Wow… what a day… Feds revised down GDP for the last quarter, Taliban terrorist attempted to carry out suicide bombing attack against Dick Cheney, Greenspan shared his pessimistic insights about future of US economy (he thinks that US will fall into recession in the second half of the year), China showed first signs of its economic slow down. If you’ll add the mix computer glitch that overestimated sell-off speed and stop loss sales that were triggered by initial decline in indexes you have a perfect formula for troubles that resulted in the biggest sell-off since September-12^th, 2001.

Feds rethought significance of correlation between low unemployment and inflation and we tend to agree with their conclusion. These days changes in rates of currencies, central bank policies and oil prices affect investors’ perception and as a result stock prices far more then low unemployment.

On a separate note according to WSJ analysts the estimate of fourth-quarter GDP is expected to be revised down to around 2.2%, from the advance reading of 3.5%, mainly because of December trade gap was larger then expected. January durable-good orders, a measure of capital spending, are forecasted to declin ...

In the beginning of the next month European interest rates are expected to rise however investors are not seemed to be scared of that at all. High probability of that rate increase was already very well communicated by European central banks and therefore majority of investors already took it in consideration (i.e. updated their valuation models).

On another note Japan’s come back and Nikkei’s seven-years high give us very positive signals about the state of global economy. According to the data from Treasury department in December US-based investors bought $4.6 billion more of Japanese stocks than Japanese investors put into

Today we've conducted 15 different analyses (both – technical and fundamental) and plugged results into TSP Funds score cards. Based on results we came up with a new allocation:  I Fund - 50%, S Fund - 35% and F Fund – 15%.

First of all that’s a very bullish signal that global economy is in a very good shape. On a second note rate increase should also reduce money supply in Japan, decrease inflation and as a result increase value of Japan’s Yen. Seems like a win-win situation for I Fund in short and long term. We are changing our allocation to: C Fund 20%, S Fund 20% and I Fund 60%.

Target: I Fund / Short-term: Positive / Long-term: Positive

Dow hits another record, European and Japanese (Nikkei at 7-year high) markets advance on company deals and speculations, dollar surges versus yen and euro, oil closed above $59, bonds climb on Bernanke’s notes on inflation… What can we tell…? If in this market you didn’t listen to us and parked your cash in G Fund – there is something wrong with you.

At this point we only can recommend to re-balance your portfolio by using TSP Interfund Transfer. That way you will sell your short-term “winners” and buy underperformed funds at lower prices.

Saudi Arabia is planning to enforce $50 oil price floor. What that could mean for us?

Generally drop in oil prices results in growth chemical, retail and of course energy sectors (petroleum companies generally increase profits by lagging behind with actual gasoline price reduction). If we would assume that oil prices will not go any lower it’s only can mean that price will either stabilize or would go higher which would negative pressure on corporate profits in US and Europe. Alternative energy sources may eventually reduce oil dependency but it will take years before that will happen.

Yesterday European Commission stated that they expect $14.3 trillion economy of the 27-nation European Union which raises growth estimation up to 2.7 percent this year (previous forecast stated 2.4 percent growth). The Commission also mentioned that EU economy growth may outpace growth in United States.

Our take: since more then 60 percent of I Fund invested in European market those are great news for us.

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US Manufacturing output sinked 0.5% which is the biggest drop in last 16 months. According to the Feds report this reduction was primarily caused by 6% drop in motor vehicles and parts.

Our take: drop in US automotive industry could mean that consumers turn more and more toward foreign (especially Japan's) cars. At the same time since G7 failed to force Japan to change their monetary policies Japan's carmakers can continue getting bigger market share in Europe and US by offering "cheap" Hondas and Toyotas.

Target: S & C Funds / Short-term: Negative / Long-term: Neutral
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WSJ: US Trade gap widens and China might decide to reduce investments in US Securities.

Our take: both news may cause problems for US economy:

 1. Large trade gap means that we buy more from other countries then we sell to them.
2. China was one of the biggest investors into US Goverment Securities and by doing that to finance US budget deficit. In case if China would decide to restructure their $1.07 trillion investments and move some portion of those assets from US Goverment securities to another investment vehicle US would have to come up with cash.

Both events may result in large outflow of US dollars from US to other countries which can potentially cause economical unstability and new wave of inflation.

Target: