TSP Funds: Wrong Medicine, Wrong Patient

The five top mega-caps which I am renaming the “monopoly-caps” have accounted for 67% of the SP500’s gains so far this year while reaching a record 20% of the SP500’s market value. Five companies (1% of the SP500) accounts for 1/5 of the entire value of the SP500 index today – otherwise know at the TSP C fund.

Note: Today GE is down 76% from its financially engineered 2000 high

The top 2 today (Microsoft and Apple) account for 10% of the SP500’s value. Yes, the medicine is working. Apple’s iphone sales have been flat for 5 years and now Apple’s iphone production is shutdown in China and Apple’s stock price is surging – cocaine is flowing through the financial system thanks to the drug pushers otherwise called central banks.

…Or are these the only stocks that have any cash flow left to keep buying back their own stock on the open markets? I’m thinking Apple needs to save some cash and stop burning it on buybacks.

At least the new European Central Bank chief said their negative interest rate policies (and money printing to buy financial assets) is hitting savers and stoking financial asset prices. Our central bank just tells us they are standing by to give more financial stimulus if needed for the COVID-19 (coronavirus), global warming, or whatever excuse they can find.

Note: WHO did not go with my suggested name of FLUBAR so I will go with COVID-19 for now.

Meanwhile, the Nasdaq-100 price is more elevated above its 200-day moving average than ever before thanks to the record breaking “stimulus” already pumped into the financial system to fix the too-low inflation consumers keep complaining about.

So how is the medicine effecting the TSP C and S funds? The monopoly-caps are in the TSP C fund (SP500 index). They managed to get the fund back into its primary price channel. Which is pretty amazing since the SP500 has had negative earnings growth for four quarters. The breakout occurred when the Fed unleashed half a trillion in 3 months due to repo madness.

Typically this time of year, the small caps out-perform the large cap stocks. But today the flight-to-monopolies is pushing the TSP C fund higher than the TSP S fund.

The ratio of the S fund to the C fund has not been this low since the last bear market and just took out the 2016 low. This is not a signal, just a statement about the concentration of performance and values in our markets.

And it is not just the small caps versus large caps. The medium caps within the SP500 index are not keeping up with the mega-caps monopoly-caps in the SP500 index.

The top-5 are not all in tech. But one wonders how the tech sector with 58% of its revenue coming from overseas can continue to plow higher with the coronavirus shutdown in the short-term and the FTC looking at anti-trust actions long-term. Not to mention the EU’s digital tax aimed at them.

The central bank’s medicine is working, the side effects are dangerous but if the medicine stops flowing the patient (TSP C and S fund) will experience withdrawal symptoms like never seen before. If the buybacks stop, expect the central banks to decide that printing money to buy stocks will help consumer inflation hit their ridiculous moving target.

So to recap the Federal Reserve’s policy objectives: Higher consumer-crushing inflation and high credit card rates for the 90% and high stock prices for the 10% will obviously help the economy grow faster. Nuts.

So will they keep dispensing the wrong medicine to the wrong patient? Yes, Chairman Powell promised to keep the “expansion” going until November 2020. It’s just he can only really effect one patient – the wrong one.

Invest safe, the side effects are growing and becoming obvious to those who look.


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Categories: Perspectives