TSP Charts: Rant Time

I continue to see others peddle the same academic-marketing nonsense “advice” saying things like “see Tom who is about to retire moved to the L fund in 2015 and well maybe just should have let it all ride 100% in stock market because it always goes up, up, up”. Okay I’m paraphrasing a bit here.

Here is the direct quote:

Invest for lower volatility and a lower chance of losing principal (safety) but with a higher chance of a decline in purchasing power. Or, the higher potential growth historically offered by stocks, accepting greater risk for the opportunity to increase purchasing power.

           – L funds or C funds? One fed’s choices Federal News Network  12 February 2019

It’s Total Bull$#*!

Only people who don’t need their nest egg should even consider letting it ride in the stock market as they approach retirement. Then it is still a bad idea especially today and I don’t care if the stock market surges another 30% this year.  It’s like just letting it ride at a real casino – sooner or later the casino wins.

The only “risk” he mentions is “risk for the opportunity to increase purchasing power”.


He mentions the safety of the Lifecycle funds but goes on to imply you are giving up future purchasing power by not being in the equity funds.

He asks “Which is the better strategy?” You know… buy and hold the TSP C fund or buy and hold the Lifecycle fund?  Limited to exactly four years of data. 

Folks, the strategy was buy and hold.  Which is great for the fee-seeking financial community. But not for you in the long run evidenced by anyone looking a chart further back than 8 years.

And the choice was to either diversify for less volatility or just let it all ride in the casino.  Letting it ride in the casino worked for those four years only because of a late save by Treasury Secretary convening the plunge protection team in a public tweet.

The author doesn’t mention anything about this important event that panicked the short-sellers into buying furiously to cover their shorts and causing a market rally.

Anyone can post charts of past returns. But he does not appear to have a clue what the risks are to your retirement accounts in today’s financial ecosystem. If he does, he is doing a good job not telling you about them.

BTW, I define investing risk as the risk of sustaining significant losses.

And contrary to his and most other views marketed to retail investors, I believe the best way to increase your future purchasing power is to AVOID this risk even if it means giving up some gains along the way.  And especially if you are about to retire or already retired. But also for younger investors.

Now let’s discuss current factors these guys never seem to mention when we consider risk today. You know, market plunging risk.

Note: Risk levels change over time. The buy and hold strategy pays no attention to real risk and usually becomes a buy and panic-sell strategy. I also call it the la-la-la strategy.

Risk Factors

The SP500 has turned to junk: The corporations you are investing in have never held such a high debt ratio prior to a recession. 

A Morgan Stanley study tells us if corporate bond ratings were determined by debt ratios alone then 45% of all investment grade debt would be downgraded to junk. But the credit agencies are giving corporations a pass – you know like they did for AAA rated subprime debt before it became worthless.

The economy is floating on a sea of debt: If you subtract the 6% growth in debt-to-GDP from last years 5.3% nominal GDP growth, you get a first order effect of -0.7% GDP growth in 2018.  Inflation-adjusted that is -3.0%. The second order effect is… well let’s not go there.

In recessions, the budget deficit grows by about 4% so a recession would take us to an unprecedented 10% budget deficits. And with such high demand for financing the federal budget, long-term interest rates would be forced higher… which is not usually good for coming out of a recession.

Speaking of recessions, prior to the last financial crisis the US debt-to-GDP was much lower, corporate debt was much lower, and stock market valuations were lower. The only thing not lower was real wages – they’ve been flat.

SP500 forward earnings expectations are crashing

S&P 500 estimated earnings growth rate for q1 2019

So why does the market not care about crashing profits? Because profits and the economy have not driven this bull market.  Just the opposite.  Bad news often sends the markets surging.  Why?

And why did the SP500 rally back in January when investors were still pulling money out of stocks as seen in the next chart produced by Deutsche Bank? Same reason.

And I’m hearing a lot of commentary about not worrying about the rest of the world’s tanking economy, because the US leading indicators are not signaling a recession yet.

You know, the leading indicators that are dominated by distorted financial indicators that include the stock market’s investor-less rally and junk bond speculators unpanicking back into the markets. It’s only the economic indicators that are falling. So no worries.

relates to U.S. Recession Increasingly Credible to Top-Ranked Strategy Team

I’ll let you in on a little secret. The rally was not driven by happy thoughts about the US economy. The speculators do not care about the economy. They care about liquidity. And the promise of more liquidity. Infinite liquidity.

Give me liquidity or give me death!
                                    -- US stock market December 2018

But there may not be enough liquidity in the future. So much debt already.

Hint: Panic, PPT, Shorts, Buybacks

Do you fell lucky?

Is this the start of another central bank driven rally or is this a bear market trap? That is the risk today.

If it is a bear market trap, you might lose a lot of “purchasing power” in short order. If the central banks decide to liquefy the markets once again you might do okay, but watch out for the bigger problems later on.

All debt, no growth
The Trump administration’s $1.5 trillion cut tax package appeared to have no major impact on businesses’ capital investment or hiring plans, according to a survey released a year after the biggest overhaul of the U.S. tax code in more than 30 years.


My long view based on valuations and many more risk factors is the SP500 will be lucky to be as high as it is now in 10-12 years after a lot of pain in between. The question is when will that pain be allowed to occur or just happen anyway.

We’re not just watching the risk indicators, we are watching those monkeying with the risk indicators and markets. They don’t seem to know what they are doing. And they only have two emergency tools, more debt or monetize debt.

These are the risks.

Rant complete… for now.

Invest safe, invest smart, but please don’t let it all ride until the casino wins.

TSP & Vanguard Smart Investor

Trying to wake up as many investors while there is still time. Join us, please.

Categories: Allocation Strategy, Perspectives, The Smart Bird, TSP Charts

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