TSP Talk Blog

Stocks continued their dive on Thursday, and even another Fed intervention of a bond buy back program, couldn't stop the carnage. Maybe it slowed it down, but how much worse could it have gotten yesterday? The Dow lost 2352-points and clearly things are oversold to say the least. The problem is, even the dip buyers are afraid to stick toes in the water because of the uncertainty. Nothing was spared. Stocks, bonds, bitcoin, gold -- all down sharply yesterday. Is there any chance they will be buying on Friday the 13th?

Daily TSP Funds Return More returns

It's a reminder that, despite the fact that stocks were overbought and overdue for a correction for months, it tends to go down a lot faster than it goes up. The downside pressure is nearly unprecedented, and while this market environment could remain poor for some time, there will be spikes up, but who wants to talk about that, right?

Action like this can turn market timers into buy and holders - because of the losses they may have incurred. It can also turn buy and holders into sell and holders like it did to folks after the depression in the 1930's. I'm closer to the former (forced to buy and hold for a while) after having bought the decline way too early and getting caught in this month's selling whirlwind. I'm almost forced to wait it out and hope for the rallies, which are inevitable. The question when those rallies come will be whether to sell those rallies or continue to hold. I don't know how much more damage can be done so I don't know how much market timing can salvage some of those losses.

There will be a recovery, but unfortunately we'll likely see the rich get richer and the poor pass on stocks because of the wounds they are currently receiving - swearing off ever putting their money in stocks again. All I can say is, what a difference a few weeks can make.

There seems to be a political side to this where some are accused of downplaying the situation while others are accused of fanning the flames because of what it might do to the man in the Whitehouse. That leaves the average person confused and the expense to those with IRAs, pension funds, retirement plans and personal accounts is staggering at this point.

Because of this being what it is - a likely temporary disruption to the economy, when this does finally pass, the market could snap back very quickly because the economy is now set up for enormous growth with interest rates moving toward 0% again, and the Fed's bond buying program creating massive liquidity.

As for the virus, I'm no expert but I do see some of the Asian countries seeing improvements already. Just a few weeks ago they were where we are now. If the virus concerns pass, watch out bears. So bull or bear, the market is moving quickly and it will be tough to be comfortable with any position. I'm expecting this fear to get pushed for all it's worth, and in the short-term rallies may have to be sold, but when this is over I'd expect the economic environment will be in place for massive growth.

If any good can come of this, maybe the TSP will come around to giving us back some flexibility with our transactions. But I wouldn't count on it.

I'll make this quick today in the chart section because they all look pretty much as you might expect; beaten down, oversold, and there's blood in the streets. The only good news is that we know it won't last forever.

Two of the charts I have to show are the 2008 and 2009 returns, which is very interesting and shows some hope because 2009 was also the year of the start of the swine flu pandemic where over 3400 Americans were reported to have died from the virus (the current death count is 36). As a matter of fact the S&P 500 was up about 78% from March 2009 through the end of 2010 - the timeline of the swine flu, March Madness went on as scheduled, and the NBA and NHL played their seasons. Quite a different reaction from today, but that was coming after the devastating bear market that preceded.

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The S&P 500 (C-fund) chart looks awful, as you might expect. We got another 5 billion share trading day but unlike the one on February 28th, this one was not a reversal day. Yesterday's action had as much of a capitulation feel to it as two weeks ago, but closing at the lows yesterday probably means the bears will have at least one more push lower before a reversal is attempted.




The chart below shows the monthly breakdown of 2008, the year of the financial crisis. The recent action is reminiscent of that year, but even then the losses were a grind lower before we had that September through February drubbing. That is opposed to what we've witnessed this year where the indices went from all time highs to a bear market in less than 3 weeks.




The good news is, bear markets don't last forever and 2009 turned out pretty good, I'd say. We only got back some of those 2008 losses, but that's a pretty good gain.




The AGG (bonds / F-fund) was not spared as we saw a dramatic 4% loss in the AGG, although the F-fund was spared for some reason. Not much of a safe haven here the last few days.




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Thanks for reading. Have a great weekend!

Tom Crowley


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