Monthly Archives: December 2018

Well, I promised to be “off the air” but I when I watch the various financial websites claim we are “in a correction” it really gets my rockets going.   Saying we are in a “correction” would be like calling the ER via radio, enroute Code-3, with a bullet wound victim in one stretcher, and a paper cut victim in the other stretcher, and saying you are inbound with two blood loss victims.

The below definitions are “generally accepted” definitions used in the professional investment world:

Correction:  A loss in 10%, from the high, but below 20%, in an index.  Indeed these happen on a semi-frequent basis, the February 2018 market displayed this, note that I remained in stock funds in my personal TSP.

Bear Market:  A loss of 20%, or more, in an index.  (Indeed, to get to 20%, you must break 10%).  Also associated with oft-used dystopian terms such as “crash” / “meltdown” / “crisis” / etc.  These are infrequent in nature.

I see many sites claiming “this is a correction” , “a mere correction” , “after this correction, it will rebound”  etc.

For the record, Dow Jones Index and NASDAQ are both in Bear Markets.   The S&P 500, currently with a 17.8% loss, is close to a Bear Market.   Please see below images from Kiplingers, Zacks Finance, and Charles Schwab, all respected and well known in the investment sector.

Hope this clarifies the difference….Merry Christmas….going “off the air” (second attempt…)

-Bill Pritchard

Good Evening

As most know, the markets continued to crash this past week. Faced with the concerns of global economic slowdown, political uncertainty, rising interest rates, and an unknown tariff/trade situation, the market direction was not-surprisingly downward.  Note that in late October, I made the decision to move to G-Fund: this resulted in some minor scrapes and bruises on the way out, but I am pleased to be in the safety of the G-Fund while things continue to fall apart two months later.    Important to note that of all the various “TSP information sites” (Twitter, Websites, Etc) out there, this free one appears to be the only which correctly “called things.”

I made previous references to “the bottom falling out” of things, and apparently this has indeed begun.  The S&P 500 index is at all time lows for the year, and has “broken thru” the 2600 support level.  Additionally, the often watched “Bear Signal”, the 50-day and 200-day Moving Average cross, has occurred, on December 10.   See charts:

A “supportive indicator” of my Bearish opinion is the price of Gold.  Gold, a safe-haven currency, typically goes up when things are down elsewhere.   Also, because of its safe-haven nature, moves in Gold typically don’t happen as a result from a one week stock market panic, or because Facebook stock crashes.  Gold does not care about that.  Historically (not all the time, no indicator is guaranteed to be perfect…) gold moves when the wide-ranging consensus amongst bankers, economists, hedge funds, etc. is ominous.   Chart below:

Why is all this happening ?  I offer only my opinion, and do not claim to have some sort of magical crystal ball or secret recipe, but as stated above (and in past posts…), economic slowdown, tariff concerns, and interest rate hikes are all causing angst.    Ever heard of the company Federal Express (FedEx) ?  One could argue that FedEx is probably one of the “always-will-be-there” companies, possibly more secure than the federal government itself.   Lets take a look at their stock chart:

Apparent is the huge decline in the stock since January 2018, a loss of 40% in value.  FedEx, n US company (Memphis, TN), however indeed has “global exposure” due to shipping all over the world.   Some believe FedEx is a “proxy” for economic conditions.    We know that oil prices are not impacting FedEx, oil is at all time lows for 2018: $47 a barrel.  See Chart:

Cheap oil is fine for the retail consumer, mom and dad, who want to make that road trip, but big-picture wise, super cheap crude oil is bad for the industry.   I wrote about this in January 13, 2017 , expressing that $55-$65 is the “happy spot” which keeps prices at the retail pump fairly cheap, while still allowing oil companies to make a profit (and keep workers employed; all of them buy houses, cars, and spend money).  Many believe extended declines in oil are leading indicators for a recession.

On December 17, 2018, Houston Chronicle energy reported Jordan Blum echoed my sentiment that I made almost 24 months prior, stating that “…The dip below the $50 threshold places prices just below what’s considered necessary for most energy firms to make money…”  Pleased to see industry analysts come to the same conclusion as me, I also believe that layoffs in the oil sector would be problematic for the economy.   Why is oil crashing ?  It is all supply and demand.  If OPEC and other groups choose to “up” oil production, the supply grows, if they dial it back, supply comes down.   Demand consumes that supply.  If demand exceeds supply output, prices increase.

Regarding interest rates, the markets for some reason expected no rate hike in December, however as I anticipated, FOMC Chairman indeed delivered one.  Right, wrong, or indifferent, it is what it is:  a rising interest rate climate.   Low (or zero) interest rates are the medicine for the sick patient.  If the patient improves, the doctor reduces the medicine.   The medicine reductions began on December 16, 2015 , as interest rates began their rise:

Note that we cannot eat our cake, and have it too.   On one hand, we have politicians and others, bragging about the hot economy and “the great numbers coming in [data]” , but then we don’t like it when the FOMC raises rates, because, well, the patient is recovering and the medicine should be dialed back.  I do not offer any solutions to this, interest rates and investment dynamics are a complicated matter, if you need to sleep, a 99 page Harvard white paper which you can attempt to decipher exists at this link.

Note that the markets will be closed on December 25 and January 1.   They will be on a short trading day on December 24.   As such, expect much lower volumes in the markets over the next two weeks.   I too, will turn my attention away from the markets, and enjoy some family time during the holidays.  Barring exigent circumstances, I do not plan on another update for another couple of weeks.

I remain 100% G-Fund.  As a reminder, the G-Fund is an investment option if you would like to have all or a portion of your TSP account completely protected from loss. If you choose to invest in the G Fund, you are placing a higher priority on the stability and preservation of your money than on the opportunity to potentially achieve greater long-term growth in your account through investment in the other TSP funds.  Additional official guidance published on the TSP site:  https://www.tsp.gov/InvestmentFunds/FundOptions/fundPerformance_G.html

I wish everyone a Merry Christmas and Happy New Year.

-Bill Pritchard

Hello Folks

As most know, markets have gone deeper into the red.   The Dow Jones Index performed as follows:

12-7-18:    -558.72 Points

12-6-18:   -79.40 points

12-4-18:  -799.36 points

12-3-18:  +287 points (NOTE:  this is the day after reported “successful” Sunday meeting with China at G-20, and numerous messages from readers of this free site, asking me “if we are missing gains” and “maybe I am delaying too long” etc etc, “the G-20 summit is over, now what” etc etc.  “When are you gonna send out a new update?” etc.)   The rest of the week these messages mysteriously ceased, as the Dow crashed.

You may recall my evening post on 12-2-18, indicating why I am not comfortable returning to stock funds, as I prefer to continue to monitor things.   The Dow subsequently lost almost 1,500 points by the end of the week, I would say my nervousness was (once again…) justified.   Note I initially left the Titanic back in late October, and since then, things have not gotten any better.  It is quite interesting to see “other” sites continue to claim that this is a “buying opportunity” and that “things always come back.”   A frequently followed twitter feed of another site posted that “things are bouncing back soon” or something to that effect.  I asked them what information they have to come to that conclusion, and my inquiry was met with (not shockingly…) radio silence.  So for the majority of the folks in the press and on the other TSP sites, who apparently do not understand things, the easy answer is “do nothing” and “ride it out.”   Because, well, this is a temporary hiccup, and “things always bounce back.”  Sure, so do forests after a forest fire.   However can you wait 10 to 20 years for your balance to recover ?    I might add that I don’t think I have ever stated markets will never recover, if someone came to that conclusion, they do not understand my philosophy or are confused on my methods.   My apologies on that.  Lets take a look at a chart of Enron stock, I have inserted my comments onto the chart:

Enron went to zero (0) (value-less), and while the stock market indexes that our TSP funds are based on will never go to zero, the point to be communicated, at least in my view/opinion, is that capital (money) preservation and loss protection is critical.  The G-Fund plays an important role in that strategy.   No, I did not pioneer this idea, the official TSP site also supports it: https://www.tsp.gov/InvestmentFunds/FundOptions/fundPerformance_G.html

The “always bounce back” crowd is swiftly muted when you remind them of Enron, WorldCom, and other (admittedly extreme…) examples.

Lets discuss some recent market action…

As we know, the G-20 summit has concluded and one week later, nobody knows what was discussed or agreed to.  This “messaging” by the involved parties (or lack of messaging) does not serve to allay already existing market nervousness.

Other concerns such as December interest rate hikes, as discussed in my last post, are almost a guarantee, also the mainstream press is talking about the Yield Curve getting flat and inverting.  Note that I made reference on this free site to this topic months ago, in my posts dated July 15, 2018 and August 26, 2018.  I even stated that the Yield Curve was one “leg” supporting the market, if it gets weaker, the market will go down.   Here we are today, with a 1,500 point loss in the Dow.

Lets take a look at some charts of the SP 500 Index, and SPY Exchange Traded Fund (ETF), a useful proxy to analyze volume:

Quickly evident is that the 2600 level is our support level for the SP 500, while 2800 is overhead resistance.   Note !   This is a dynamic level and changes over time.   These are current levels, and may not be applicable in six months.  When I discuss levels like these, I am looking at the next 30-90 days.   (Some reader emails have brought this up, hence the FYI).  For now, 2600-2800 is our “zone” we need to watch, if the index goes above 2800, that is great, if it breaks 2600, that is bad.

Moving forward, let me promote my colleague Dan Jamison, CPA (and retired FBI Special Agent) of the FERS Guide.  As some may know, the 2019 version has been published, and it is packed full of benefits information.   I personally have great passion about the financial markets and watching the stock indexes, however my attention span tends to quickly drop off when the topics are annuities, life insurance, survivor benefits.    Dan is the answer and explains things is awesome detail, and does so with fluency unmatched anyway else.  Everyone should subscribe to his FERS Guide.   Included on his site are articles by a fellow DOJ’er, Chris Barfield.   These articles discuss the economy in general and common FERS topics, they are excellent and I learned something new from reading them.   A screenshot is below:

Did I say that everyone should be a member/subscriber to Dan Jamison’s FERS Guide?    Sign up is here:  https://fersguide.com/

In conclusion, I remain 100% G-Fund in my TSP.

Thanks for reading…

-Bill Pritchard

Good Evening

I have had quite a few emails and LinkedIn Messages asking for my opinion on the markets.  I simply cannot answer all of them, this is the very reason this site was launched years ago:  mass/bulk communication of my views of the market.   So with that said, allow me to share my views.  Note that I remain 100% G-Fund and plan to continue that allocation for the near future.   

The G-20 summit is “over”, and various news outlets and elected politicians are claiming “progress was made”.  To be fair, the final vote is always Mr. Market, and (for now), the markets, reflected by the futures markets, like it, they are up over 400 points for Dow Jones Futures:

However one can only wonder if this “move” will last, much like recent other “up moves” which failed days later, dragging the markets down further.   In support of that question, I offer the following about the G-20 summit:

Tariffs have not been eliminated (as many originally desired).   The tariffs installed on $200B worth of Chinese goods, back in September, remain intact.

China/US have agreed to “keep talking” and have stated “we had a productive meeting” etc.  These are pleasantries which means “we have not agreed on anything” and “we did not finish” what we needed to get started.  Is it a “start” in the right direction ?  Sure.   Is the problem solved ?  No.  The can has been kicked down the road, for 90-days.

The FOMC will undoubtedly raise rates in December.  100%, absolutely, without a doubt.   Their chairman, Mr. Jerome Powell, recently spoke in front of the Economic Club of New York.   His statements in this social setting were somewhat differently toned that what we see in sworn testimony in front of Congress, or in official press releases.   The statements at the meeting were devoured by hungry members of the media, with some even concluding that rate hikes are “on hold.”   I guarantee nothing is on hold.  Mr. Powell basically said what we already know, a close reading of the statement will reveal that.  Furthermore, he even stated that rates are at historical lows.   Guess what direction they will be headed ?   Up.   The press reported that rate decisions will be “data dependent” (they always have been).  Well the data reflects a super hot economy, low unemployment, and inflation hovering at 2% (a previously identified “target” by former FOMC Janet Yellen).   So the data supports continued rate hikes.

Moving forward, additional preliminary indicators exist that the housing market continues to cool (which happens when mortgage rates increase).   The National Association of Home Builders recent survey reflects optimism is at the lowest point for all of 2018.   Housing is a very reliable leading indicator regarding recessions ahead.

Note that the NASDAQ Index has witnessed its 50 day/200 day Moving Average cross, this is known as a “Black Cross” or “Death Cross” which means the underlying index is entering Bear Market conditions.  See chart:

The SP 500 Index, my preferred barometer of things, does not reflect a cross yet, but it is approaching:

In conclusion, I will remain 100% G-Fund for now.   As my disclaimer says, what you do with your TSP is your business.  I still am not comfortable with the climate to wander outside and go back into stock funds, based on the above observations and opinions.

Thank you for reading !    Talk to you soon….

-Bill Pritchard