” interest rate cut of 25 basis points by the FOMC, and the August 1 announcement by President Trump regarding placing additional tariffs on China (effective September 1), the markets plummeted on both days, on very high volume.  US Soybean prices, our top agricultural import into China, and grown by US farmers, also plummeted.  As discussed previously, China is seeking alternative sources of soybeans besides the USA- as a result, the soybean farmer’s railcars of soybeans may soon have no buyer, resulting in lots of inventory laying around and thus prices going lower.  Lets look at some charts:

Evident above is the recent action in the S&P 500.  Above average volume selling can be seen which occurred over the last two days.  This is known as “distribution”

Not directly related to our TSP, however it is important to show the damage the “trade wars” can have on our US farmers.   If China elects to buy from another Source of Supply, that will have a negative impact to our US economy.  Additional info regarding agricultural products sold to China is here:  https://www.mda.state.mn.us/sites/default/files/inline-files/profilechina.pdf

Friday August 2 is the Department of Labor “Jobs Report” (for July) release.  Economists seem to be looking for 150,000 to 165,000 jobs created, and an unemployment rate of 3.6 to 3.7%.   These numbers are “expected.”   Anything grossly dissimilar (EX: 125,000 jobs created, unemployment at 3.9%) may cause a negative market reaction, as this ostensibly may be an indicator that the economy is slowing.  Note that “bad news is good news” sometimes:  bad news may send the message the interest rates will go even lower (to accommodate the bad news), resulting in the market rallying.  It is very hard to out-think the market.  Thus the importance of discipline and sticking to (whatever) system works for your comfort level and risk tolerance.  The US/China trade situation has concerned me all year, unfortunately an agreement does not appear in the near future.

I remain 100% G-Fund and will be monitoring things on Friday August-2.

Thank you for reading….

-Bill Pritchard

Hello Folks

This week has lots in store, many things are in the works which may impact your TSP balance.  Whether it will be positive or negative is to be determined.  Lets talk about a few of those things.   Before we get far down the road, allow me to state that my personal TSP Allocation is 100% G-Fund.  Have I missed some gains ?  As I discussed in a prior post, I sure have, however I refuse to “chase gains” and abandon my own system based methodologies, using technical analysis and volume action as my primary tools.  Some have said the “The Fed Trader just chases moves in the market” well I hope my length in the G-Fund helps dispel that belief.   Keep in mind that I am not providing recommendations, advice, or financial consulting on this free site.  Disclaimer is Here.

Indeed the market has gone up this year (so far), however I think if you re-wind the tape, the market gets a boost from something positive in the news, then it goes flat, then somebody juices things again with a news release, it goes up for awhile, then flat, then another news article comes out.  Like invisible summer thermals, there is no true substance behind these moves.  Volume is lackluster, and a closer look behind the scenes reflects some economic indicators displaying a cooling economy.   Let’s get started with a look at the S&P 500:

Visible above is the lack of volume (with the exception of strong buying action on June 28) over the last few months.  I have said on this site numerous times that volume is the foundation holding any price move up, without volume, prices can fall quickly.  Of course, they have not, and those in the G-Fund have missed some gains.  However my confidence would be boosted if volume came into the markets.

On July 26, 2019, the most recent GDP figures (2Q 2019) were released:

Consumer spending had its smallest gain in four months.  Some believe “consumer spending” makes up 60-70% of the GDP.  In this category are purchases of motor vehicles, clothing, food, housing, and recreational activity.   Government spending accounts for 18-20% of the GDP, as does business investment.   Some very stimulating GDP information can be found at this link:  https://www.bea.gov/system/files/2019-05/Chapters-1-4.pdf

Another indicator often used to gage things is the Yield Curve.  I have discussed it here numerous times, so I will not repeat myself, however note that it remains inverted:

This is evident in the above chart, with the spreads below zero.  This is a fairly reliable indicator of a slowing economy.

Yet another indicator of things cooling off, we have the Chicago Business Barometer, which depicts business and manufacturing activity across the United States.  If is often believed to be the best leading indicator of the economy.  Leading, not lagging (historical), because factories and production of widgets slow down long before a full blown recession develops.  See below graphic, courtesy of Trading Economics website.

The above indicator reflects a contracting manufacturing climate.

This week a few important events are underway:

July 31:  FOMC meeting concludes, likely with an announced 25 basic point interest rate cut.  Note to self:  You don’t cut rates in a booming economy.  Look past the public news statements and look at action, not words.  The FOMC is cutting rates.  Why ?   Volume action behind any up-moves in the markets will be important.  Does “big money'” jump in ?  Or does the market go up on lackluster volume yet again ?

August 2:  Jobs Report/Employment Situation is released.

All week:  Team from US is in China attempting to restart tariff and trade talks, with the hopes of reaching an agreement.  China, a communist country, with a long history of espionage, running intercepts on US military aircraft, and computer hacking, has been asked to agree to concessions on intellectual property theft and the increase of US goods purchased by China.  Opinion:  I don’t see any agreement ever happening.  We need to install a drop-dead date and hold them accountable, or not, and move forward from there.  Period, the end.  This wishy-washy, numerous visits with no deal, tariffs-are-postponed-yet-again, etc. stuff is becoming very frustrating.

Summary:  Based on volume action and market response to the rate cut, and Chinese tariff negotiations, I am open minded to returning to stock funds, but will wait until I see clear and convincing evidence to justify my return to the stock funds.  I remain 100% G-Fund until then.

Thank you for reading, talk to you soon…

-Bill Pritchard