Good evening, TSPwire Tactical Investor!
As you all probably remember, February’s global sell-off was ignited by a drop in Chinese markets. Since 27th February the Shanghai Composite Index rose almost 45%. That jump was primarily fueled by speculators and China’s regulators had no luck in containing them. We think that it’s only a matter of time before Shanghai’s index will blow up in speculators’ faces and send another ripple effect across world markets.
On second note, U.S. economy starts to worry us more and more. Housing market weakened, automakers sales reports came below analysts’ expectations – two major industries are going down and for some reason investors seem not to be concerned about this. Latest advances in stock market were primarily fueled by buybacks and buyouts. We afraid that buybacks and buyouts are masking the real problems in our economy.
Now last but not least – Feds. At the end of the week we’ve got some readings that indicated that inflation might be slowing down. Investors quickly jumped to assumptions that Feds may decide to cut rates. If inflation is contained then it’s great BUT: a) next Feds meeting will not happen any time soon and b) even if they will cut rates only bond funds (F Fund) will benefit from that instantly. It will take at least few months for stocks to feel positive effect of reduced rates.
Phrase “sell in May and walk away” doesn’t sound all that bad in current market conditions. We think that it’s a very good time to pull out. In a very short-term we expect markets to undergo deep correction. Results of our financial models also broadly support that decision. I, C and S Funds all were downgrade from Buy to Neutral. S Fund was the winner – it came slightly ahead of I & C Funds. F Fund triggered SELL signal all over again. We took all things into consideration and decided to preserve our recent earnings. Yes, Ladies and Gentlemen we are move out into G Fund.