Safe Harbor Surprise
Welcome to October! Well, it's election year and October is always full of surprises! We have seen our fair share of them, and I expect to see more over the next 36 days. As you all know, Mr. Market hates surprises. The 50bps Federal Reserve rate cut was a surprise and any election surprises will also have a tendency to affect the market.
We saw fairly flat returns by the end of the month, but we saw wild swings in the beginning and the middle. The F Fund saw a low but positive return, which is what I expected to see and earn.
Unfortunately, we also saw a bit of a sell off in the C Fund the first day of the month, so when my trades activated, they experienced a loss. This is an evil we cannot control in the TSP or mutual funds.
Several factors are continuing to drive my decision to remain in the F Fund this month. As mentioned above, this election year, like most in the last 30 years, will probably have an October surprise of some sort. It may be nothing, or it could be significant. The way the last 4 years have gone, and especially this year, I would not be surprised to see an event of some magnitude. If I'm wrong, I might be leaving some money on the table, but the risk, which is entirely impossible to quantify based on technical factors / analysis, is too great for me to do anything else.
Second, and the more logical of the factors influencing my decision is the state, or rather the perceived state, of the economy. We have had a couple of surprises in the last few months regarding the health of our economy and the world economy. First, it was the surprise revision of jobs, second, the U.S. Manufacturing PMI fell more than expected, and third, China's massive economic stimulus to revitalize their crumbling economy. Of course, the biggest surprise came from the 50bps rate cut. I think everyone was expecting a tame 25bps rate cut, which would signal, inflation is under control, the economy is in a good spot, and “we're just trying to get back to normal.” Instead the 50bps cut signaled, “we see something on the horizon you don't see, and we need to take more dramatic action now before it's too late.” This was a surprise, and the markets reacted accordingly.
As mentioned in last month you buy on rumor and sell on news. Well the sell on news part was overly dramatic based on the results mid-month. I think a lot of money is on the sidelines right now and waiting to see which way the economy tips. Perspective to me is very important and with a fairly locked in 18% return, I'm comfortable sitting out one more month to avoid a major downside. The C Fund is up 22%, but I see this as a bubble. However, the technical efficient frontier below still shows 100% C Fund. We used to be happy with 9% returns in a year, 22% makes me pause for a bit.
For October, I'm not going to answer my door and welcome any surprises. I'm going to stay in the F Fund. Keep investing!
