October 10th, 2022
A friend just asked me to review her portfolio which has an independent money manager at a major wire house. She is concerned that the account is losing value since last year when a new manager was hired.
In reviewing this month’s statement, I see that the account has lost about 20% since the start of the year.
However, it is not due to a new manager making any risky investments. In fact the new manager is just sitting on the same portfolio, that had done very well over the past few years.
Many of the big growth stocks are represented, such as Amazon, Meta, and so on.
The difference is that the Federal Reserve is no longer creating trillions of dollars of money which they have been doing to support the stock and bond markets since the meltdown in 2008.
All this printed money was great for the stock market but also has unleased a growing inflation trend. Now the Fed is raising interest rates and starting to sell some of the bonds they have bought over the past 10 years. This is called Quantitative Tightening (QT) which is the direct oposite of Quantitative Easing (QE) that has been used to stimulute the economy and the markets since the meltdown in 2008.
It is my hunch that many portfolios that don’t respond to the new reality, and going to lose some, if not all, of the growth in value accumulated over the past few years.