Discussion of our current recommendations (originally issued December 6, 2008):

• We believe the stock market downturn that began in October 2007 (see 2-year graph, below ) has created an attractive buying opportunity for TSP Fund investors.  We believe the stock market will abruptly rise a few months before the current recession ends, some time between early 2009 and the end of 2010.  The recession will end when banks resume normal lending activities, home prices stop falling, the unemployment rate tops out, and consumers begin spending.
  
  

• As the end of the recession approaches between early 2009 and the end of 2010, the S&P 500 Index will rise from the early December 2008 level of around 900 to a level between 1100 and 1400, a gain of 25% to 50%.  The TSP stock funds (C, S, and I) will rise a similar amount.   Much of this rise will be abrupt, making an entry into the market in late 2008 or early 2009 a wise decision.

• Before the bulk of the predicted rise occurs, there may be large but temporary downturns, with the S&P 500 Index sinking as low as 600. 

• Any downturns that occur before the end of the recession will not be sustained and do not justify staying in or transferring into the fixed rate funds (F and G).

• We currently recommend interfund transfers from the fixed return funds (F and G) to the high growth funds (C or S), although these transfers could be timed to take advantage of short-term market downturns.

• We currently recommend that new contributions to TSP Funds go into the high growth funds (C or S).

• We currently do not recommend holding or contributing to the "I" Fund (international stocks) because we believe the U.S. stock market will outperform European and Asian stock markets during coming months.

Basis for our current recommendations:

• Fundamental/valuation basis - Stocks were priced in early December 2008 for a significant recession as indicated by the S&P 500 Index of around 900, which is about 12 times predicted 2009 earnings of $75 (the predicted total operating earnings for 2009 for all companies in the Index).  During non-recessionary times the S&P 500 Index typically rises to 15 to 25 times its earnings.  Any downward moves in the stock market that occur before the current recession ends will be limited to approximately 600 on the S&P 500 Index, which is approximately 8 times predicted 2009 earnings for the companies in the S&P 500 Index (about 8 times earnings has historically acted as a floor in the worst economic recessions). 
  
  

•  Technical/business cycle basis - As shown in the long-term business cycle (5-year) graph, the high growth C Fund (which tracks the S&P 500 Index, a broad market measure) recently re-traced below the level of fixed return securities (F and G Funds).  This re-tracement has created a base for a broad market move upward.  Significant upward price pressure will be provided to stocks by year-end 2008 tax-loss selling that will give way to buying new, more promising stocks in 2009.

Market timing strategy of TSPFundTracker.com - We advocate cautious and infrequent market timing, exchanging between high growth funds (C, S, I) and fixed return funds (F, G), typically 1 to 3 times each year.  The aim of this timing strategy is to wait out market downturns in the fixed return funds and reap the profits of upturns in the high growth funds.

Methodology - Our buy/sell (exchange) market timing calls are based on analysis of  fundamental (corporate earnings) data and technical (cyclical trend) data.

Timing Success - We do not claim to be able to predict stock market performance, although we have had considerable success timing the market in our own TSP Funds over the last 15 years.

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