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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

Hello Everybody

Bottom Line Up Front:  I remain 100% G-Fund in my personal TSP.  To say I have not had any gains this year is indeed an accurate statement.   Arguably, more importantly, I have not had any losses, which if anything, makes me feel good, as I enter “the last quarter” of my 25-30 year federal career.  Some may state “you are actually losing money in the G-Fund, if you consider inflation.”   While technically correct, this is more of an impact if you are in the G-Fund for 20 years: a 1-year sabbatical in the G-Fund is easily recovered when conditions are favorable.

With that said, the risk-tolerant may research an allocation of 50% G-Fund and 50% C-Fund for their personal TSP accounts.   This is not advice or a recommendation. 

Let me quickly  identify that the C-Fund has been, and likely will remain, the top performing TSP stock fund in the coming 30-90 days.  The I-Fund (shockingly), will likely be the next best performer for the same time period.   I am in neither fund, for a variety of reasons.  I maybe delusional, but I am going to claim that I am being disciplined in my approach, and refuse to succumb to emotion in my trading (watching the indexes climb higher indeed generates emotion).  However, the charts (volume primarily) and economic data, political climate, and other things, cause me to remain out of stocks.  Let’s talk a little bit about some things on my mind…

The Yield Curve, discussed in my July 15, 2018 post , is now “inverted” which historically has been a predictor of recessions.  The prediction is not overnight:  It is usually months away (rarely more than one year) before a recession is declared.  Consulting the website InvestoPedia tells us that an inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.

Fancy definitions aside, this is a rare event, but it is happening now, evident via the below chart.  A “spread” between he 10-Year Treasury Bond over 3-Month Treasury Bill of below zero gives us the graphical negative or inversional behavior on the chart:

In the second chart, I have included my comments.  The red boxes show prior inversions, student of market history will observe that the stock market, and economy, indeed performed poorly subsequent to the yield curve inversions.  Is it different this time ?   I don’t know.

Gold Prices, often mentioned on this site, is frequently used by me as an analysis tool.  It proved extremely useful when Argentina was having yet another financial crisis, discussed in my July 31, 2014 post.

In sum, the safe haven of Gold tends to rise in times of economic uncertainty, which exists now due to tariffs and trade tensions.  Lets take a look at the price of Gold, as it approaches a new high of $1,450 per ounce:

Good Evening everybody

A long-awaited update, overdue somewhat (my personal TSP allocation of 100% G-Fund has not changed…) but I wanted to let the trade agreement come and go, and let the market respond, prior to this post.  My lack of sleep from a new Beagle puppy in the household, who has decided that sleeping is for daytime and barking is for nighttime, has also impacted my evening writing time.

As most know, China is governed by the Communist party, has a long history of intellectual property theft (“IP Theft”), an even longer history of generally pirating and cloning everything from Back Street Boys CD’s to Tommy Hilfiger shirts, and routinely runs intercepts on our military assets operating in international waters and airspace, even causing the emergency landing of a US Navy EP-3 aircraft back in 2001.   When they are not doing those things, they occupy a leading role (besides Russia and North Korea) in the cyber-criminal/hacking space.  So the question of the day is, since when did anybody believe we could trust them ?   On the other hand, by sheer volume of people (very smart people, no question about that…), they consume a lot of food and products, many of which originate in USA.  Our major brands use Chinese labor to build IPhones and flat screen televisions.    Indeed, a huge trading partnership exists, and ideally we all play nice in the sandbox.

I beg the question, as I amusingly watch mainstream financial shows and listen to “China experts” on talk shows:  When did China become trustworthy ?  The stock market (arguably) forgot their negative history above and rallied since January.   Great if you were “on the train” but not so great when (and if) that train goes off the tracks.  Note that with the Dow Jones loss of 617 points on May 13, we know that the market clearly is sensitive to the trade talks.

In short:  the trade deal never got done.   On May 11, President Trump stated China now has “another month” to get their act together, which my math puts June 11, 2019 as the next “deadline” (of many moved deadlines…) for China to come to agreement.  China counter-strike retaliation on now-existing US tariffs is expected June 1.  China has other measures too, it can simply elect to not purchase from US producers.   This is potentially happening with US Soybeans, China’s largest agricultural import from USA:

China can (and probably will…) turn to Brazil, the worlds #2 producer of Soybeans, and tell them that “we are buying from you now” and tell US farmers to pound sand.   The trade disputes have not helped soybean prices, they are at near 10 year lows of $8 per bushel:

The Soybean farmer clearly has not seen his retirement account grow much.  No bull market for him, as supply begins to outnumber demand.

Our TSP does not trade soybeans, so lets move to stock market talk.  However the above discussion is important- it serves as a reminder that not everybody in America is high-fiving themselves over the stock market rally, we have farmers and their families who depend on the US/China trade.   Their situation could slowly expand into other parts of our economy if things are not resolved.

As discussed earlier (most of you know this, as reflected by the numerous emails, phone calls, cyber-stalking, and messages I get….when you have multi-thousand subscribers, you tend to get some “feedback”…), the market has rallied since January 2009.   If you absolutely cannot stand the boredom of the G-Fund any longer, you might consider 50% G-Fund and 50% C-Fund.  The C-Fund is the top performer since January, running closely with the I-Fund.  I am not “advising this” or “endorsing this” etc etc:   If you are dying from safety and boredom and you need a taste of the stock market, then you might review that allocation and decide for yourself.    I remain 100% G-Fund.  

Lets take a look at some current charts of the SP 500 and the SPY Exchange Traded Fund (ETF) tracking stock, which is useful for volume analysis.  My immediate observation is that the rally since January has been on lackluster volume, resulting in the theory that the stack of cards is easily toppled with the slightest wind:

If you read the comments on the above chart, you will understand the volume situation better.  In light of the volume action and recent selling, the folks at Investors Business Daily newspaper (probably the only credible financial newspaper) have given the stock indexes a “D” rating, reflecting their belief that major funds are selling and exiting stocks.   In additional news, the “Yield Curve” is now inverted.   I have discussed this before, back in July 2018 , in summary a Yield Curve inversion occurred prior to all market crashes since 2000 (almost 20 years).  Will it happen again ?  Well, I don’t know.   See below (Zero Line is “inverted” status on the chart):

One piece of economic news the market celebrated this week was the purported “Great Housing Starts” news.   By definition, “Housing Starts” is data collected when start occurs when excavation begins for the footings or foundation of a building. All housing units in a multifamily building are defined as being started when this excavation begins.  With that said, the “positive news” was the fact that April starts were higher than expected.

This is fine but if you compare 2019 starts to 2018 data, 2019 is lagging, a possible sign that the economy is cooler this year than last year.

Keep your calendars ready for June, it will be full of events, all potentially market moving:

June 1:  China activates retaliatory tariffs against USA.

June 11:  “Revised trade deal deadline” US/China

June 18-19:  Federal Open Market Committee (FOMC) / Federal Reserve meeting

June 28-29:  G-20 Summit held in Japan.  US/Chinese leaders reportedly may talk.

In conclusion, I remain 100% G-Fund.   For those who need more excitement in their life, take a look at my opinions above regarding the C-Fund.

Thanks for reading and being a subscriber.   If this site has enhanced your awareness of the markets, and you have a friend, coworker, or colleague who may find it informative, please share it with them.

Thank you and talk to you soon…

-Bill Pritchard