Monthly Archives: June 2016

Hello Folks

As Robert Herjavec from CNBC’s Shark Tank program would say…“wow” – That is my reaction to this BREXIT stuff.

Let me be clear:  I, and most of the world, would have preferred a “Stay” vote, and indeed, the recent carnage (drama?) would have been avoided (or could it have been?).  Lets do a quick walk-thru of the house that recently caught fire.  However by the end of this post, you [hopefully] will feel a little more comfortable that things will be OK.  Note that the BREXIT vote falls under the category of Political change/economic policy catalyst, discussed in FAQ #9 on this site (this FAQ has been posted for years and is nothing new or revolutionary.)   Also note that for what seems like years, I have shared my concerns on this site with investing in the I-Fund.  It seems that volatile crude oil prices, financial scandals in Emerging Market countries, terrorist concerns, and political unrest are not enough reasons to keep some folks (this is not a criticism, but…) from the tempting potential returns in the I-Fund, but maybe the BREXIT scenario will serve as a wake-up call.  I am disappointed at the financial media and “experts” who push diversification and exposure to Europe as being helpful for your portfolio.  In fact, recent studies have revealed that diversification does not necessarily work in a stock portfolio, and may not be effective even if using multiple funds/ETFs as a diversification method.

The way I see it, you are either “with them” or “with us”, and not a flip-flopper or wishy-washy.  Stocks ?  Or Not ?  That is just me, but it is important to understand my view on the topic of stocks.

As most of us who own a TV or have some sort of internet dial-up or faster connection, we know that the BREXIT vote was official on Friday June 24.   It appears the “Leave/Yes” vote was chosen by the demographic of the blue-collar worker, lower class income (versus upper), and with no college education.  The sub-argument that blue-collar workers indeed would have an income lower than the wealthy is another topic for another day.   The observation made (by me) is that the Pro-BREXIT camp possibly did not understand what potential negative consequences, nor had any broader concept in mind, what their vote would do for the UK.  Note also that the UK is technically four countries, England, Scotland, Wales, and Northern Ireland, with the capital being London (the largest financial center outside of NYC), and the Prime Minster (since resigned) being a guy who was born in London.   As such, Britain was awarded the first two letters in BREXIT, and carries the most horsepower of all the UK members, for a variety of reasons.

Further note that the “Stay/No” vote demographic was determined to be the wealthy, upper class, college educated, and white-collar workers.   Warren Buffett, Richard Branson (Virgin Atlantic fame), Prime Minister Cameron, and others, all expressed concern (rightfully so, as we saw…) about a vote to leave.   However the leave camp won the vote.   This led to a huge sell off, at least initially, on Friday, and again on Monday.  The fact that the weekend was sandwiched between both sell off days should not go unnoticed as it carries large psychological importance in this situation.  Friday was a big sell off because folks panicked and unloaded positions, wishing to be “out” over the weekend, a period when the markets are closed, and then on Monday, whoever could not get out on Friday, having spent the entire weekend sulking and scared to death,  dumped their positions as soon as possible on Monday, fearing calamity and disaster just around the corner.

Soon after markets recovered, and in my opinion, will continue to recover.   Here is why:

-This wrench tossed into the global market place will almost certainly quash any US interest rate hike this year.

-Money previously invested in European markets may be re-directed to reliable and safe USA, which for all of its issues, remains one of the safest places for equities/stock market investment.   This may gain additional momentum once the current President is changed out.

-BREXIT itself has not happened yet.  This factoid has been missed by many.   The vote indeed happened, but the physical divorce has not happened yet.  This requires an “Article 50” action, which is a formal legal process to begin the divorce, an event which is allowed to take up to two years.   The most recent Prime Minister has refused to begin the Article 50 process, and instead said he will leave it for the next Prime Minister, who report on Sept 2, 2016.  Also, nobody has a clear yes/no answer on whether a new election can be pursued regarding BREXIT, and this could be an option.

-Gold, a safe haven currency, came off recent BREXIT panic highs, simultaneously as the US markets recovered up.   This is classic safe-haven money flow behavior, and reflects that the recent upticks in US markets are not merely a mirage in the desert.    See Gold Chart:

-For all the damage done on Friday and on Monday, the indexes are closing near mid-June (pre-BREXIT) levels.  “Close Price” meaning the price they traded at when the exchange closed or stopped trading, for the day.   These are depicted as “Dots” on a chart, known as a “Dot Chart”, see below:

-Recent uptick action on Tuesday and Wednesday was on above average volume.  I don’t think we will see upticks on any volume greater than the sell-off volume on Friday (which was a panic sell off), as re-entry to markets is usually done cautiously and slowly.  But above average volume merely days after the vote is a positive sign.

The major damage done was that done to the Dow Jones Index, and this happened because JPM (JP Morgan), AXP (American Express), and BA (Boeing) are all companies with large financial exposure to European markets.   Those stocks got creamed Friday, thus taking the Dow Jones down with them.

In my opinion, the market response to BREXIT was an overreaction, and we will see a return to normalcy in the coming weeks.  Did I say this was my opinion ?

That is all I have for now….I remain 50% S-Fund and 50% C-Fund in my TSP.

If you enjoyed this post, and prior posts, please share my site and emails with others who may benefit.   My recent polling information (some advised they could not use the embedded links due to restrictions on their work computers) indicate that 72% of my followers use this site as their only or as their primary TSP and market analysis site.  92% stated that this site has expanded their knowledge of the TSP and the stock market.  My huge subscriber growth is not by accident or magic, and I thank you guys for being part of this success.  Please continue to share my site with your colleagues and friends.  Thank you !

-Bill Pritchard

Good Morning

As many know, the BREXIT vote is now official, and it is “Yes”, UK will be leaving the EU.   Overnight futures CRASHED in response to this, and today’s (and into next week) markets will react very badly to this news.   This event is a reminder of the delicate nature of the I-Fund, which will suffer from this.   I have discussed this regarding the I-Fund numerous times on this site….big returns, however big risks (at times).

This will serve as fodder to keep US interest rates low, as we cannot have a BREXIT and a fragile US climate financially, which raising interest rates would contribute to.

I personally am not leaving stock funds, most reactions to this are panic selling and I anticipate things will stabilize in one to two weeks.   The fact that it is Friday, with major money managers not wishing to “see what happens” over the weekend, and instead prefer to unload positions, is not helping.

I remain 50% S-Fund and 50% C-Fund.

Thank You

-Bill Pritchard

Hello Folks

The most important thing facing TSP Participants this week is the BREXIT vote which will begin in approximately 2.5 hours from time of this post.   If British Pound Futures are any indication of what the vote will be, it (for now) is reflective of a “No” vote or “Do not Exit”, as indicated by their recent uptrending behavior.  Polls are great, but market behavior is better.  Please see evening charts below:

By Friday June 24 “sunrise” in USA, all voting results across the ocean in UK should be official and we will know the final and official BREXIT vote status.  Lets continue to monitor things between now and then, however as of now, we are on track for a “No vote” on BREXIT, which is positive for TSP Participants.

Thank you for reading…

-Bill Pritchard

Hello Everyone

Well, “as predicted” on this site, on May 18, 2016 and June 8, 2016, in which I spoke about the “expected” (by major financial press reporting) June interest rate hikes, and explained why I felt it would not happen, as I pat myself on the back, my contrary stance has yet again been correct:  The Federal Open Market Committee (FOMC) did not raise interest rates on June 15.   Their reasons echoed many of the same opinions expressed by me in my prior posts.   With that speed bump behind us, lets move forward and try to explain away the recent market doldrums

Note that the indexes were doing fine until June 8, at which point they started to go down, however this was on low volume, and hence I am not worrying (too much) about the recent hiccups in the market’s step.   The “2100 level” on the SP-500 Index continues to act as an important area.   Lets look at some charts:

This downtrending action stopped, albeit possibly temporarily, on June 16, with the markets closing in positive territory.

The next challenge for the markets is the BREXIT Situation in Europe.    The date of this vote is June 23.  What the heck is BREXIT ?   This is the term for the BRitain EXIT vote from the European Union (EU).   Actually the United Kingdom (UK) but nobody can pronounce UKEXIT so it is BREXIT.  Similar to GREXIT which was GReece EXIT.

Without going into a 25 page dissertation on UK politics and EU relations, the supporters of staying IN the EU is the UK Prime Minister himself, also our US President is supportive, also Germany, and China, are supportive of UK’s continued relationship with the EU.   Others are not supportive, their argument being that (among other things) the EU is “dragging down” (due to various weaker member countries and spill-over contamination) the UK and thus exiting will solve immigration issues, promote UK financial health, and free the UK from general EU headaches.

In sum, most BREXIT watchers believe an exit would be negative for the US markets and negative for UK overall.   This bears watching by TSP participants since, as we know, US markets do not like uncertainty and in today’s era, our markets are very sensitive to activity overseas.

Changing gears, I would like to say “Thank You” to everyone who has participated in the various polls.   If you have not participated, please do so.  Some have brought to my attention some browser/computer issues when they open the polls, what I recommend, is go to the below links, right-click on the link, choose “Open Link in New Tab” then vote in the poll in that new tab.  

Return to this page and repeat the process until you are done with all Polls.

http://www.poll-maker.com/poll715808x03964090-29

http://www.poll-maker.com/poll715812x388f14f4-29

http://www.poll-maker.com/poll715816x1Ceb4E8d-29

http://www.poll-maker.com/poll715821xd304c19E-29

http://www.poll-maker.com/poll715825xDEa84F39-29

I appreciate your participation as it allows me to stay in tune with the audience.

Nothing else to report, No Further Information (NFI) for the many of us that have used that terminology in reports….talk to you soon and thank you for reading.   Have a great weekend.

-Bill Pritchard

Hello Everyone

I am happy to report that my decision back on March 30, 2016, to return to the S/C Funds appears to have been the correct one.  I am a little surprised that the I-Fund has performed as well as it has lately, but as I have said before, the I-Fund, with all of its potential for positive returns, comes with it an increased risk factor due to the international nature of the fund.   With that said, lets take a look at the recent market action.

In my May 5, 2016 post, I discussed the “Sell in May” strategy and the historical returns (monthly) of the markets.  As a short mini-review, the Sell in May crowd believes (admittedly they have the historic data to prove it) that since the markets typically go down in May, and typically don’t return positive until September, they “Sell in May” and take the summer off.  I, however, being a trend follower, using my own self-developed proprietary methods, tend to just listen to what the market is telling me.  This at times can be boring, and even seem lazy, with large periods of inactivity as we “wait for the market” to tell us what to do.  In short, the market gave me no indication to sell in May, and I am glad I didn’t because the SP-500 and Dow Jones Index both had positive May performances, somewhat contrary to past history.  This, in and of itself, is a positive sign.

Wall Street employs a lot of financial whiz kids who are busy analyzing earnings, fundamental value, balance sheets, and other stuff that I have no desire to research.   At the end of the day, price and volume, are the only things that matter, period, the end.    With that said, our “price” on the SP-500 has recently reached a 11-month (almost a year) All-Time-High, having hit 2120.55.   See chart:

The last time the index was at these levels was July 2015.  This behavior is bullish (good) and reflective of a continued uptrend.  This action is in the face of recent concerns about interest rate hikes, however I have discussed on this site Ad nauseam that I don’t believe rates will be raised anytime soon (please take a look at prior posts).   To add fuel to my argument is the recent news out of the Department of Labor that the US job market notched its weakest monthly gain in more than five years.  It appears that Wall Street is starting to reach the same conclusion and feel that our economy is not quite ready for a rate hike.  If companies are not hiring now, what will they be doing if rates go higher and the cost of capital and loans becomes more expensive ?   Etc ?

The TSP Funds have done quite well since March 30, 2016, as demonstrated by this graphic:

My preliminary analysis reflects that the S-Fund remains the top performer (data as of June 8, 2016) on both a one-week, one-month, and 90-day look-back period.   The I-Fund, interestingly, is starting to gain ground and is in second place behind the S-Fund.   NOTE:  At some point, I may decide to move a portion of my TSP into the I-Fund.   However remember that the I-Fund carries additional risks.  One overseas terrorist event, a Crude Oil panic, or a currency/debt crisis, could all erase those gains in the I-Fund.

For now, my TSP Allocation is 50% S-Fund and 50% C-Fund.

With that, lets talk about subscriber polls.  I ask that you participate (participate once, using the honor system…) so that I can stay in tune with my readers and get a glimpse into their tastes/preferences regarding this site.

http://goo.gl/PZzD3x

http://goo.gl/35fqxL

http://goo.gl/A38Dz0

http://goo.gl/J5mjG3

http://goo.gl/MkQsi8

That’s all for now folks……Thank You for reading and talk to you soon….!

-Bill Pritchard