Castles in the Air?

This topic contains 10 replies, has 3 voices, and was last updated by  Anne 3 years, 1 month ago.

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  • #17690

    Anne
    Participant

    I’m beginning to wonder if our economic recovery is really there or if we are on thin ice with the possibility of another recession. Typically the market does better heading into an election year as we are, but I’m not sure we really have fixed the problems that caused the last recession. Is the government & politicians trying to make it look better than it is?

    I need to stop reading Len Penzo’s Black Coffee Blogs: http://lenpenzo.com/blog/id34848-black-coffee-move-along-folks-theres-nothing-to-see-here.html

    This is concerning:
    http://www.bloomberg.com/news/articles/2015-12-03/jpmorgan-bofa-citigroup-among-eight-big-u-s-banks-cut-by-s-p

    TS, what do you think?

    #17694

    Jesse

    I think you should follow what Paul has on here. He has plenty of good information. No need to question it. 85 S and 15 I. We are waiting for December update.

    #17699

    BradH
    Participant

    Jesse,
    I respectfully disagree. I think we all should question the information on this site along with all others. With that said, I find TSPaul’s thesis to be quite compelling and I too am 85/15. I suspect you are in the same boat; it just didn’t come across that way in your response.

    Anne,
    thank you for the links. Good reads. I find myself having to avoid confirmation bias a lot. I can find lots of articles/commentary to support my own emotional assessment of the economy and market (which is a pretty poor assessment). I am trying to keep the emotions out of my investing and the indicators that TSPaul highlights are helping me to be more objective.

    #17700

    Anne
    Participant

    Appreciate the feedback. I really like TS Paul’s analysis and am looking forward to the December update. I guess my concern is knowing when the economic cycle changes I recently watched Inside Job (documentary) & HBO’s Too Big to Fail (drama), both about the last financial crisis. I watched my TSP shrink by over 40% in about 18 months, followed by gaining it all back in the recovery. With 80+ percent in C, S & I Funds, then and now, and getting ready to retire, I really rather not lose $100 to 200K in a major downturn.

    Needless to say, I’m paying more attention now than I was back then. The volatility of the market in response to the FED hinting at raising interest rates earlier this year & then backing off makes me wonder how firm our economy really is at this point. I believe all the banks were AAA rated up until the government bail out. For S&P to downgrade any of them is cause for concern. If they were TBTF back then, how would it be now when they are even bigger, without any real reform? At near 0% rate, you can’t really go any lower, but there has been talk about negative interest rates. Since we exist in a global economy, I am concerned about the impact of the FED raising interest rates while other counties are initiating more quantitative easing measures.

    On the bright side, we are headed into a presidential election year where conditions are generally favorable for the stock market. From 1942 – 2004 all recessions bottomed out in the 1st or 2nd year of the presidential term (see Ref #1). An update to the 1st article (see Ref #2) indicates that the downturn began in late 2007 and considers the 2008 election an anomaly or exception to the prior paper based on magnitude of the financial crisis. The S&P 500’s lowest closing price was $676.53 on 9 Mar 2009, the 1st year of Obama’s presidency, however, the biggest drop in the index funds comparable to C & S appears to be from September 19th to October 10, 2008

    References:
    #1 Presidential Elections and Stock Market Cycles

    Presidential Elections and Stock Market Cycles


    #2 The Four-Year U.S. Presidential Cycle and the Stock Market

    The Four-Year U.S. Presidential Cycle and the Stock Market


    #3 The Recession of 2007–2009
    http://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf

    The unemployment rates were under 5% in all months of 2007. The rate appears to have started increasing from May (5.4%) 2008; it was 6.1% in August & September; 6.5% in October, increasing to 7.3% in December. Getting out of stock anytime before September 2008 would have prevented the most significant dropoff, but I’m not sure I would have thought a 0.4 to 1.1% increase in the unemployment rate to be that significant. Just trying to get a handle on all the different economic factors.

    #17704

    Jesse

    As long as we are listening to TSPaul we will be fine. It is 85 S and 15 I right now. December update will come soon.

    #17705

    Anne
    Participant

    Jesse, I’m curious, when did you start following TS Paul’s advise? How long have you been investing in the TSP?
    Anne

    #17706

    Jesse

    I am a TSP Veteran. I been contributing towards my TSP since early 2013 and it definitely has paid off. My life could not be any better. I am 85 S and 15 I right now.

    #17707

    Anne
    Participant

    Friday would have been a good buying opportunity:
    G +0.01%, F +0.39%, C -1.93%, S -1.98%, I -1.87%
    For the last 2 weeks, TSP results:
    G +0.05%, F +0.48%, C -3.74%, S -4.46%, I -4.01%
    G +0.05%, F -0.11%, C +0.12%, S -1.31%, I -0.13%

    Not sure if this is in anticipation of FED’s rate increase or indication of economic slowdown.

    Based on the Paul’s original premise that there is one single best TSP fund to be in based on the economic cycle, in the past 12 months C would have been best. See both YTD and Last 12 month results at
    https://www.tsp.gov/InvestmentFunds/FundPerformance/returnSummary.html Does this mean that the economic cycle has changed?

    Given his explanation why he was putting a portion into S, this allocation is not set in stone and he has other assets outside the TSP that he is basing his decision on; therefore, I don’t agree that everyone should blindly follow his allocation without question. I believe TS Paul’s intent is to conduct a discussion to make better allocation decisions based on changes in the economic cycle.

    #17708

    Anne
    Participant

    Is there a way to edit posts? There was edit button but could not change anything.

    Meant to say Given his explanation why he was putting a portion into I (not S) in last paragraph.

    #17711

    Jesse

    Anne, while I respect your opinion, I believe S and I fund are perfect right now and will get all the gains back and even more.

    #17764

    Anne
    Participant

    Jesse…I’m sure the market will come back, it is a matter of when and how long that will take. I’m more concerned with optimizing total return while minimizing impact of any significant downturn associated with another recession.

    Interesting article: http://seekingalpha.com/article/3755436-deteriorating-u-s-stock-market-condition-and-2016-s-and-p-500-target-price-from-15-institutions

    “In a strong Bull, the smaller-caps outperform the larger-caps. In an aging and tired Bull market, the largest-cap stocks lead. This data suggests the Bull market is aging and deteriorating.”

    “The small-caps need to improve before the large-caps are likely to have a sustained rally.”

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