Monthly Archives: May 2022

 

Hello Folks

As the week wraps up, the indexes unfortunately had a very bad performance, with the NASDAQ now officially in “Bear Market” territory, and the S&P 500 having briefly entered it today (however it recovered back above it later in the day).

Inflation and rising interest rates appear to be the primary threats for the stock market.   Currently, the FOMC team appears to want to raise rates “as fast as possible” per this podcast here:  https://podcasts.apple.com/gb/podcast/feds-barkin-wants-to-hike-as-fast-as-feasible/id1623606106?i=1000560528697

The academic theory behind this is that when inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.

In the meantime, stocks take a hit, however the Federal Reserve is not really concerned about the stock market, that is not in its wheelhouse (making your 401k or TSP go up or down): https://www.cnbc.com/2022/05/19/fed-isnt-focused-on-impact-of-rates-on-stocks-esther-george-says.html

Stocks typically LEAD (not lag) economic indicators, an “official” recession is declared (officially) only by the National Bureau of Economic Research, via the Business Cycle Dating Committee (BCDC); any such declaration will be made long after it the recession starts:

Indeed, you will likely see economists from large firms such as Bank of America, JP Morgan, come out with their own assessments of a recession, the important thing to note is 1) the stock market LEADS, and 2) most recession declarations are made post-incident, after we are in it.

What does that mean for the TSP ?   Well since it is the government’s version of a 401(k), it means the stock funds will likely go lower, versus higher.   How you manage your investment decisions is up to you, I merely share things how I see them.   However before you jump to F-fund (Bonds), consider the below May 3, 2022 interview (at time stamp 4:07) with billionaire hedge fund manager Paul Tudor Jones:

In his opinion, the world should neither be in stocks, nor bonds.   In TSP land, what does that leave?  The only option, is the G-Fund.   Not that I have ever talked about G-Fund, ever, on this site.   No, the paltry +.65% G-Fund return year to date is not keeping up with inflation.  However if +.65% is not, I can guarantee you that the negative -18% in the S-Fund for sure is not keeping up with inflation.  Just thinking out-loud with my personal opinion…consult your professional advisors and do your own research in regards to how much risk and what rates of return are appropriate for your personal situation.

That is all I have for now.  Unfortunately not the best of news this week.  Maybe the stock markets see this post and reverse course next week, and gas prices go to $1 a gallon.  Well, wishful thinking.    I will be monitoring things.  For now have a good weekend.

Note:   Some email programs have been blocking the images in my posts, if this happens please just click on this link to be taken directly to the website itself:   http://www.thefedtrader.com/

-Bill Pritchard

 

 

 

Hello Subscribers

Well here is your long awaited opinion-based market update.  It is interesting how retirement, and a “second life” / new career, will occupy your time… retirement should be about slowing down (in theory) however ever since I have retired and started my new job (as the rookie new guy all over again….), I have been in some stage of training, probationary “sign off status”, more training, and trying to keep the axe sharp just doing my daily routine stuff at the new job.  Which means I am reviewing, studying, etc even on my days off.   My activity on this site has waned, and I apologize.  I also had a recent adventure called a root canal, not sure which was more painful, the procedure or dealing with my insurance/dentist- I didn’t know you needed a PhD in Forensic Accounting (where is @Chris Barfield) to understand the billing system in the back office of the dentist office.   I digress…

Flash forward to the markets.  BLUF:  My opinion is 100% G-Fund, or 75% G-Fund and 25% C-Fund (if you insist on “some” stock exposure), is the ideal balance for the conditions we are in.  The G-Fund haters will throw darts at my picture…I get it, saying they relish the opportunity to “buy cheap” (sadly, things may get “cheaper”), however this retired guy does not want to watch his TSP balance vaporize, I am personally 100% G-Fund right now.   If you are 25 years old, with 40 years of service ahead of you, your view of things is likely different.  Go forth young Jedi.  “It is different this time” and “Pritchard is overly conservative” etc etc.   I get it.  Again, for me, I am 100% G-Fund.

Allow me to point out some prior posts, let’s put this in the category of “The Fed Trader website called it correctly [again]”

Nov 28:  “Trouble Ahead”

Dec 20:  “Market Deterioration Continues”

In regards to the market’s problems that I commented on back in November and December, note that an open source search of various news and financial sites, November and December, will depict numerous “this is just a hiccup” and “temporary speed-bump” kinds of posts; I of course, felt otherwise and posted what I posted.  How did things turn out?  Lets look at the S&P 500 chart:

Indeed, things started to break down in late 2021.  Most of this is tied to inflation.   The S&P 500 is approaching its “official Bear” level of 3854.90, a 20% decline from its peak.

Rhetorical question:  did everyone enjoy their 42% pay raise they received in the last 12 months?  Has anyone topped their car off, walked in the grocery store, and walked out wondering “where is it all going” ?   Read further.

You didn’t get that raise?   Well, neither did I, however this explains the pain we are all witnessing at the gas pumps, in merely a year, the average price of gas has increased approximately 42%.  Other things have gone up too: housing (and property taxes), food, and vehicle prices have all gone up.  Since most of America did not get a 42% raise, they are faced with a few choices, namely, put it on a credit card (per this link, this is happening now), or dial back spending.   As many dial back spending, this trickles down into various sectors of the economy, which causes companies to report less than stellar earnings.  When major companies have supply chain issues, increased fuel and logistics costs, and other challenges, this too impacts the bottom line, which can push their stocks downward.  Most companies will “pass this [rising costs] on” to the consumer, who must then decide if spending $100 to fill up the SUV to drive the kids to the amusement park is worth it.  Thinking about the new Iphone 14 Pro?   Or is your Iphone 12 camera quite fine for taking pictures of your dog sleeping on the floor?  Do you have both Amazon Prime and NetFlix?   CostCo and Sams Club? Some may decide that just one is enough.

Lets look at some more charts:

As seen above, the Consumer Price Index (CPI), a measure of inflation, is at levels not witnessed before in 20 years.  The CPI measures the average change in prices over time that consumers pay for a basket of goods and services.  The consumer (you and I) is being squeezed.  As inflation rises, the Federal Reserve attempts to dampen spending and “slow the economy” by raising interest rates.   See the below chart of the average rate, now at 5.27%, of the 30-year mortgage:

So, in basically all aspects of daily life, inflation is impacting everybody.  With that said, it will probably get worse before it gets better (just my opinion).   The summer travel season will be a telling indicator on whether consumer spending behavior will slow.  COVID restrictions are removed in most places, masks are not required for air travel, and America is ready for some rest and recreation.   Unfortunately it will be more expensive to do so.  The next few months will be interesting.

As stated above, my personal TSP is 100% G-Fund.   This concludes my opinion-based assessment of the markets, I promise to make an effort to post more frequently.   Thank you for being a subscriber, if you feel that this site has been beneficial, please recommend your friends and colleagues to become subscribers.

Thank you

-Bill Pritchard