TSP Commentary for 02/19/19

This is your TSP Watchdog ALERT for the week ended February 15, 2019.


For the 8th consecutive week, stocks gained this week – with the S&P 500 UP 2.50%, the Dow UP 3.09% and the NASDAQ UP 2.39%.

It is always interesting to try to trace market movements back to specific events during the week.  Of course, the biggest event – President Trump’s declaration of a national emergency in order to build a wall along our southern border with Mexico – doesn’t seem like the kind of thing that would send traders to the pits with BUY orders in hand.

Another big story during the week – Amazon cancelling its plans to build a second headquarters campus in New York City (Long Island City) also doesn’t seem like the kind of news that would excite investors.

The funny thing is that the story that would excite investors – “progress” in trade talks with China – is highly questionable, and asset managers who accept the stories coming out of Washington at face value should be relieved of their fiduciary responsibilities.  There is absolutely no evidence that progress is being made in the significant areas of the trade negotiations; instead, there is hope that we will gain a few tons of soybean exports.  But protecting intellectual property? Nothing.  Forced technology transfers to local partners?  Nada.  Cybersecurity?  Zip, zero.  Wall Street may herald a victory when whatever trade agreement materializes, but it is likely to be all smoke and mirrors.  Don’t be fooled – small increases in our exports are not what we need.  Intellectual property rights, forced technology transfers and cybersecurity are the real needs.  Any agreement that does not make significant gains in these areas is a fraud.

…but Wall Street seemed pretty excited about the announcement that more trade negotiations have been scheduled.

In our TSP Watchdog database, we have several new positive trends to report!

The C fund.  The S fund.  All of the L funds.  They are all now on positive trends.

It’s been awhile – so I will refresh your memory.  When a fund has been on a negative trend, and we have been out of that fund, in the G fund, as a result of the negative trend – we recommend moving back into a fund when it reverses back to a positive trend.

That is exactly where we are with the C fund, S fund and all the L funds (which are heavily influenced by the C fund and S fund).  They reversed back onto positive trends this week, and we recommend adding them back to your allocations – whether you are following one of our allocation models, or you have your own allocation that you prefer.  If you’ve been on the sidelines – in the G fund – while these funds have been on negative trends, we now suggest you move back into these funds.

Be aware – the I fund and the F fund remain on negative trends.  We are NOT recommending moving back into the I fund or the F fund.  Only the C fund, S fund and L funds are now recommended.

Of course, as with all investing, there is some trepidation in making this recommendation.  It is rarely a glaring, obvious, wide open road we travel to investing success.  These trend changes come on the heels of 8 consecutive weeks of market gains.  It is very reasonable to wonder if the markets aren’t due for a pull back sometime soon.  In fact, I’ve been wondering about a pullback for several weeks now.  But, we are committed to our process, and when it tells us that funds have returned to positive trends, we follow these signals.  No system is perfect all the time, but over the years, our trend following has accomplished two important goals more often than it has stumbled:

  1. Reducing exposure to declining markets
  2. Giving us good exposure to rising markets

In short, we’ve had some false signals, but on the whole, we have avoided some of the worst downside the market has thrown at us while still participating in long stretches of market rallies.

So, this week, we advise moving back into the C fund, S fund and all the L funds.  You can do this all at once, or you can step back in by stages – moving a portion of your TSP back into these funds on a regular basis until you reach the investment allocation you desire.

For the purpose of calculating our performance, we will record a full movement back into the C Fund and S fund at today’s closing price.  NOTE: we do not use the L funds in our models because they are just composites of the underlying primary funds: C fund, S fund, I fund, F fund and G fund).

We maintain 5 allocation models ranging from Very Conservative to Maximum Growth.  You can see how each model is impacted by these trend changes by clicking on the link in the right hand margin – “Click Here to View Current TSP Watchdog Recommended Allocations”.

As always, please feel encouraged to reply to this email with any questions.

Scot B.