TSP un-millionaires

Update 8 August 2022: It only took $6 trillion in 3 months and $16 trillion globally to save the TSP millionaires in 2020. And once again they “learned” to simply hold because the market always bounces back. Too bad, they learned the wrong lesson.

As of today, the SP500 is above the 2000 and 1929 stock bubble tops in terms of valuations based on future sales and cash flows. The bond market is still deeply negative on a real basis (inflation adjusted). Will there be many TSP millionaires in a few years? Not if they hold.

Update 14 July 2020: I still stand by my claim, but some have a chance to remain millionaires again. I’ve posted a new article linked to at the end of this one titled TSP Millionaires Strike Back. Invest safe.

Update June 2020: If you are wondering how the markets can surge with the economy crashing you can read my comments in two posts: Extraordinary Upside Global Market Dislocation and Looting on Wallstreet

Update April 2020: FedSmith reports “The number of millionaires in the TSP dropped from 49,620 in December 2019 to 27,212 as of March 31st. This is a decrease of more than 45%.”

Update October 2019: Mike Causey from the Federal News Network picked up on this article in his September 2019 article “Are TSP millionaires on the endangered species list?“. It seems I hit a chord and I am grateful for his including my opinion on his commentary. My goal is to simply get the word out that all is not well in the stock market and TSP land. As of 2020, my assessment has not changed. Here is the article…

Original Post March 2019: My guess is many TSP millionaires will continue to do what they did to become millionaires – buy & hold. And at some point, they will never be TSP millionaires again. Why do I think this? Many reasons, but let’s start with what just happened.

Mike Causey provided some stats in his recent Federal News Network article, “Confessions of an average TSP millionaire

Their high point, so far, was last September when there were 34,128 in the club. As of Dec. 31 it has dropped down to 21,432.

So that little dip un-millionaired one third of the 34,128 TSP millionaires temporarily.

Hmmm, I wonder what the next bear market will do? I don’t think it will be pretty because as Mike highlights (and I think recommends) many TSP millionaires ride them out – that is how they became millionaires. It worked so well in the past and they are dutifully trained to do so now.

It worked until now because they lived through an epic secular bull market that can not be repeated again from this price level. It is even doubtful we will see the current price levels in the next decade once the credit cycle turns.

Those who do not ride the bear market down will be in a good position at the start of the next bull market. Those who ride it down could be starting with only 40% of their current balances as determined by the better valuation models.

I’ve provided many valuation charts over the last year pointing out how this bull market exceeded the 1929 and 2000 stock market bubble valuations. The next table is a little different in that it adds the unemployment rate to picture to make a good point…

…You do not get epic bull market rallies when unemployment is already rock bottom and Price-to-Earnings (PE) are pushing the limits. Just the opposite – you get very low returns over the next seven years.

Frankly, I think 2% annualized returns over the next 7 years optimistic from these levels with what’s baked-into-the-cake.

Why would 2% in seven years be optimistic?

For one, the corporations your TSP C and S fund are invested in have never held such a high level of debt relative to GDP. Or as Dr. Hussman says, corporate CEO have “quietly placed investors on margin” – in other words investments are leveraged and investors don’t know it.

Helped of course by the Federal Reserve encouraging everyone to load up on debt once again to “get the economy growing”. It worked so well the last time. Of course, no one made corporations invest in the economy so they simply used the extra debt to buyback their company shares and boost CEO payouts.

While countries can print money to pay off debt, corporations can not. They have to pay it back (future cash flow) or roll it over at higher interest rates lowering future profits.

Of course, the bubble-blowing Federal Reserve has been closely monitoring excessive corporate debt (all the way up, up, & up) and now thinks this corporate debt bubble just can not stand higher interest rates. So they have to stop raising rates to save them. Huh!

You know, they need to just keep the transfer of wealth from savers to speculators and debtors going forever… or at least until the savers and pension funds have been completely drained.

The Fed completely abandoned all pretenses of managing the economy or watching the economy. They are bluntly telling us popping their bubbles would not be good for the economy so they must prop the financial markets up with negative interest rates if necessary and of course more money-printing for wall street (maybe corporations)… but not for main street, that would be reckless or socialism or something.

In other words, this wealth transfer has done wonders for the stock market and global debt bubble. Why stop now?

Well they tried to pull a funny one on the markets late last year. After telling everyone their balance sheet runoff would have no effects on the markets – “move along folks” – the markets did not buy it. Literally.

See, the Fed Chairman explained in 2009 that creating a wealth effect in the stock and bond markets for rich people would some how get us poor people (90%) to spend more. But somehow doing the reverse would have no effect on the markets. It of course did and they’ve quickly announced the end of the runoff.

But for some reason the economic growth part never appeared – slowest economic recovery ever. So where did the 16 trillion in global money printing go?

A gift to TSP millionaires if they take it

What is most peculiar about this latest market rally – that started after the Treasury Secretary publicly tweeted he was standing up the Plunge Protection Team – was that most investors kept selling. A buyer-less market rally – another long hmmmmmm.

My guess is short-covering buying and corporate buybacks do not show on the flow of funds data of the banks. The chart below was provided by the third bank showing the lack of investor participation. So what does that tell us the latest rally was built on?

No investors?

A useful factoid…

It is my lowly opinion that different tax laws should have ensured the $8 trillion corporation cash burned buying their own corporate stocks (timed with insider selling) should have been invested in the US economy, funding now under-funded pensions, or held to ride out the next downturn. Instead we have debt-loaded, cash-poor corporate kindling waiting for a match.

Raising interest rates above inflation appears to be a burning match.

Signals come in the funniest places. Buybacks exceeded capital investment in 2018 for the first time since the 2007 market top.

Maybe America’s CEOs are trying to tell us something… I certainly know I am trying to tell you something others don’t seem to talk about.

I would like to tell you more. There is so much to talk about and the story is getting interesting. If you are interested in following a larger discussion and getting email warnings when warranted please join soon.

Invest safe, invest smart.

Michael Bond

TSP & Vanguard Smart Investor

July 14 2020: I’ve posted my latest TSP Millionaires Strike Back

If you were a member, how much would you have saved?

Categories: Perspectives, TSP Charts

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