Fed To End Quantitivate Easing

Probably the biggest thing the U.S. government has been doing to stimulate our economy in the wake of the 2008 financial crisis and recession has been something called "quantitative easing".  It is pretty much the practice of the Fed buying bonds from the Treasury to stimulate the economy.

Those bonds are sold to give our government more operating cash, to either pay bills coming due or spend the money on necessary services and/or projects that our leaders believe will be stimulative to the economy.  Sometimes, like I understand is the case now, the Federal Reserve actually prints new paper money with which to make the purchases.  The risk is inflation in the future, but such risk is taken with the intention that the short-term stimulus effects are worth the risk.

Now the economy is growing.  Slowly and not necessarily surely, but measurably and postively.  The Fed is thus in the middle of tapering the Quantitative Easing, creating a glidepath to ending QE (it had been buying $85 billion worth of bonds every month).

But last week one normally hawkish Fed big shot was surprisingly outspoken--and dovish.  He said the Fed would not necessarily end QE as planned, impying that the Fed would help the securities markets if need be (we were in a market decline last week, and he is thought to have been speaking to that matter with intent of reassuring investors)...  Word is, though, that most of his peers (including those with a vote on the matter, which I believe this one fellow does not have) intend to end QE for sure.

In short, the nFed is said to be on track to end QE, even if one of its members may have spoken his opion of what should be done instead of saying what the Fed will do.

Bill O'Grady (not Bill Gross--I cite each pretty often and want to be clear:  O'Grady is the global investment strategist/thinker, Gross is the manager of bond portfolios and mutual funds) writes today about this.  See the second and third paragraphs in the item linked here:  http://confluenceinvestment.com/assets/docs/2014/daily_Oct_20_2014.pdf

Okay, I wanted you to know the basics in case it is not clear.  I hope it helps.  Please contact me with any questions.  Thank you.

--Gary

Gary Partoyan

Potomac Wealth Strategies, LLC

(703) 746-8195 direct

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Strategic, Flex, and Index Portfolio Performance Through Septemeber 2014

We are having a correction in this Bull market.  I believe we are not beginning a bear market.  Meanwhile, here are the portfolio model performance #s though end of September:

US and Foreign Indexes		3 mo	1 yr	3 yr	5 yr	10 yr	2008
Stock Markets (50-40-10)		-2.3%	11.5%	17.8%	10.7%	7.6%	-39.7%
S&P 500		1.1%	19.7%	23.0%	15.7%	8.1%	-37.0%
MSCI EAFE		-5.9%	4.3%	13.7%	6.6%	6.3%	-43.4%
US OE Diversified Emg Mkts		-3.5%	4.8%	7.9%	4.3%	9.8%	-54.4%
Barclays Agg Bond--US		0.2%	4.0%	2.4%	4.1%	4.6%	5.2%
Barclays Agg Bond--Global		-3.1%	1.2%	1.2%	2.7%	4.4%	4.8%
Aggressive		-2.2%	10.7%	16.5%	10.3%	7.1%	-36.3%
90 Flex V		-2.3%	8.0%	12.9%	9.7%		-19.1%
90 Strategic II		-3.4%	7.8%	17.8%	13.3%	9.5%	-34.0%
90 Schwab index		-3.5%	8.8%	17.4%	11.2%	7.5%	-35.2%
Moderately Aggressive		-2.2%	9.8%	14.8%	9.7%	6.9%	-32.0%
80 Flex V		-2.0%	7.8%	12.3%	9.5%		-16.9%
80 Strategic II		-2.9%	7.8%	16.5%	12.4%	9.2%	-30.0%
80 Schwab index		-3.0%	8.5%	15.8%	10.6%	7.2%	-32.1%
Moderate		-2.0%	7.8%	11.3%	8.1%	6.4%	-23.1%
60 Flex V		-1.4%	7.7%	11.6%	9.5%		-13.1%
60 Strategic II		-2.2%	7.3%	13.7%	11.0%	8.5%	-23.9%
60 Schwab index		-2.0%	7.8%	12.5%	9.2%	6.3%	-25.6%
Moderately Conservative		-1.8%	5.7%	7.9%	6.5%	5.8%	-13.3%
40 Flex V		-0.8%	7.8%	11.2%	9.7%		-13.1%
40 Strategic II		-1.6%	5.9%	10.0%	8.6%	7.2%	-16.2%
40 Schwab index		-1.3%	6.5%	9.0%	7.5%	5.4%	-18.8%
Conservative		-1.6%	3.7%	4.5%	4.8%	5.1%	-2.5%
20 Flex V		-0.3%	7.4%	10.1%	9.4%		-5.2%
20 Strategic II		-1.0%	4.7%	6.8%	6.4%	6.0%	-8.1%
20 Schwab index		-0.7%	4.9%	5.5%	5.5%	4.3%	-11.7%
Asset Allocation		USA	x-USA	Bond	Cash	Other
20 Flex V		14%	5%	47%	30%	4%
20 Strategic II		11%	6%	56%	24%	3%
40 Flex V		28%	10%	30%	26%	5%
40 Strategic II		22%	12%	43%	19%	3%
60 Flex V		34%	15%	21%	24%	6%
60 Strategic II		35%	18%	30%	15%	3%
80 Flex V		45%	20%	8%	21%	7%
80 Strategic II		45%	25%	16%	12%	2%
90 Flex V		51%	22%	1%	18%	7%
90 Strategic II		50%	28%	9%	10%	3%
NOTE 1:  Past performance is no guarantee of specific future results.  This data is presented by Potomac Wealth Strategies, LLC.  This data is from Morningstar and should be accurate, but it has not been independently verified.
NOTE 2:  "Flex", "Strategic", and "Index" models are designed and managed by Potomac Wealth Strategies, LLC.  These models show track records of better returns, lower volatility, or both--or, in the case of the Index models, closest possible tracking--compared to their benchmarks and popular competitors.
NOTE 3:  "XX Schwab index" models are low-cost portfolios.  They are comprised of index funds available free of transaction charges to my clients at Schwab.  This is what many might recommend due to low-costs and portfolio efficiency.
NOTE 4:  Nothing on this blog post represents investment advice to any individual or organization.  If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Cash--Not Just Bill Gross--Leaves PIMCO

Friday the 29th of September will probably go down a major historical moment in the modern financial services world's history. Bill Gross resigned from PIMCO, the firm he founded in 1971 and grew into the largest bond portfolio manager in the world.  Gross not only resigned, but he moved to Janus Capital and will run a global-macro fixed income fund there.

It's probably a long story, but my take is that Gross was at odds with the people running PIMCO (which a while back was bought by Allianz, a giant insurance company based in Germany) on how to run the company.  Gross just wants to manage money.  Evidently.  He is a billionaire and 70 years-old...  not exactly in need of a new job.

Here's an article from the Wall Street Journal about cash flowing out of PIMCO's Total Return fund, which Gross has led since inception.  It's the largest mutual fund in the world.  If all investors cashed-out and the fund liquidated all holdings, bond prices would surely be affected adversely around the globe--supply and demand is a real thing, and flooding the marketplace with $200 billion in bonds would have impact.

Perhaps the main take on this for my clients is that it's an example of how I can help.  1/3 of PIMCO Total Return fund's assets are from individual investors' 401(k) plan holdings.  How many of us know what's in our 401(k)?  A lot of us, but not enough.  And even among those who know, how many were clued-in to the Gross resignation and know how to respond?  Well, that's where I believe I am extra helpful...