Current Thrift Savings Plan Allocation and Underlying Business Cycle Phase (July 2013)

This is an archive page. Click here for current Thrift Savings Plan allocation post.

Updated 07/12/2013: My current Thrift Savings Plan allocation remains 100% in the TSP S Fund.

Based on all of the economic indicators which I describe in my How to Determine the Business Cycle’s Current Phase post, I believe that we remain in an early (recovery) phase which started in Spring 2009, and so I remain 100% invested in the TSP S Fund.

Ten minutes. That is all that it took for me to pull the data which I feel like I need to make that determination, and I only need to do that once a month. (Investing is a pretty serious hobby of mine, so of course I spend more time than that, but it really isn’t necessary – particularly when all of the indicators are pointing in the same direction).

I thought that it might be instructive to run through where I get the indicator data I am using and what it means to me:

(1) employment numbers: I looked at both the Econoday and MarketWatch calendars. Of note, monthly jobless claims fell and:

The June employment situation largely came in better than expectations-at least on the payroll survey portion. Total payroll jobs in June increased 195,000 after rising a revised 195,000 in May (originally up 175,000). The consensus forecast was for a 161,000 gain for June. The net revisions for April and May were up 70,000. The unemployment rate held steady at 7.6 percent.

(2) money supply growth rate: I looked at numbers released by the Federal Reserve which is in a table which I just couldn’t make look right in this post, but the nutshell is that the growth trend continued and:

Money Supply M2 in the United States increased to 10598.1 USD Billion in June of 2013 from 10552.60 USD Billion in May of 2013.

This continued upward trend is what we are looking for:

United States Money Supply M2 - TSP Allocation Strategy Guide

(3) the stock market: Both the Dow and the S&P 500 set new all time highs today. I probably don’t need to see anything more than that to convince myself that the market’s upward trend is continuing.

(4) yield spreads: to get my data for this section I Googled “current yield spread” which led me to a recent release from the Cleveland Federal Reserve. The yield spread is huge, which indicates a very low probability of recession, and it is trending in the right direction:

June
May
April
3-month Treasury bill rate (percent) 0.05 0.04 0.06
10-year Treasury bond rate (percent) 2.20 1.93 1.73
Yield curve slope (basis points) 215 189 167
Prediction for GDP growth (percent) 0.4 0.3 0.5
Probability of recession in 1 year (percent) 4.4 6.1 8.1
(5) Purchasing Managers’ Index (PMI): as usual I went to the Institute for Supply Management and pulled up their most recent report:
Economic activity in the manufacturing sector expanded in June following one month of contraction, and the overall economy grew for the 49th consecutive month. […] The PMI™ registered 50.9 percent, an increase of 1.9 percentage points from May’s reading of 49 percent, indicating expansion in the manufacturing sector for the fifth time in the first six months of 2013.

So again, all of the indicators are pointing in the same direction, and I believe that we remain in the Early/Recovery/Expansion Phase of the Business Cycle for all of the reasons which I described in my earlier post on The Business Cycle Theory of Investing.

For those of you who feel that you need some diversification in setting your best TSP allocation and maintain a percentage in the “safer” funds, I would caution you not to be invested in the TSP F Fund during this period of increasing interest rates. I go into great detail in my F Fund vs. G Fund post, but the nutshell is that as interest rates rise, the bonds held by the TSP F Fund will lose value and the TSP F Fund will do poorly for the foreseeable future (as it has the past several months). And if any of your current Thrift Savings Plan allocation is in the TSP L Funds, remember between 6% and 9.25% of your savings are in the TSP F Fund which is almost certain to perform badly in at least the near term.

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