TSP Market Watch – Week of August 8th thru August 14th

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SgtWs

TSP Market Watch – Week of August 8th thru August 14th

Post by SgtWs »

Now, I’m not here because I was that good. I’m here because of the people around me made me that good. – Lynn Swann, football player

Monday is going to be a lot of specualtion about what the Fed will do or say on Tuesday. Let's see what happes.

The jobs report that came out on Friday was disappointing to the street, and although they voted with their feet at first and started selling, by the time of the close most of the losses had been minimized and the damage was not as severe. The long and short of it is that we only added 71,000 private sector jobs. Although the unemployment rate stayed the same versus the estimated rise to 9.6%, that was not enough. The market was bothered by the lack of hiring in the private sector, which needs to be creating 2 or 3 times the 71K created each month for a long time to start indicating that things are getting better. That caused the initial ruckus. The recovery towards the end was from cooler heads prevailing and investors thinking that going forward things will be getting better.

This chart here was developed by Calculated Risk several weeks ago, but appeared in this weekend’s edition of Investors Business Daily. I think it is a great illustration of what we are facing.

Image

Looking at the leader board on TSP Center I observed that about 75% of the top 20 have now gone back into the market, a majority of them made this move on Friday. I’m not sure if the top 20 are piling in because many are following a few, or if they really see something positive here that made them want to jump back in? Hopefully they will read this and chime in? I am going to have to venture to say that they saw the initial drop after the employment report and were hoping to make a few gains on the basis of the indices being oversold, but with the strong finish towards the close that may complicate some of those efforts – if that was the mind set. In any case I am merely speculating because I cannot read their minds.

For the week the indices did pretty well. The NASDAQ gained 1.5%, the NYSE gained 2.2% and the S&P 500 gained 1.8%. But man, where do I begin? I just heard that Goldman Sachs has cut its growth forecast for 20011 GDP. The market does not seem to be selling off right here, but I don’t see why we are holding on. Are things getting better? Yea, marginally. But are we improving enough for the stock market to move ahead in anticipation of future economic growth? I’m not sure. I just submitted a change to 50% S and 50% I that will go into effect at COB on Monday. Although I am hopeful because of the markets resilience to the bad economic news coming out, I am concerned because we are progressing so slowly on the economic front. Could it be that we trade sideways until the elections in November? Either way, I don’t think anyone has a clue as to what is going to happen from here. Which brings me to my next point……….

Economically we are in a real pickle here. I’m not going to get political here, but I think if you remove politics from the situation I think you will find that the piper is here to collect for about 25-30 years of policies and decisions that caused this mess and it does little good to point fingers. We shifted to a consumer based economy that was growing from the spread of easy credit, and in 2008 that all disappeared in a matter of days. So we are trying to grow that same consumer based economy and I am not sure you can anymore? Let’s face it, we were growing off of credit, easy credit, and that is gone. We need our leaders to work together on this and come to a real consensus on what it will take to get us growing again. I think it is a shame that America is not leading the innovation of alternative energies, because that is clearly going to be the next big thing. We can’t even come to a consensus on a viable energy policy when the facts are all pretty clear. In other words, I’m not sure the elections are going to make a whole lot of difference in our situation, at least not to the point people think it will. The people involved in politics are either extreme right or left, and we need people in the middle. But what do I know?

July Jobs Data Turns Up Heat on Democrats – Hey! Maybe they will turn this into a competitive competition to see which party can get more people hired?

The charts have changed very little from last week, so I won’t go over them here again. But for the C Fund this is the second article I have seen about stocks in the S&P 500 being too expensive………..S&P 500 at a cyclically adjusted price-to-earnings multipleof almost 21 — 26% above its long-term average — being overweight the broad U.S. market doesn’t look like a sound allocation for nonprofessional investors.

And as a follow up for the GDP articles I posted last week, here is another that is worth reading…….When Rhetoric Doesn’t Match Reality: A Closer Look at the GDP Number…….the long and short of it is that consumers are not spending, many have no jobs, so they have no money to spend, and this is really starting to become a huge concern because until they do there will be no new jobs as this article here clearly points out…………The Buzz: Jobs must lead, not lag, the recoveryIt’s time to put to bed this silly notion that the still weak labor market is nothing to worry about because jobs are a lagging economic indicator.

The economy will not and cannot recover until a lot more people go back to work. It’s tempting to write off the worse-than-expected loss in jobs in July because it was primarily a result of temporary Census jobs coming to an end.

I think it is important we keep tracking consumer spending and employment so we can get some insight to when things are getting better in real time. As far as employment and consumer spending goes, it remains the chicken or the egg scenario - which comes first?

And what exactly is holding this market up? I saw this thought provoking article and wanted to share……….
…………Do Capital Markets Create Their Own Fuel?….Economic forecasters sometimes describe capital markets as a leading economic indicator, which assumes that share prices of equity securities anticipate good or bad economic conditions: Share prices rise when investors expect economic growth, and fall when economic recession is expected; or so the conventional wisdom says.

But can capital markets actually create or destroy the very economic conditions that their participants are anticipating? Isn’t this the purpose of a “capital market,” to facilitate the buying and selling of securities (equity or debt), in the interest of raising capital for corporate and government objectives, which is usually to finance growth of the respective enterprises?

Are the participants in capital markets (investors) buying or selling in anticipation of future economic conditions AND thus contributing to the anticipated economic condition? Do capital markets have an inherent self-fulfilling prophecy effect? Do capital markets create their own fuel? These are not rhetorical questions. I would like some education. I’m a CFP with an MBA but certifications and degrees don’t help me (or anyone) as much as the study of philosophy, which makes me fully aware of my own ignorance.

So please read a bit more and share your wisdom with me and others in the comments…
The idea for this post, and thus the inspiration for the questions I’d like for you to answer, came from a statement made by Alan Greenspan this past Sunday on Meet the Press (full transcript here [1]):

“…as I’ve always believed, we underestimate the impact of stock prices on economic activity. Asset prices are having a profoundly important effect. What created the extent of the contraction globally was the loss of $37 trillion in market value. It collapsed the value of collateral in the system and it disabled finance. We’ve come all the way back–maybe a little more than halfway, and it’s had a very positive effect. I don’t know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we’ve been talking about today or anything anybody else was talking about.”

Do we really “underestimate the impact of stock prices on economic activity?” Greenspan’s statement, at first, seems to make sense; but aren’t stock prices a leading economic indicator, a discounting mechanism, reflecting an anticipation of future economic conditions? Or are capital markets a creator and destroyer of economic conditions? If so, what makes stock prices rise or fall?

Consider the logic of this statement: Stock prices rise when investors anticipate a growing economy; and the economy grows as a result of rising stock prices. In philosophy, this statement might be considered fallacious logic, or what is called a circular argument; where one assumes in the premises the same that is to be proved in the conclusion. I thought of this circularity when I heard Alan Greenspan speak.

But is this circularity, or might it be something akin to the idea of momentum investing? Furthermore, what was the first mover starting the rise in stock prices in 2009? Was it just hope or was it anticipation of a growing economy? Are there times when stock prices are not actually forecasting economic conditions in the near future; but they are actually creating the capital that stimulates the economy; and hence creating a kind of self-fulfilling prophecy?

So which is it: Are capital markets leading economic indicators or are they leading economic funding for growth? Is it both? Is it sometimes one or the other?

“Nobody goes there anymore; it’s too crowded.” ~ Yogi Berra

This brings to my curious mind another question, which may bring up other questions: If you think the economy is headed for a double-dip recession, and therefore investors are “wrong” for buying into long positions of stock, might this seemingly poor judgment end up fulfilling its own prophecy by enabling economic growth, making these supposed foolish optimists “right” for buying now?

As Barry has said here at TBP before, the crowd is “right” most of the time.

Also, perhaps part of a greater-known investing mantra, “Don’t fight the Fed,” may help answer some of my questions here today: With Greenspan’s statement that stock prices “will do more to stimute the economy,” he implicates the Fed’s wink-wink relationship with Wall Street; to provide fuel for capital markets, which indirectly fuels the growth of the US Economy.

Or perhaps Ben Graham answers some of my questions in his famous assertion: “In the short run, the market is a voting machine but in the long run it is a weighing machine.”

“True wisdom comes to each of us when we realize how little we understand about life, ourselves, and the world around us.” ~ Socrates

Please share your wisdom. I reserved this post idea specifically for you, Barry’s readers, because I knew you would provide a diverse array of wise, educational and/or colorful comments…

Posted By Kent Thune On August 5, 2010

Cumberland Investment Advisors claims to be in love with this market and fully invested. I thought this was an interesting read regarding the upcoming FED meeting on August 10th………….Drama at the Fed meeting? – August 6, 2010
The forthcoming Fed meeting (August 10) is likely to feature an internal debate. We MAY see some evidence of it in the statement released after the meeting’s conclusion. We will not know the intricate details for years.
The debate is on four levels.

The first is, do we do something because deflation risk is rising and the economy is weakening, or do we wait for more “incoming data” before taking any action?

The second issue is, if we do something what should we do? Buy replacement mortgages for those maturing? This could be over $300 billion between now and the end of 2011. Buy more short-term treasury bills? Buy more long-term treasury bonds? Use some other type of special easing program? How large can our balance sheet be?

The third issue is, what do we say to the world about our policy and how do we say it? This language issue has become critical. Financial agents now dissect every word of the Fed’s statements. The term “extended period” seems to mean a length of time of at least four FOMC meetings, or about a half year or longer.

The fourth issue is somewhat technical, but very important. The classic structure for the Fed’s monetary policy construction is to have a corridor of interest rates. The policy rate is in the middle, the penalty rate is the highest, and the interbank trading rate is the lowest. That is the structure applied in most places in the world, as well. In the US, the policy rate is currently defined as zero to 0.25%. The interbank rate is trading below the 0.25%. The penalty rate is well above 0.25% and is little used by the banking system today. One of the reasons that the Fed Funds (interbank) rate is so low is that the GSEs are sellers of Fed Funds and that selling drives the Fed Funds rate lower than it otherwise might be. Banks elect to deposit their excess reserves with the Fed for a 0.25% return rather than sell their excess reserves to each other at a lower rate. This construction influences other market pricing like the swap rates, and that is distorting behavior by financial market agents. The Fed could alter this by lowering the rate they will pay banks for excess reserves, raising the Fed Funds rate to a level above the excess reserve rate, altering the term of the reserve deposit rate, or some combination of actions.

The Fed has not made its policy direction completely clear. Chairman Bernanke has testified about the unusually large “uncertainty” surrounding policy making today. Some FOMC members (Jim Bullard, St. Louis Fed) have enlivened the public debate about Fed policy options. This is a good thing, since it adds to the transparency that market agents see. A secretive Fed is the worst-case scenario, since it heightens risk premia and makes the Fed’s
job more difficult.

The coming meeting statement MAY add some clarity. Every word will be scrutinized, as will statements of FOMC members once the blackout period expires. As NY Fed President Bill Dudley noted in a speech at the Philly Fed not that long ago, we are certainly in “interesting times.” Stay tuned
. David R. Kotok, Chairman and Chief Investment Officer

Since I mentioned that they are fully invested and in love with the market, here is the video clip of their claim……..Bold call made by Cumberland Investment Advisors…….. Expect S&P to Hit 1250-1300 by Year-End…… We love the markets—we’re fully invested, Kotok told CNBC. We like the fundamental picture very much.

Other articles and stuff that I found interesting:

And Now A Few Words On The Coming Pension Crisis That Will Screw Us All

Continued Stock Gains Won’t Boost Consumer Confidence

I posted this last week in my daily commentary, but wanted to share with the readers that only read the weekly e-mails. It is a lovely report here from the Congressional Budget Office: Federal Debt and the Risk of a Fiscal Crisis

This one made me laugh. I actually went to Google and tried it……….Consumer Sentiment: No Longer Selling Kidneys By: John Melloy | Executive Producer, Fast Money, 05 Aug 2010 In January, typing in the phrase “I want to sell my…” was completed by the Google algorithm with the following words based on popularity: car, kidney, house, hair.

Running that same search today still yields “car” and “house,” but a slight improvement is seen as “kidney” has slipped down the rankings. Unfortunately, “dog” has replaced it. So the consumer is not so desperate as to want to sell their organs for cash, but they are considering ditching the dog. Colas also ran searches starting with “I want to buy,” “Stocks,” and “food stamps.”

“Overall, we can’t say that much has changed in search engine land to indicate better economic times,” said Colas, whose research notes are always unconventional and intriguing. “The only lasting spark that can change the cautious and thrifty sentiment is a better labor market. Thursday’s data puts a bit of a pin in that hope.”

Later on in this story it goes………..There’s a silver lining to this story, however. When Colas searched for the phrase, “I want to buy…” not only did “boats” and “iPads” show up, but also “dogs.” “Hopefully, they can hook up with the people trying to sell them from the prior search,” said the strategist.

Art Cashin: Markets Are ‘Forming a Top’

Four Things That Could Help Companies Start Hiring Again

Looking Forward to Next Year……..To the extent any of us are thinking about national politics these days, most are focusing on the midterm elections that are scheduled for this coming November. But the stock market, which typically discounts events further into the future than those just a couple of months away, is already beginning to anticipate what will happen during President Obama’s third year in office. And, because third years are, on average, the most bullish of the four years of a president’s term, this might help to explain why the stock market has had a positive bias in recent weeks.

Social Security Still in Good Shape

Social Security: More going out than coming in

I thought S Fund investors might want to read this one……..The case for buying small-cap stocks

Exposing Top Secret America – INFOGRAPHIC By Damien Hoffman

The Washington Post recently did some excellent journalism about the expanding new industry Top Secret America. This new industry is unprecedented in American history and raises some critical questions about who reigns over our nation’s security and deepest secrets.

Which services are too important to outsource? Which services are “inherently government functions“?

At the moment, there’s a bull market in the private contracting of national intelligence. Here are some of the basic stats:


Image

Top Ten Country & Western Songs
10. I Hate Every Bone In Her Body But Mine
9. I Ain’t Never Gone To Bed With an Ugly Woman But I Woke Up With A Few
8. If The Phone Don’t Ring, You’ll Know It’s Me
7. I’ve Missed You, But My Aim’s Improvin’
6. Wouldn’t Take Her To A Dogfight ‘Cause I’m Scared She’d Win
5. I’m So Miserable Without You It’s Like You’re Still Here
4. My Wife Ran Off With My Best Friend And I Miss Him
3. She Took My Ring and Gave Me the Finger
2. She’s Lookin’ Better with Every Beer

And the Number One Country & Western song is…

1. It’s Hard To Kiss The Lips At Night That Chewed My Ass All Day

Thanks for reading! – Rodney

User avatar
flight23
Posts: 1342
Joined: Mon Jul 26, 2010 10:47 am

Post by flight23 »

Im liking today's early price action, looks like we're in for a solid 50-100 point day.
@GlobalCollapse on Twitter
http://twitter.com/#!/GlobalCollapse

SgtWs

I can't comment.....

Post by SgtWs »

If I say something I jinx the markets......It is a conspiracy........

User avatar
UwshUwerME
Posts: 85
Joined: Fri Jul 09, 2010 2:55 pm

Post by UwshUwerME »

S-Fund was up 1% today. So what's the next bad news that will take down the market?

SgtWs

Well........

Post by SgtWs »

I hold tremendous power and sway over the markets. I can send the market crashing down by simply saying and believing that it is going up. And, I can send the market higher simply by getting out of it and believing it will go lower. In fact, if I could just do the opposite of what I do, I would make a heck of alot more money...... :)

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Fund Prices2024-03-28

FundPriceDayYTD
G $18.15 0.05% 1.05%
F $19.08 -0.06% -0.74%
C $82.21 0.11% 10.55%
S $82.43 0.30% 6.92%
I $42.57 -0.24% 5.95%
L2065 $16.38 0.02% 8.37%
L2060 $16.39 0.02% 8.38%
L2055 $16.39 0.02% 8.38%
L2050 $32.73 0.01% 6.95%
L2045 $14.91 0.02% 6.58%
L2040 $54.38 0.02% 6.22%
L2035 $14.34 0.02% 5.79%
L2030 $47.67 0.02% 5.38%
L2025 $13.15 0.03% 3.43%
Linc $25.61 0.03% 2.82%

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