The Fed Trader

Hello Folks

Well, unfortunately yet again I have more bad, versus good, news to report.  This most recent market week, March 6 to March 10, was basically a disaster.   Lets take a look at some Dow Jones Index losses:

03-07:  570 Point loss

03-09:  543 Point loss

03-10:  448 Point loss

Again, by now we all know (at least the readers of this site know…) the challenges facing the market:  rising Interest rates, inflation (not the same thing, but close cousins), and consumer sentiment.   The dead horse has been beaten enough, I am not going to kick it anymore, those are the meat and potatoes “why” the market is down.   The sudden collapse of SVB Bank probably didn’t help the mood on Wall Street either.

Lets look at some charts, keep an eye on the increased volume which is consistent with “distribution” or selling by major institutions:

Some often watched indicators, by stock market analysts, and your amateur analyst here, include:

• S&P 500 is below both the 50-day and 200-day moving averages, a bearish signal
• Volume has been increasing, reflecting distribution
• 3750 is the new support area

So that is about all I have this post, short and sweet.  I remain (shock) 100% G-Fund.   For those who have been following the TSP Funds closely,the G-Fund was the only fund to have a positive performance for 2022.   That is right, the only one.  A paltry 2.98%, but you don’t need to be a Wharton Finance Phd or a MIT math professor to realize anything positive is better than anything negative.   Basic math.   How did “the other sites” do last year?   I don’t know, I thankfully just listen to me.  However I can say that if we count the L-Fund (and do not count all the L-20XX funds), we have six fund choices to be in (not counting whatever mutual funds in the “new TSP” mutual fund window offerings).   How was I in the G-Fund the entire time?  The boring G-Fund?    How many times have I said that I believe it is important to protect against loss?

Wait- the G Fund is subject to the possibility that your investment will not grow enough to offset the reduction in purchasing power that results from inflation.   I don’t make that claim, that is cut and pasted from the TSP site.

In exchange for the boredom of the G-Fund, we get safety and security.  A year is probably longer than I would like to be in the G-Fund, and NO, I do not suggest anyone do a 30 year federal career in the G-Fund, but it does offer some, well, positives, gains being one of them.

So how did I obtain a positive return in 2022?  Was it by day trading my TSP?  No.  Was it by chasing returns and trying to buy the low, and sell the high?  No.   As a matter of fact (and I am making a point here), I made NO TRADES all of 2022.  ZERO TRADES.   You could even go as far to say I was “in it for the long haul” in 2022.  Did I say zero trades?  The TSP is NOT meant to “trade” by the way.  “Market timing?”  (an evil concept).   The only market timing I did in 2022 was 12 months of time out of the markets.

So how is this done?  This is not done by witchcraft, hocus-pocus, guessing, etc.  These results come from putting in the time, and the effort.  Everyday.  And turning off the outside noise from the numerous websites run by “experts” who are happy to tell you why their method is best.   News flash:  The G-Fund is part of the TSP plan.   Am I in the G-Fund when the market is screaming to the moon?  No.  Am I in the G-Fund when the world is ending?  Yes.    I have 55 disclaimers on this free, no charge site that I am not an investment advisor, what you do with your money is your choice, and that I am merely sharing what I do with my TSP, and sharing my opinions regarding what is moving the markets.

With that said, who do you trust as a source of information regarding the markets?     Please complete the on-going poll below, if not already completed when it was originally posted in November 2022.

Final comment:  If you have not made money in the markets (or minimized your losses) in the last two years, you need a new investment advisor.   If the “expert” you listen to or website you follow has not made their readers money (or minimized their losses), that website or expert needs to get a new job.   If that website told you to “hang in there, it always comes back” in the S-Fund for 2022, you just had a –26% return in your TSP.   You now need a +35.1% return just to recover that loss.  Positive 35.1 percent.  Just to get back to even.

Please complete the following poll if not already done so:

https://take.quiz-maker.com/poll4595721xC9dD40b9-144

Thank you for reading, and please share with your friends and colleagues.   Note:  If the images in this website are blocked by your email program, please navigate to the main page at https://www.thefedtrader.com/

-Bill Pritchard

Hello Folks

First post of 2023, because, well, there is just nothing to report or trigger a change from my current TSP Allocation, which remains 100% G-fund.   I have been watching the S&P 500 index, and determined that the “4100 level” was the location where it needed to punch through, in order for a sustained trend to be deemed probable.

Sadly, it went through this level, then went back down.  See chart:

If we look at the SPY Exchange Traded Fund (ETF), this allows us to see some volume trends a little better then the “big index” itself.   Lets take a look:

As can be seen, the index went up slightly in January, then resumed down again starting in mid-February.  “Wait, I see the TSP Funds had positive returns, 6-11%, in January.  I am missing the action” you might say.   Indeed they did, and no, you are not missing the action.  My methodology is “capture large trends” not “daytrading your TSP.”   If you want to try to predict each month’s performance, good luck.   In any event, that 6% gain may vaporize if March continues to be a downtrend.

What is causing this market malaise ?    Inflation x 100.   Contrary to some who claim otherwise, inflation has not gone away, and I don’t know if it is “getting better” (it isn’t) or we are just becoming insulated to it.  Lets look at the charts of the recent PCE (discussed widely, over the years, on this site) inflation data:

This inflation is impacting “morale” of the consumer, which is measured by the Consumer Confidence Index.  Increased consumer confidence indicates economic growth in which consumers are spending money, indicating higher consumption.   Not surprisingly, consumer confidence has been waning, see chart:

With that said, I simply have decided to remain 100% in the G-Fund, a fund contained within the TSP basket of funds and a TSP-endorsed investment choice.  As I have said before, this “use the G-Fund to protect against losses” is not some magical Bill Pritchard invention or epiphany, it is something that the TSP official site itself discusses:  https://www.tsp.gov/funds-individual/g-fund/

That is all I have for now.  Again, I remain 100% G-Fund.  4100 remains an important level on the S&P 500.  However we want “sustained existence” above 4100, not a one day blip or two day lucky streak.

Note:  Some email systems are sending these updates to spam folders, others are blocking images.   You may consider creating a filter “rule” that sends these emails to your inbox, which alleviates these issues.   You can also go to the website address for the most recent update: https://www.thefedtrader.com/

Thank you for reading and please share The Fed Trader website with your friends and colleagues.

-Bill Pritchard

NOTE:  If the images in this post do not appear, your email or internet provider may be blocking HTML or blocking graphics due to spam and other concerns.  In that case, please go directly to my website to view this content:  http://www.thefedtrader.com/

Well, first things first.  I wish all my loyal readers and followers a Merry Christmas and Happy New Year.  I would wish “Happy New Year” to the markets if I could but I am not sure they would listen.   So allow me to talk about what I see happening.   Bottom Line Up Front:  I am personally 100% G-Fund, which represents the best allocation for my personal risk tolerance and my personal economic situation.    For official guidance and information on the use of the G-Fund (such as “How can I use the G-Fund in my TSP?”) , please consult the TSP website itself at:  https://www.tsp.gov/funds-individual/g-fund/

Note that per official TSP website fund performance, the G-Fund is the only positive performer 2022 Year to Date.  Indeed, the return is not +1000%, but it is positive versus negative.

And when is the evil and ineffective strategy called “market timing” not evil and ineffective?   Well, when Wall Street hedge fund managers decide to re-label it as something else, maybe call it “rebalancing”, see below:

Words used include “trim holdings” / “move funds” / “unload” / “shift assets”

Now, when individual investors decide to be proactive with their own accounts and “shift assets” we become “market timers” and are reminded we are not smart enough to understand what we are doing.    Soapbox rant off…

Lets take a look at the SPY Exchange Traded Fund, a great proxy for the S&P 500.   Volume analysis on the SPY chart is a little easier for me, so lets take a look:

As can be seen on the chart, the market continues to trend downward.  Above average volume action seems to be the constant theme.  Indeed we had some “up days”, on Nov 30, and Dec 13, respectively, but (“experts” on cable business news channels aside…) the bearish downtrend has remained intact.  Challenges remaining for the market, and the economy, include high interest rates, inverted yield curves, and inflation itself.   Lets take a look at a chart of negative yields:

Apparent in this chart is when things go below “O” (zero), a recession occurs soon after.  Our current negative reading of 10-year/3-Month yields reflect a reading of -0.83, a number greater than the previous worst reading of -0.77, which was in December 2000.  So, basically, the yield curve is in the worst shape it has ever been in 20 years.  Again, recessions typically begin after negative yield curves develop.

Apparently, large investors are buying gold, since November, the price has been in an uptrend since then:

Gold, historically, is a “safe haven” investment, and while this is not as a reliable indicator as it as decades ago, it is still good for general awareness.   Gold typically rises when stocks go down.

Crude Oil, is another indicator of problems ahead.   “Low priced” Crude Oil is not necessarily a good thing.   Crude Oil is always “low” in a recession or even a depression.   Crude oil was low during the financial crisis of 2007-2009, during COVID crisis of 2020, and is showing signs of going down again, per this chart:

So there you have it folks, my opinion-based analysis of the markets.  I hope you find it useful.   If you do, please share this free website with others, and encourage them to subscribe (request #1).    Also, if you have not already done so, please complete this poll below (request #2) as it helps me stay abreast of current sentiment in the subscriber ranks…

As we finish 2022, a cursory review of “other” TSP analysis blogs and websites reveals preliminarily that back in late 2021, and in 2022, The Fed Trader website has been the ONLY site to discuss the potential bearish market conditions and deteriorating economy.  FYI

POLL:   https://take.quiz-maker.com/poll4595721xC9dD40b9-144

Thank you.  Merry Christmas and Happy New Year.

– Bill Pritchard

Folks, I apologize for going months between updates to this free site, however it has been a busy few months for me.   Nothing really earth shattering has happened in the markets, even the recent “uptick” in the indexes is in question and really wasn’t worth reporting on until now.

Before we talk markets, let me GENTLY touch on some “admin stuff” and benefits usage that some of us are not tapping into, all opinion based and “the way I see it” type of perspective.   Talk to HR/your agency benefits provider for official guidance.   

NOTE:  If the images in this post do not appear, your email provider may be blocking HTML or blocking graphics due to spam and other concerns.  In that case, please go directly to my website to view this content:  http://www.thefedtrader.com/

Also:  Please participate in my end of year poll, link at the bottom of this post.

Admin Stuff:

It is currently “Open Season” (Nov 14 to Dec 12) and this is the only period in which federal employees can change their health insurance coverage for the coming year without having a qualifying life event, such as marriage or the birth of a child.

Important:  This includes DENTAL coverage, which if you have a home with kids, you might be needing a cavity filled or some dental work done.  Dental costs can add up quick.  Personal story, I was a Delta Dental user for many years until my dentist just stopped accepting them, as did many other dentists in my area.  I learned that he dropped Delta Dental after my emergency root canal surgery a few months ago.  I walked out with a root canal done, associated X-Rays and other stuff performed, and a goodie bag containing a mini-toothbrush and some floss, and a few thousand dollars lighter in the wallet.

Lesson learned is that a “top rated plan” (per whatever Google research you wish to believe) is worthless if no dentists (or doctors) accept the plan.   For the current open season, I spoke with my dentist, and other dentists nearby, and basically asked them “what plan would YOU choose.”  I ended up choosing Metlife Federal PPO High plan, which (I believe) works for my situation and my location.  FYI

A great Nov 21, 2022 article about open season and comparing FEHB plans is here:  https://federalnewsnetwork.com/open-season/2022/11/open-season-exchange-2022-opms-edward-deharde-on-why-comparing-fehb-plans-is-critical-this-year/

Health Insurance:

As someone blessed to have “made it” to 6(c) retirement, with all the accompanying benefits that go along with it, the biggest and most important one is not the low-cost TSP, or the monthly check that never stops, or the annual leave cash-out…the most important one is the federal health benefits/insurance.  Talking to colleagues, friends, neighbors, and others who work in the private sector, many at Fortune 500 companies in professional level roles, our health insurance is (my opinion) far better than most.  In addition, when people “retire” from some of these companies they may loose some, or all, of their health insurance that make up part of their employment.   If they go out to get insurance on the private market, they may face health exams, denials, or costly premiums due to common nuisances such as high blood pressure, issues with family history, and other stuff.    Since many of the readers of this site are “retirement minded” you might take a look at OPM’s site, or read Dan Jamison’s FERSGUIDE, or read some of Chris Barfield’s articles, to stay abreast of benefits information.

EAP:

It has come to my now-retired attention, via buddies at numerous different agencies, that many folks just don’t know about EAP, or know what EAP can actually do for them.  I had a recent conversation with somebody who told me “they” (his peers) would “never call EAP, for anything.”   Since EAP is (apparently, my understanding…) run and managed by each agency and department differently, it may be beneficial to just call EAP yourself and find out what they can provide.  EAP benefits typically extend to family members living under your roof, if the issue at-hand is linked to your employment.  Some examples might be your shift work or a PCS move that is causing some stress and disruption on the kids or family.  Typically EAP will set up sessions with an on-contract local counselor or therapist to help get things back on track.   Check with your agency, but EAP is typically fully confidential.

USE OF health insurance:

Similarly,  I spoke to another buddy, “older guy” like me now, but still on the job, who told me he “never” gets a physical or lab work done.   No personal doctor, no “go-to Doctor” if he gets sick.  “Too much trouble, plus it is expensive.”   Etc etc.  I was like “Bro, whip out that Blue Cross Blue Shield card [which you pay for…], bang in sick for the day (fully justified),  and get a physical and some lab work done.”   In sum, we have some of the best insurance in the world, lets make Blue Cross (or whoever) earn some of their keep.  This is my opinion.   We have no excuse.  Sick leave can be used, and the visit should be covered by health insurance.    Sorry to rant on this but what we could do at Quantico or FLETC at age 25 and what we can do at age 50, 55, are two different things.  Stuff starts breaking and weird body aches seemingly appear for no reason.

Lets talk TSP, well lets talk about the markets and the TSP will take care of itself…

Bottom Line Up Front:  I am 100% G-Fund, however I am retired and am even more conservative at this point with my TSP.

The best performing fund, Year to Date, is, drum roll, the G-Fund.   The boring, often bullied, lackluster, “never will beat inflation” G-Fund, is the only positive return, Year to Date:

Bull market favorite S-Fund, is negative -24%.   So if the G-Fund, with 4% return, is not keeping up with inflation (and it isn’t, hopefully the inflation problem is short-lived…), then I guarantee you that a fund with negative 24% return is not either.    Lets take a look at the present chart of the S&P 500, I have annotated with red boxes the general time frame when I began to post about potential market trouble ahead:

One indicator or metric that you have heard me mention many times is “Volume” or “Volume analysis.”   Basically, a stock or index moving up or down is noteworthy, but if there is no volume “behind the move”, the move is likely to die or reverse, or simply not sustain itself.  We have seen this numerous times this last 12 to 18 months.   On the other hand, when volume is very powerful, with the market going up (or down), then that is much more credible for that corresponding movement.  Typically this represents traders and institutional money managers all “agreeing” that XYZ should be sold or bought.

With that said, I personally am not seeing any volume on the rallying/uptrends that tells me things have changed.   Not surprisingly, all recent rallies have died and resumed a downward trend.  See chart:

Sometimes I get some “fan mail” that tell me I get carried away with too many charts or technical terms, I apologize if I geek out, but the information is there if you wish to look at it.

Challenges that continue to face the markets include inflation, interest rates (designed to curb inflation), and ongoing supply chain concerns.   CPI inflation reportedly “cooled” (got better) but that is akin to being shocked by 500 volts to now being shocked by 400 volts.  CPI inflation, minus food and energy, is 6.3% versus 6.6% in August 2022:

PCE inflation data, which is more closely watched by the FOMC, has come down slightly from earlier this year, but is still “high” by all accounts.  Core PCE chart below:

In sum:  Inflation is still a concern and this is not going away anytime soon.  For more reading on CPI versus PCE metrics, please go to this 2015 Wall Street Journal article here.

Upcoming inflation report dates, if you are interested:

PCE:  Next release on December 1, 2022

CPI:  Next release on December 13, 2022

Some of these aforementioned challenges have caused the Yield Curve to “invert.”  Long story short, an “inverted yield curve” is believed to be a predictor of a looming recession (personal opinion is we are already in one, but….).   See chart of Yield Curve going “negative” below the”Zero Line:”

In summary, it is my opinion that numerous challenges lie ahead before a sustained, new, Bull market, can rise from the ashes.  Once it does, I will be “in” with both feet.  Until then, I am not chasing daily or weekly rallies.  Only when I see a clear signal that sentiment has changed, will I make a move back into stock funds.

With that said, I ask that you participate in the poll below.

Thank you, and Happy Thanksgiving to everyone.

-Bill Pritchard

POLL:  https://take.quiz-maker.com/poll4595721xC9dD40b9-144

Hello Folks

I hope everyone’s summer has been going well.   Some trivia:  The summer months of June, July, and August represent the lowest trading volumes (basically, activity) for stocks the entire year.  Most major players are “out” for the summer and away from the markets.   Volume remains the key “qualifier” when major moves up or down happen.  If big volume is there, the move is likely the start of something, and/or the move is unlikely to reverse itself in the coming days.

With that said, the stock indexes remain in “classic” Bear mode, with the 50-day moving average below the 200-day moving average across all indexes.   Let’s take a look at the S&P 500 Index below:

As can be seen, volumes are below average, and while indeed the index appears to be climbing positively since July, it is still below the 200-day moving average and faces various challenges brewing on the economic front.

Which leads to the question:  Are we in a recession?  

If you go back and take a look at my September 22, 2019 post, I talk about recessions somewhat.  In short, most define a recession as a period in which real GDP declines for at least two consecutive quarters.   Note that not one sitting President has been re-elected when a recession started on his watch, so (this is not a political commentary site, but…) it is accurate to say that some elected officials currently are wordsmithing what the country is facing right now.   In my opinion, if it quacks like a Duck, walks like a Duck, has an orange bill, floats in the pond, and runs to shore if you have duck food in your hand, it is probably a duck.  However this recently said animal is now being called a floating chicken, feathered pond dweller, and a quacking water bird.   But not a duck, because, well…

The recent GDP release, on July 28, 2022, reflects Q2/2022 GDP was -0.9% and Q1/2022 GDP was -1.6% (twp consecutive negative GDP’s).

Observing the GDP chart above, you can see poor GDP in Q1 and Q2 2019.   In spring 2020, COVID hit the planet, and a variety of government funded relief packages and incentives came into existence.  GDP recovered.  However did the chicken, or the egg, come first?   Is today’s economy loosing steam because the COVID pandemic created “pent up demand” for travel, gas, and housing?  Prices, based on supply, going through the roof, resulting in the Federal Reserve raising interest rates, to cap spending, which has then triggered where we are today?   Houses sitting unsold for weeks versus hours?   Etc?   Interesting conversation but beyond the scope of this post.

The Yield Curve, has been flat recently and near inversion, which very commonly is a predecessor for a recession:

A good article about inverted yield curves can be found here, however the short version is that this is a very reliable recession predictor.

All of this, to include my retired status, has caused me to remain 100% G-Fund.   Take a wild guess as to which fund has the best rate of return recently?

It would be the G-Fund.    In other TSP news, a new TSP Mutual Fund Window feature is active, however TSP investors are apparently slow to embrace it.   I wonder why, having to decide between the C, S, and I fund is hard enough as it is.  Now the TSP investor can potentially invest in 5,000 mutual funds, from 300 different fund families.  If you thought determining if small-caps would outperform large-caps was difficult, try using your crystal ball on the New Centurion Large Cap Growth Fund versus the Gladiator Large Company Global Opportunities Fund.

That is all I have for now, in my opinion we are in a recession-like climate, we indeed are in a bear market, and various headwinds exist in the near future.

Thanks for reading, take care…

-Bill Pritchard

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

Hello to all the subscribers and Happy (belated) New Year.   I waited until now for this post, desiring to let the first two weeks of January come and go, with some market messaging hopefully obtained by now.   Let’s talk about the continued lethargy on the indexes and the challenges which appear to exist in the near term.

Shortly after my previous post (on December 20), the markets indeed rallied, but this was on very low volume.  I have stated numerous times on this site that volume is the “horsepower” behind the corresponding move, a move up with strong volume reflects a high probability that the move will continue.  A move up on low volume, not so much.    See chart of the S&P 500 index:

As we can see, the low volume coincides with the Christmas and New Year holiday time frame.   Once “Wall Street came back” from the holidays, the first week of January, the index went lower each day of the first trading week of the year, on above average volume.  It then recovered slightly, likely due to bargain hunters “buying low” but then deteriorated a few days again.   As of Jan 14, the index is basically in the same position as it was in November and December.

The tech heavy NASDAQ, also the location of many S-Fund / small cap companies, is performing even worse, having broken thru its 50-day and 200-day Moving Averages:

While the above performance does not mean it is time to panic, it is clearly undesirable and especially so, in light of the fact that trading during the first week of the calendar year historically “sets the tone” for the rest of the year.

What is causing this to happen?  As stated in my December 20 post, the concerns appear to be inflation, and COVID (Omicron variant).  Please do not interpret my musings about the markets as a political position, I seek to provide my opinion of why the market’s are not performing well, and nothing more.  With that said, inflation data, per two key indicators, known as the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE), is at historical all time highs.   I spoke about inflation and interest rate hikes in 2015, at this March 11, 2015 post: http://www.thefedtrader.com/march-11-update-all-about-rate-hikes/

I will not regurgitate what I said in that post, so lets post some visual depictions of just how high inflation has gone up:

CPI and PCE are basically measuring the same thing, albeit with a slightly different formula.  The “Core” data is the measurement not including food and energy (gasoline, etc.), since food and energy can be very volatile and very supply chain dependent.  Core data above reflects rising inflation, at levels never seen before.   This inflation began to rise, per the charts, both in early 2021.   The markets digested it fairly well, in 2021, because no other headwinds really existed. 

Flash forward to late 2021, and we have two things:  1) Inflation has no longer “begun to rise” like it was labeled in early 2021, it clearly is at excessive levels, and 2) COVID via the omicron variant is a new threat to the economy.   We have talked about inflation, lets move to COVID, with charts of CDC reported deaths, and of COVID related ICU admissions.

In my opinion, “new cases” is a worthless (or almost worthless) data point, as some people get COVID and recover quickly, others may test positive but they never had any symptoms, and other reasons.  A direct link to “new cases” and “negative impact to the economy” would be a big leap.   However, again, and let me emphasize this is my opinion, the best way to assess COVID’s impact is COVID death counts, and COVID ICU admissions.   Is it a perfect way?  Is it flawless?   No.   But I think it is the best way (or least worse of all the ways).

Unfortunately, if you are to believe the charts, both ICU admissions and death counts are headed up, not down.  As big employers face OSHA mandates and compliance with “best practices”, the return to the office for corporate America is again in question, business travel, hotel occupancy rates face impact, and other things can be affected.  Indeed, the Omicron variant appears to be “less severe” but staffing shortages are causing schools, airlines, and some restaurants to cancel operations.

An ongoing research study by the University of Texas forecasts that in late January 2022, COVID patients in ICU’s will exceed all previous highs since 2020:

In sum, are major funds on Wall Street, with billions under management, and teams of mathematicians, analysts, and researchers on staff, not watching this?  Of course they are.  And it would be wise that the individual investor be aware of these challenges also.

With that said, a conservative-leaning approach to the TSP would be sound, in my opinion.   I have stated that 75% G-Fund and 25% C-Fund is arguably the ideal allocation for most investors at the present time.   I personally would probably not be 100% I-fund or 100% S-Fund or anything considered aggressive.   At the risk of somebody claiming the Fed Trader is too conservative, I indeed embrace that stance, especially for the retirees.  If you have been 100% S-Fund all 2021 and are thinking about reducing to a more conservative stance, then yes, now is probably the time to do it.  

Standard disclaimer:  How you manage your TSP is up to you.

With that said, my risk-adverse self is signing out for now.   Let’s monitor the inflation, and COVID situation, and hope both stop their climbs.

Hope everyone has a great week, and talk to you soon.

-Bill Pritchard

Good Morning Folks

Unfortunately, the markets continue to deteriorate, with (as stated in my prior post) the Omicron “new variant” and inflation taking center stage.   This morning (Monday Dec-20), the Dow Jones Index is 600 points down, and the S&P 500 has “gapped down” on above average volume.

As you can see in this graphic, the “support level” for the S&P 500 is 4500, while the “overhead resistance” level is at 4725.    The common definition of a “bear market” is when an index declines 20% or more from it’s peak price, so the following levels below (rounded) are important to watch.  Often, once a market enters “bear territory”, additional investors throw in the towel and exit positions, further exasperating the situation…

Dow Jones:   Peak:   36,566.  Bear Level:  29,253

S&P 500:  Peak:  4,744.  Bear Level:  3,795

NASDAQ:  Peak:  16,212.   Bear Level:  12,970

Some additional indicators exist which I monitor daily, however a 20% decline from the peak is a widely accepted rule of thumb for a bear market.   Thankfully, we are not close yet but it is important to be aware of.   Whether you should be “safe” in G-Fund (per the TSP website, indeed an “investment”), or “buying cheap” in the stock funds, as they crash, is a discussion between you and you, my prior posts over the last ten years will reveal my personal opinion on that topic, I plan to cease regurgitating that topic anymore as strong opinions exist on both sides (which I respect).

To reiterate, the Omicron variant, and inflation (more Omicron in my opinion…) is spooking the markets.   This was discussed in my November 28 post (South Africa reported Omicron to the WHO on Nov 24), and, well, here we are today three weeks later, with markets crashing.

I personally am optimistic regarding our economy and resilience in the face of these virus concerns, however indeed at the end of the day, the markets do not care what you, or I, think.  They will do what they do.   A positive observation I have is that South Africa has a huge case uptick but the death rates have not increased, at least not yet, and we are 3+ weeks into the new variant:

https://covid19.who.int/region/afro/country/za

https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&time=2020-03-01..latest&uniformYAxis=0&pickerSort=asc&pickerMetric=location&Metric=Cases+and+deaths&Interval=7-day+rolling+average&Relative+to+Population=true&Align+outbreaks=false&country=~ZAF

So maybe, just maybe, this new variant, indeed highly contagious, has no severe impact to the victim.  If this proves to be correct, the markets should respond accordingly and come back strong.   “We should know something” by late January, which is two months after the discovery of the initial case.    Back to G-Fund, should you bail out now before the eye of the hurricane hits ?  Or should you wait, with the expectation that things will improve?   Again, that is between you and you (and your professional advisors).

With that said, today is December 20, so allow me to say “Merry Christmas” to all my subscribers and followers.    I wish you a safe and joyful holiday !  I will probably post again after the holidays.

-Bill Pritchard

Good Evening everybody

How time flies, my last post was in July.    As you may know, I have retired from the DEA.  Let’s talk about the markets and recent developments, namely “the new COVID variant” (grumble grumble).

Looking backward, at the last six months, the C-Fund has outperformed all the other funds, with the S-Fund taking second place, up until about a month ago, when the I-Fund outperformed S-Fund.   Enter the “new COVID variant” which was reported to the World Health Organization by the South African health authorities on November 24, which triggered a market sell off on Friday Nov 26.

Presently, my crystal ball tells me that the funds most susceptible to damage from a sell-off will be the I-Fund, then S-Fund, then C-Fund.   I-Fund due to international exposure, S-Fund due to smaller-sized companies and inabilities to sustain economic damage, and lastly C-Fund, all super large companies with ostensibly some protection from short term “new COVID variant” damage.  Clear as mud?   Basically, in my OPINION, if you are 100% I-Fund, you might consult your professional advisors and/or make your own educated decision for your own account and consider reducing some I-Fund exposure.   My OPINION is that (especially for the retired…) a balance of 25% C-Fund (see above comment regarding protection from damage) and 75% G-Fund, the same allocation I discussed in my July post, is still a sensible allocation, again, in my opinion.     

Lets take a look at the original 2020 COVID crash:

As you can see, the market began to deteriorate on February 24, 2020, and began to recover on March 23, 2020, or almost a month later.   What will happen this time?  Who knows, that is anybody’s guess.  However one observation I have is that the stock market, and the economy, in early 2020, both were at all time highs, and rather healthy.  Then COVID came along, and indeed caused havoc.   Presently, now, today, the economy has some other concerns, most notably inflation, and some areas have still not healed from COVID-2020, such as the supply chain (chips for new cars, etc.).   Frankly, the “new variant” is the last thing we need, just when things had started to recover.  I am not fear mongering but just calling it how I see it.  Also important to note is the development of vaccines, which may mitigate impact of this new variant.  As of the publication of this post, the “new variant” (being now called Omicron) has yet to be found in the USA.

Moving on, lets answer if the sell off is “real” or just panic.   Well, any sell off is real, but lets dive deeper behind the scenes, and try to determine if this is the start of a new downtrend or not.  Disclaimer, this is somewhat crystal-ballish, but lets do it anyway.  Keep in mind that Friday was the day after Thanksgiving, historically a day when most market participants are away from keyboards and their Bloomberg terminals.  Friday was also the worst performing day of the year for the Dow Jones index.

Using the Exchange Traded Funds of SPY to monitor C-Fund, and IWM to monitor S-Fund, both witnessed trading volume of 70-90% above their average volumes.   Additionally, Gold traded higher on Friday, indicating a flight to safety.   So how will Monday November 29, and subsequent days, react?   Again, that is a crystal ball but if more negative news develops on the new COVID variant, I believe the markets may continue down.    As seen below, the volume on Friday for the SPY ETF indeed was much higher than average.

The coming days will likely determine which direction the market will go next.  Hopefully Friday’s panic does not continue.   Dow Jones futures for the evening of Sunday Nov 28 are reflect them trading up almost 250 points:

As stated before, my opinion is that 75% G-Fund, 25% C-Fund represents a good allocation in light of ongoing inflationary and COVID concerns.   My opinion is heavy I-Fund exposure may result in undesirable negative impact from any “new variant” COVID concerns.

Additional comment:  I have received some questions about “market timing” and why not just “buy and hold.”  I respect everyone’s opinion, however instead of typing out a response, allow me to direct you to a 2019 post addressing this topic, at this link:  http://www.thefedtrader.com/positive-signs-continue-for-the-markets/

Begin reading about halfway down the post in which I discuss market timing, the G-Fund, and the fact that the TSP website itself (not me…) advocates the use of the G-Fund to protect against losses.    To quote from the US government TSP website:  Consider investing in the G Fund if you would like to have all or a portion of your TSP account completely protected from loss. 

Interestingly, one website existed, of course with no obvious ownership identity or human name behind it, let’s just say the word “allocation” was in the website name, well that website is no longer working and the last update prior to going out of service was sometime in 2019.   Be careful who you listen to folks.   The only people I personally would follow for TSP commentary would be me, Dan Jamison, and Chris Barfield.   All “real humans” and actual participants in the TSP system, with “real skin” in the game.  I am not a CPA, have no planning or tax expertise (nor claim to have it) so you will not find that here.  My passion is market analysis.   With over 7,000+ mutual funds in existence, per Money Magazine , indeed there are a variety of ways to pursue investment returns and analyze the market’s moves.  Some are better than others, some are worse than others.   For every guy that tells me “gee, I could have made more money by not being in G-Fund” is a guy who says “golly jeepers, I sure feel safe in G-Fund.”  What you see here is my method.  If you find it useful or informative, please share this website with your friends and colleagues.

Thanks for reading and talk to you soon….

Bill Pritchard