Good Morning, We got a great PCE report on Friday showing relatively tame inflation.  The Commerce Department said that the core personal consumption expenditures price index for September – which was delayed due to the record-setting U.S. government shutdown – showed an annual rate of 2.8%, lower than the 2.9% Dow Jones estimate. Core PCE’s 0.2% rise on the month was in line with expectations, as were the monthly and annual inflation readings for headline PCE. As a result investors are now speculating that the Fed will reduce rates this Wednesday. Traders are pricing in an 87% chance of a cut on Wednesday, far higher than just a couple weeks ago, according to the CME FedWatch tool. The key fed funds futures rate is currently targeted between 3.75%-4%, trading near the high end of that range amid ongoing pressures in short-term funding markets. I’m receiving numerous messages about moving to the S Fund. That seems funny given the fact that I was receiving even more messages to get out of the S a few weeks back. So I replied to a half dozen or so of the messages and then decided to post my reply here as my time is much better spent watching the charts than it is typing. The charts for the C and S funds are neck and neck right now. The I fund is a distant third. You must understand that the charts are looking at the intermediate to long time frame not the day. Obviously the market is moving under the surface right now. Should interest rates relax then small and midcaps will outperform. If not you will want to stay in the C fund. As far as the I  fund goes you have to answer the currency question and that too is tied to the interest rate decision.  I have much more research to do before I would be willing to move. Yes a move may be favorable at this time. Just know that if the Fed does not reduce rates you will be caught holding the bag in the S or I fund. Okay, So what’s the worse thing that happens if we simply stay in the C Fund? We make a little money and add to a respectable return. And what’s the worse thing that happens if we move to the S Fund? If the Fed for some odd reason decides not to reduce rates we will lose a bunch of money quickly. That ladies and gentlemen is what we call risk. Now lets talk about the reward. If we move to the S Fund and the Fed does reduce rates we will outperform the C Fund by a pretty good margin. While I think that’s going to happen, I don’t know that it’s going to happen. It is beyond my control. I prefer to focus on what is within my control and manage the risk. That is much better than entering into a transaction that will place my portfolio in a place that I can’t control. That is called speculation or gambling. Neither of those are things that I prefer to do. Sometimes we need to remind ourselves that this is in fact retirement money and we don’t ever want to lose it or run out of it. There are times when we just need to take the safe money and forgo greater returns. This is one of them. Folks, I 100% believe that the Fed will reduce rates on Wednesday, but even at that I’m not willing to take on the increased risk that is presented with this choice. No, I will wait until the rate decision is announced on Wednesday and then look at my charts. Understand this one thing. No matter how fast the charts are set up to be, they must still react to the action that’s occurring here and now. So there will always be a little lag time. We have talked about this often in that in our system when the market turns either higher or lower we will not get the immediate benefit of being in the right position, if indeed the market goes where we think it’s going to go. We view that the same as we would view the purchase of an insurance policy on the street. We give up money to purchase the insurance policy and pay that we don’t need it, but in the event that we do it protects us against catastrophic loss. Now while all the risks that we face in the market are not catastrophic, they do present scenarios that can greatly affect our performance. So the concept is the same. We give up a little money to save ourselves from a possibly bigger loss.  I said all of the above to explain this. I will stay put in the C fund and be happy with what I get and look at my charts after the Fed rate decision of Wednesday. Then if the day goes against us I will be positioned in a better place. I think the old adage better safe than sorry applies here. Now those of you who want to gamble will most probably be fine if you go ahead and move to the S Fund. I just can’t guarantee that at this time. Maybe after Wednesday. We will see.

The days so far has left us with the following results: Our TSP allotment is trading slightly in the red at -0.16%. For comparison, the Dow is off -0.19%, the Nasdaq is higher at +0.08%, and the S&P 500 is lower at -0.16%. Not a terrible day, just a little flat ahead of the Fed meeting which is to be expected.

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Last weeks action left us with the following signals: C-Buy, S-Buy, I-Buy, F-Sell. We are currently invested at 100/C. Our allocation is now +18.88% for the year not including the days results. Here are the latest posted results:

More Prices & Returns

God bless, Scott 

***Just a reminder that you can review the performance of our allocation at the Web Site TSPTALK.com in the autotracker section under the screen name KyFan1.

I produce and publish this blog as both a ministry and for the benefit of any Federal Government Employee. This is done to offer you some guidance as to how to approach your retirement more financially successful. When it is time for you to retire, I recommend you utilize the services of a Professional Money Manager, who works with a reputable investment firm. He understands the guidance you have already received and he can manage your savings assets utilizing a more advanced investment program into the future.

If you would like to receive more information about this introduction, please feel free to contact me at  KyFan1@aol.com.