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
