First, I want to congratulate all of you for keeping your calm about the debt ceiling debate. I did get 2 calls about it from someone who is not on the distribution list. With the news media on hyper-drive covering this topic staying calm was exceptional on your part, good job!!!
The first paragraph is the weekly recap from Vanguard. In the middle, are some unexpected outcomes from the debt ceiling debate. Lastly, is some trivia to lighten the mood.
Vanguard
With the federal debt ceiling debate serving as a shadowy backdrop, the latest economic reports continued to paint a picture of an economy struggling to sustain a recovery. The first estimate of second-quarter gross domestic product was lower than hoped, but the figure for the previous quarter was revised downward so much that the latest number represented an uptick. The Federal Reserve's latest survey confirmed a slowing economy, while new-home sales and durable-goods orders also retreated a bit. For the week ended July 29, the S&P 500 Index fell 3.9% to 1,292 (for a year-to-date total return—including price change plus dividends—of about 3.9%). The yield on the 10-year U.S. Treasury note fell 17 basis points to 2.82% (for a year-to-date decrease of 48 basis points).
Unexpected Outcomes From Debt Ceiing Debate
Remember last Sunday night, it was stated that if a vote was not passed on the debt ceiling that the "markets would go into a panic. The first unexpected outcome was that even with all of the politicians, news commentators, and financial experts telling that the "markets" would panic and have a dramatic fall it did not occur, down 3.9%. The reason for this is the very positive economic news this week such as earnings reports, and jobless claims.
The second unexpected outcome was that long term interest rates went down this week by 0.17%. Remember that the experts stated that this default uncertainty would have cause long term rates to have a huge rise. If you are a bond trader, you would want another week like this last one. The reason these rates went down is because of the principles of supply versus demand. Since the U.S. Treasury is at the limit of issuing new bonds the supply has dried up. With reduced supply, the price goes up and interest rates fall. When interest rates go up after this deficit debate is over it will be because of supply and demand, not because of a potential credit rating scare.
Here is the bottom line: The experts can not predict the outcome in the short-term from this deficit debate. If you avoid the hype and keep you focus on the bigger financial picture of improving corporate earnings and an improving economy, as Japan recovers and we rebuild from the disasters of the spring, an investor has a better long-term result.
July 29 Trivia
1890
Artist Vincent van Gogh died of a self-inflicted gunshot wound in Auvers, France.
1958
President Eisenhower signed the congressional act that created the National Aeronautics and Space Administration (NASA) was authorized by Congress.
1968
In Humanae Vitae (of Human Life), Pope Paul VI reaffirmed the Catholic Church's prohibition on artificial methods of birth control.
1981
Prince Charles, heir to the British throne, married Lady Diana Spencer.
2003
Red sox switch hitter Bill Mueller became the first baseball player to hit grand slam home runs from both sides of the plate in the same game.
Just thought you would like to know some real history on this date.
Friday, July 29, 2011
Saturday, July 23, 2011
Earnings Versus Debt Default
The news this past week was on the national debt and the threat of default, as virtually everyone in the world knows. What a mess, it has more drama than many movies. You can not make up stuff this dramatic. So this past week when the news was on the threat of default, stock markets around the world went up. What was not reported this week was that corporate earnings are better than anticipated by about 3% so far this quarter.
This week the tug of war between earnings and default was won by earnings. The reason is that our leaders are all saying the right things taking the threat of default off of the table. It is kind of like a dream that I had years ago, something bad was in a room and I was the only one that saw it, perhaps you have had a similar dream. In this dream I told people about it and nobody listened and then I awoke unharmed. This default issue is like this bad thing in the room that everyone is trying to ignore and I want to wake up in about 10 days unharmed.
First is the weekly update from Vanguard. At the end is a list of organizations in the U.S. that have people who are trying to influence tax law. In the middle is my view of why we will not have a default.
Vanguard
The scorching heat wave that set record temperatures across much of the nation didn't extend to the economy, which remains tepid at best according to the latest readings. There was a rise in the Conference Board's index of leading economic indicators and a bump in new residential construction. However, existing-home sales dropped for the third straight month as President Barack Obama and congressional leaders continued to negotiate over an increase in the nation's debt limit. For the week ending July 22, the S&P 500 Index rose 2.2% to 1,345 (for a year-to-date total—including price change plus dividends—return of about 8.1%). The yield on the 10-year U.S. Treasury note rose 5 basis points to 2.99% (for a year-to-date decrease of 31 basis points).
Reasons Why We Will Not Have a Default
1) We can not afford it - an increase in interest rates also increases the national debt because it increases the interest payment.
2) We have a bigger budget deficit because the Federal Reserve loses money - the monetary gains from the Federal Reserve go into the Treasury, about $78 Billion last year if my memory is correct, and so do the monetary loses. The Fed has $1.6 Trillion in U.S. Treasury bonds on their balance sheet and a default would result in a loss if these bonds are sold early.
3) The real financial power brokers have lots of people behind the scene are influencing our representatives, Treasury Secretary Tim Geitner and Federal Reserve Chair Ben Bernanke.
4) It would be political suicide for the party believed to be responsible for a default. Quite frankly, I think our politicians only really care about this point.
5) We have an election every 2 years and politicians want to get re-elected.
So what happens is something we can all speculate. My view is that a default is avoided. The Republican party wants this topic to continue until the 2012 election so I anticipate that a short term solution will be implemented. I think that the discussion on the national debt will be with us through the elections in 2012.
Here is the political quote of the day - Never Let a Good Crisis Go To Waste
In the tug of war between earnings and debt default focus on earnings.
U.S. Organizations Concerning Taxation
Americans for Responsible Taxes
Americans For Fair Taxation
Americans for Tax Reform
The Chartered Institute of Taxation
Citizens for an Alternative Tax System
Citizens for Tax Justice
Henry George Foundation of America
Kill Your Taxes
National Taxpayers Union
Tax Foundation
So we are paying taxes to support organizations concerning taxes, sounds like a conflict of interest because if the tax issue went away these people would not have a job. No wonder we have problems resolving taxes, we have too many cooks in the kitchen. Enjoy the good things of life!!!
This week the tug of war between earnings and default was won by earnings. The reason is that our leaders are all saying the right things taking the threat of default off of the table. It is kind of like a dream that I had years ago, something bad was in a room and I was the only one that saw it, perhaps you have had a similar dream. In this dream I told people about it and nobody listened and then I awoke unharmed. This default issue is like this bad thing in the room that everyone is trying to ignore and I want to wake up in about 10 days unharmed.
First is the weekly update from Vanguard. At the end is a list of organizations in the U.S. that have people who are trying to influence tax law. In the middle is my view of why we will not have a default.
Vanguard
The scorching heat wave that set record temperatures across much of the nation didn't extend to the economy, which remains tepid at best according to the latest readings. There was a rise in the Conference Board's index of leading economic indicators and a bump in new residential construction. However, existing-home sales dropped for the third straight month as President Barack Obama and congressional leaders continued to negotiate over an increase in the nation's debt limit. For the week ending July 22, the S&P 500 Index rose 2.2% to 1,345 (for a year-to-date total—including price change plus dividends—return of about 8.1%). The yield on the 10-year U.S. Treasury note rose 5 basis points to 2.99% (for a year-to-date decrease of 31 basis points).
Reasons Why We Will Not Have a Default
1) We can not afford it - an increase in interest rates also increases the national debt because it increases the interest payment.
2) We have a bigger budget deficit because the Federal Reserve loses money - the monetary gains from the Federal Reserve go into the Treasury, about $78 Billion last year if my memory is correct, and so do the monetary loses. The Fed has $1.6 Trillion in U.S. Treasury bonds on their balance sheet and a default would result in a loss if these bonds are sold early.
3) The real financial power brokers have lots of people behind the scene are influencing our representatives, Treasury Secretary Tim Geitner and Federal Reserve Chair Ben Bernanke.
4) It would be political suicide for the party believed to be responsible for a default. Quite frankly, I think our politicians only really care about this point.
5) We have an election every 2 years and politicians want to get re-elected.
So what happens is something we can all speculate. My view is that a default is avoided. The Republican party wants this topic to continue until the 2012 election so I anticipate that a short term solution will be implemented. I think that the discussion on the national debt will be with us through the elections in 2012.
Here is the political quote of the day - Never Let a Good Crisis Go To Waste
In the tug of war between earnings and debt default focus on earnings.
U.S. Organizations Concerning Taxation
Americans for Responsible Taxes
Americans For Fair Taxation
Americans for Tax Reform
The Chartered Institute of Taxation
Citizens for an Alternative Tax System
Citizens for Tax Justice
Henry George Foundation of America
Kill Your Taxes
National Taxpayers Union
Tax Foundation
So we are paying taxes to support organizations concerning taxes, sounds like a conflict of interest because if the tax issue went away these people would not have a job. No wonder we have problems resolving taxes, we have too many cooks in the kitchen. Enjoy the good things of life!!!
Sunday, July 17, 2011
2011 US Debt Ceiling
The news last week and for the next few weeks is the negotiations to raise the 2011 US Debt Ceiling and avoid a "Crisis". At the end is an except from Wikipedia on this crisis for your reading pleasure. The first paragraph is a weekly recap from Vanguard. In the middle is my view on how to invest during this historic time period. My view is that this is like a yellow jacket sting that I got today, painful for the next little while and in the longer term probably not that significant of an issue.
Vanguard
Producer and consumer prices both fell substantially in June while sales output and inventory reports continue to point to an economic soft patch. For the week ended July 15, the S&P 500 Index declined 2.1% to 1,316.14 (for a year-to-date total return, including price change plus dividends, of about 5.7%). The yield on the 10-year U.S. Treasury note fell 9 basis points to 2.94% (for a year-to-date decrease of 36 basis points).
Investing and the US Debt Ceiling
This is a historic time period for our country and quite frankly I do not know of anyone who has the correct answer on the path forward out of this mess. We are talking about raising the debt ceiling to a level above the annual Gross Domestic Product (GDP) of our country, this has not been done before. So no magic roadmap exists from here. I will avoid adding to the list of experts my opinion and stick to investing. The most important person in the US right now is the Treasury Secretary who controls this massive amount of debt.
For an investor the key indicator to watch is long term interest rates, in particular the 10 year US Treasury Bond. You notice that last week the yield on the 10 year bond went down 0.09% to 2.94%. We have 3 possible outcomes to this crisis: default, a slowing economy, or no impact. If a concern exists of default on bonds then interest rates should be rising. If the concern is a slowing economy due to less Federal spending then interest rates should be falling. If the crisis is resolved on time then it should have no impact. The falling interest rate last week shows that the majority of investors are not concerned about a default and view it as shelter in the time of a storm, curious.
My view is that nobody wants a default, this is like dropping a huge bomb on ourselves. If we default, then the amount of interest payments on the debt rise and the cost to make the interest payment goes up causing a bigger hole. If interest rates go up 1% it costs us about $150 Billion more a year, as we actually have about $14.6 Trillion in debt at this point.
If an investor thinks that a default is coming then they should sell all US Treasury Bonds now. The question is where will the money go; will it go to cash like a money market, stocks, or commodities? Remember that stocks do well as interest rates go up. My view is that the money goes into either stocks or cash.
If an investor thinks that a slow economy is coming then they should hold US Treasury Bonds now. At the current interest rate, I do not see interest rates going much lower.
At the end this crisis, whenever this occurs, we know it is good for the news media. For a long term investor, I do not think it is a crisis at all since the thing that really matters is long term growth of the economy not this short term panic. For a short term investor this is a really big deal as nobody knows how it will end. If you are nervous about this issue you should call me to discuss how to proceed.
2011 US Debt Ceiling Crisis (From Wikipedia)
The 2011 US debt ceiling crisis is the ongoing debate over whether the debt ceiling should be increased and, if so, by how much. Rather than pass a stop-gap measure that would fund the government without solving the structural problems ("kicking the can down the road"), the leadership of both parties decided to address these budgetary problems as part of this debate. The Democrats in the US Congress and the President wanted the decrease in the deficit to be funded by a combination of spending and revenue adjustments. The Republicans held the view that the deficit reduction should be based solely on spending.
As of July 2011, the United States was effectively at the limit of Congressionally authorized debt. Congress is now considering whether and by how much to extend the debt ceiling. An issue of note is that failure to extend the limit may leave the federal government unable to pay all its obligations, including paying interest on existing debt, a default that could have serious repercussions.
In a May 16, 2011 letter to Congress, U.S. Treasury Secretary Timothy Geithner declared a “debt issuance suspension period,” which provides the Secretary authority to sell assets from the Civil Service Retirement and Disability Fund. Geithner had previously sent letters to Congress requesting an increase in the debt ceiling on January 6, April 4, and May 2, 2011.
When the debt ceiling is reached, the U.S. Treasury has methods to acquire funds other than issuing new debt to meet federal obligations. Several of these methods are described in detail in an Appendix attached to Secretary Geithner's April 4, 2011 letter to Congress These "extraordinary measures" include using federal employee payroll deductions directed to the G-Fund, which is part of a 401(k)-like program known as the Thrift Savings Program (TSP), and to the Civil Service Retirement and Disability trust fund. These methods have been used in several previous episodes in which federal debt neared its statutory limit.
Section 4 of the Fourteenth Amendment to the United States Constitution, passed in the context of the Civil War Reconstruction, prohibits questioning the validity of all lawfully authorized United States public debt. Bruce Bartlett, a columnist and blogger for The Fiscal Times, argues that Section 4 renders the debt ceiling unconstitutional, and that the President should disregard the debt limit. In July 2011, The Nation editor Katrina vanden Heuvel argued that the President could use the public debt section of the Fourteenth Amendment to force the Treasury to continue paying its debts if an agreement to raise the debt ceiling is not reached.
Keep remembering the important things of life,
Vanguard
Producer and consumer prices both fell substantially in June while sales output and inventory reports continue to point to an economic soft patch. For the week ended July 15, the S&P 500 Index declined 2.1% to 1,316.14 (for a year-to-date total return, including price change plus dividends, of about 5.7%). The yield on the 10-year U.S. Treasury note fell 9 basis points to 2.94% (for a year-to-date decrease of 36 basis points).
Investing and the US Debt Ceiling
This is a historic time period for our country and quite frankly I do not know of anyone who has the correct answer on the path forward out of this mess. We are talking about raising the debt ceiling to a level above the annual Gross Domestic Product (GDP) of our country, this has not been done before. So no magic roadmap exists from here. I will avoid adding to the list of experts my opinion and stick to investing. The most important person in the US right now is the Treasury Secretary who controls this massive amount of debt.
For an investor the key indicator to watch is long term interest rates, in particular the 10 year US Treasury Bond. You notice that last week the yield on the 10 year bond went down 0.09% to 2.94%. We have 3 possible outcomes to this crisis: default, a slowing economy, or no impact. If a concern exists of default on bonds then interest rates should be rising. If the concern is a slowing economy due to less Federal spending then interest rates should be falling. If the crisis is resolved on time then it should have no impact. The falling interest rate last week shows that the majority of investors are not concerned about a default and view it as shelter in the time of a storm, curious.
My view is that nobody wants a default, this is like dropping a huge bomb on ourselves. If we default, then the amount of interest payments on the debt rise and the cost to make the interest payment goes up causing a bigger hole. If interest rates go up 1% it costs us about $150 Billion more a year, as we actually have about $14.6 Trillion in debt at this point.
If an investor thinks that a default is coming then they should sell all US Treasury Bonds now. The question is where will the money go; will it go to cash like a money market, stocks, or commodities? Remember that stocks do well as interest rates go up. My view is that the money goes into either stocks or cash.
If an investor thinks that a slow economy is coming then they should hold US Treasury Bonds now. At the current interest rate, I do not see interest rates going much lower.
At the end this crisis, whenever this occurs, we know it is good for the news media. For a long term investor, I do not think it is a crisis at all since the thing that really matters is long term growth of the economy not this short term panic. For a short term investor this is a really big deal as nobody knows how it will end. If you are nervous about this issue you should call me to discuss how to proceed.
2011 US Debt Ceiling Crisis (From Wikipedia)
The 2011 US debt ceiling crisis is the ongoing debate over whether the debt ceiling should be increased and, if so, by how much. Rather than pass a stop-gap measure that would fund the government without solving the structural problems ("kicking the can down the road"), the leadership of both parties decided to address these budgetary problems as part of this debate. The Democrats in the US Congress and the President wanted the decrease in the deficit to be funded by a combination of spending and revenue adjustments. The Republicans held the view that the deficit reduction should be based solely on spending.
As of July 2011, the United States was effectively at the limit of Congressionally authorized debt. Congress is now considering whether and by how much to extend the debt ceiling. An issue of note is that failure to extend the limit may leave the federal government unable to pay all its obligations, including paying interest on existing debt, a default that could have serious repercussions.
In a May 16, 2011 letter to Congress, U.S. Treasury Secretary Timothy Geithner declared a “debt issuance suspension period,” which provides the Secretary authority to sell assets from the Civil Service Retirement and Disability Fund. Geithner had previously sent letters to Congress requesting an increase in the debt ceiling on January 6, April 4, and May 2, 2011.
When the debt ceiling is reached, the U.S. Treasury has methods to acquire funds other than issuing new debt to meet federal obligations. Several of these methods are described in detail in an Appendix attached to Secretary Geithner's April 4, 2011 letter to Congress These "extraordinary measures" include using federal employee payroll deductions directed to the G-Fund, which is part of a 401(k)-like program known as the Thrift Savings Program (TSP), and to the Civil Service Retirement and Disability trust fund. These methods have been used in several previous episodes in which federal debt neared its statutory limit.
Section 4 of the Fourteenth Amendment to the United States Constitution, passed in the context of the Civil War Reconstruction, prohibits questioning the validity of all lawfully authorized United States public debt. Bruce Bartlett, a columnist and blogger for The Fiscal Times, argues that Section 4 renders the debt ceiling unconstitutional, and that the President should disregard the debt limit. In July 2011, The Nation editor Katrina vanden Heuvel argued that the President could use the public debt section of the Fourteenth Amendment to force the Treasury to continue paying its debts if an agreement to raise the debt ceiling is not reached.
Keep remembering the important things of life,
Saturday, July 9, 2011
Corporate Earnings
This week was a week of gyrations just before companies start announcing earnings next week. This will discuss how to interpret a corporate earnings report. At the end is some interesting food facts, one of my favorite subjects. I have included the weekly recap from Vanguard.
I did run the 5 mile Bear Run this year up to the top of Grandfather Mountain. My time was 57 minutes which is better than the 60 minute target. In the movie Forrest Gump, Tom Hanks is running up a mountain. This scene was filmed on the road up to Grandfather Mountain. The curve on the road is now called the Forrest Gump curve. Watch this portion of the movie and see what you think about running up an 11% grade.
Vanguard
The second month in a row of much-lower-than-expected job creation dimmed hopes that the economic recovery will soon pick up speed. Manufacturing showed signs of strength—orders picked up and factory employment rose modestly—but consumers, small businesses, and the public sector remained constrained by concerns ranging from the housing market to the debt and deficit struggles of governments at home and abroad. "The extremely weak job numbers are a real concern," said Vanguard economist Roger Aliaga-Díaz. "With so much uncertainty on the labor market front, it'll be difficult for consumers to become an important driver of the economic recovery during the second half of this year, as had been expected." For the week ending July 8, the S&P 500 Index rose 0.3% to 1,344 (for a year-to-date total return—including price change plus dividends—of about 8%). The yield on the 10-year U.S. Treasury note fell 19 basis points to 3.03% (for a year-to-date decrease of 27 basis points).
Earning Announcement
Every quarter has about 6 weeks where most publicly traded report a quarterly earnings report. This starts about the second full week of the first month in a new quarter, such as July. You will see headlines that sound really good and the stock goes down and vice versa so what is going on?
The important section of the announcement is typically not reported, which is guidance for the next quarter. A stock analyst will make a buy or sell recommendation based upon future performance and any positive or negative changes in key metrics that are normal for the company. The information about the current quarter is used to help support the picture for the future.
The bottom line is go to the section on guidance for the next quarter and go beyond the headlines.
Food Facts
• Celery has negative calories — it takes more calories to eat and digest a piece of celery than the celery has in it.
• One of every 11 boxes of cereal sold in the United States is Cheerios.
• In ancient Rome, oysters were so highly prized that they were sold for their weight in gold.
• Herring is the most widely eaten fish in the world.
• Potato chips are the number 1 selling snack in the United States. Potatoes are also the most popular vegetable among Americans.
• White chocolate does not contain caffeine.
• Raw broccoli, cup for cup, has twice as much vitamin C as an orange and almost as much calcium as milk.
I did run the 5 mile Bear Run this year up to the top of Grandfather Mountain. My time was 57 minutes which is better than the 60 minute target. In the movie Forrest Gump, Tom Hanks is running up a mountain. This scene was filmed on the road up to Grandfather Mountain. The curve on the road is now called the Forrest Gump curve. Watch this portion of the movie and see what you think about running up an 11% grade.
Vanguard
The second month in a row of much-lower-than-expected job creation dimmed hopes that the economic recovery will soon pick up speed. Manufacturing showed signs of strength—orders picked up and factory employment rose modestly—but consumers, small businesses, and the public sector remained constrained by concerns ranging from the housing market to the debt and deficit struggles of governments at home and abroad. "The extremely weak job numbers are a real concern," said Vanguard economist Roger Aliaga-Díaz. "With so much uncertainty on the labor market front, it'll be difficult for consumers to become an important driver of the economic recovery during the second half of this year, as had been expected." For the week ending July 8, the S&P 500 Index rose 0.3% to 1,344 (for a year-to-date total return—including price change plus dividends—of about 8%). The yield on the 10-year U.S. Treasury note fell 19 basis points to 3.03% (for a year-to-date decrease of 27 basis points).
Earning Announcement
Every quarter has about 6 weeks where most publicly traded report a quarterly earnings report. This starts about the second full week of the first month in a new quarter, such as July. You will see headlines that sound really good and the stock goes down and vice versa so what is going on?
The important section of the announcement is typically not reported, which is guidance for the next quarter. A stock analyst will make a buy or sell recommendation based upon future performance and any positive or negative changes in key metrics that are normal for the company. The information about the current quarter is used to help support the picture for the future.
The bottom line is go to the section on guidance for the next quarter and go beyond the headlines.
Food Facts
• Celery has negative calories — it takes more calories to eat and digest a piece of celery than the celery has in it.
• One of every 11 boxes of cereal sold in the United States is Cheerios.
• In ancient Rome, oysters were so highly prized that they were sold for their weight in gold.
• Herring is the most widely eaten fish in the world.
• Potato chips are the number 1 selling snack in the United States. Potatoes are also the most popular vegetable among Americans.
• White chocolate does not contain caffeine.
• Raw broccoli, cup for cup, has twice as much vitamin C as an orange and almost as much calcium as milk.
Saturday, July 2, 2011
End of QE2
Happy July 4th Holiday, I hope you enjoy your time with family and friends. This upcoming week I participate in the Bear Run which is a 5 mile event to the top of Grandfather Mountain in North Carolina with an elevation change from about 3700 feet to about 5200 feet. The goal is to complete it in less than an hour.
The headlines this past week was about Greece: austerity program, IMF funding, riots, etc. While this might have been the headline it was not significant for the average U.S. investor. The main event was the end of the Federal Reserve program of purchasing $600 Billion in U.S. Treasury Bonds which has been called Quantitative Easing #2 or QE2. It has been this event that has driven investment decisions for the last few months and all of my clients are well positioned to take advantage of it.
This e-newsletter has 3 parts, a weekly summary from Vanguard, a short section on the end of QE2, and facts about the July 4th holiday. Again, I hope you have a great holiday.
Vanguard
As the economic news turned grim in recent weeks, confidence dipped and consumers gripped their wallets more tightly, as illustrated by the past week's economic reports. Despite the week's bleak economic news, the stock market recorded impressive results. For the week ended July 1, the S&P 500 Index rose 5.6% to 1,340 (for a year-to-date total return of about 7.6%). The yield of the 10-year U.S. Treasury note rose 34 basis points to 3.22% (for a year-to-date decrease of 8 basis points).
End of QE2
The Vanguard weekly summary shown above states: grim economic news, rising stock market, and rising interest rates. These 3 points do not make any sense because grim economic news should have the opposite effect, a declining stock market and lowering interest rates. So what caused the stock market to rise an impressive 5.6% and the 10 year U.S. Treasury bond to rise 34 basis points or 0.34%? The answer is the end of QE2.
The average investor has 3 main categories to invest: stocks, bonds, and commodities and money moves between these categories. Each category has different parts such as bonds are comprised of different types such as U.S. Treasury, Corporate, Municipal, etc.
This past week, we had more sellers than buyers of U.S. Treasury Bonds. This is because the largest buyer, the Federal Reserve, has stopped buying. Due to how U.S. Treasury Bonds are priced, this means that interest rates will go up. Remember that the Federal Reserve has been purchasing about $1.7 Trillion of these bonds during the last 2 years which has driven interest rates down. Well now the Federal Reserve is no longer buying and has to ultimately sell them or let them mature. So the number of sellers goes up and the number of buyers go down.
The economic news that was given was not that important because they are lagging indicators instead of leading indicators. So do not place a lot of emphasis on this data.
Here is the bottom line. The trend of rising interest rates and a rising stock market should continue, the pace will is unknown. We did not see a significant change in commodity prices last week. Money from the sale of U.S. Treasury Bonds has a greater probability of going to purchase stocks rather than commodities.
4th of July by the Numbers
31 places nationwide have "liberty" in their name. The most populous one is Liberty, Missouri (29,149). Iowa has more of these places than any other state: four (Libertyville, New Liberty, North Liberty and West Liberty).
Eleven places have "independence" in their name. The most populous of these is Independence, Missouri, with 116,830 residents.
Five places adopted the name "freedom." New Freedom, Pennsylvania with 4,464 residents, has the largest population among these.
There is one place named "patriot" — Patriot, Indiana, with a population of 209.
And what could be more fitting than spending the day in a place called "America"? There are five such places in the country, with the most populous being American Fork, Utah, with 26,263 residents.
Fourth of July Barbecue
As with many holidays, the 4th of July celebration includes food, drink and the realization of how fortunate we are as a nation. Although we do not have a fixed menu for the celebration of the Fourth, you can almost count on traditional favorites such as hamburgers and hot dogs, chicken, ribs, garden salads, potato salad, chips and watermelon. Following is a summary of where these foods come from:
There's a 1-in-6 chance the beef on your backyard grill came from Texas. The Lone Star State is the leader in the production of cattle and calves.
The chicken on your barbecue grill probably came from one of the top broiler-producing states: Georgia, Arkansas, Alabama, North Carolina and Mississippi.
The lettuce in your salad or on your hamburger probably was grown in California, which accounts for nearly three-quarters of USA lettuce production.
Fresh tomatoes in your salad most likely came from Florida or California, which, combined, produced more than two-thirds of U.S. tomatoes. The ketchup on your hamburger or hot dog probably came from California, which accounts for 95 percent of processed tomato production.
As to potato salad or potato chips or fries, Idaho and Washington produces about one-half of the nation's spuds.
For dessert, six states — California, Florida, Texas, Georgia, Arizona and Indiana — combined to produce about 80 percent of watermelons last year.
And the apples in your apple pie? They most likely came from Washington or New York, the two top apple producing states.
The headlines this past week was about Greece: austerity program, IMF funding, riots, etc. While this might have been the headline it was not significant for the average U.S. investor. The main event was the end of the Federal Reserve program of purchasing $600 Billion in U.S. Treasury Bonds which has been called Quantitative Easing #2 or QE2. It has been this event that has driven investment decisions for the last few months and all of my clients are well positioned to take advantage of it.
This e-newsletter has 3 parts, a weekly summary from Vanguard, a short section on the end of QE2, and facts about the July 4th holiday. Again, I hope you have a great holiday.
Vanguard
As the economic news turned grim in recent weeks, confidence dipped and consumers gripped their wallets more tightly, as illustrated by the past week's economic reports. Despite the week's bleak economic news, the stock market recorded impressive results. For the week ended July 1, the S&P 500 Index rose 5.6% to 1,340 (for a year-to-date total return of about 7.6%). The yield of the 10-year U.S. Treasury note rose 34 basis points to 3.22% (for a year-to-date decrease of 8 basis points).
End of QE2
The Vanguard weekly summary shown above states: grim economic news, rising stock market, and rising interest rates. These 3 points do not make any sense because grim economic news should have the opposite effect, a declining stock market and lowering interest rates. So what caused the stock market to rise an impressive 5.6% and the 10 year U.S. Treasury bond to rise 34 basis points or 0.34%? The answer is the end of QE2.
The average investor has 3 main categories to invest: stocks, bonds, and commodities and money moves between these categories. Each category has different parts such as bonds are comprised of different types such as U.S. Treasury, Corporate, Municipal, etc.
This past week, we had more sellers than buyers of U.S. Treasury Bonds. This is because the largest buyer, the Federal Reserve, has stopped buying. Due to how U.S. Treasury Bonds are priced, this means that interest rates will go up. Remember that the Federal Reserve has been purchasing about $1.7 Trillion of these bonds during the last 2 years which has driven interest rates down. Well now the Federal Reserve is no longer buying and has to ultimately sell them or let them mature. So the number of sellers goes up and the number of buyers go down.
The economic news that was given was not that important because they are lagging indicators instead of leading indicators. So do not place a lot of emphasis on this data.
Here is the bottom line. The trend of rising interest rates and a rising stock market should continue, the pace will is unknown. We did not see a significant change in commodity prices last week. Money from the sale of U.S. Treasury Bonds has a greater probability of going to purchase stocks rather than commodities.
4th of July by the Numbers
31 places nationwide have "liberty" in their name. The most populous one is Liberty, Missouri (29,149). Iowa has more of these places than any other state: four (Libertyville, New Liberty, North Liberty and West Liberty).
Eleven places have "independence" in their name. The most populous of these is Independence, Missouri, with 116,830 residents.
Five places adopted the name "freedom." New Freedom, Pennsylvania with 4,464 residents, has the largest population among these.
There is one place named "patriot" — Patriot, Indiana, with a population of 209.
And what could be more fitting than spending the day in a place called "America"? There are five such places in the country, with the most populous being American Fork, Utah, with 26,263 residents.
Fourth of July Barbecue
As with many holidays, the 4th of July celebration includes food, drink and the realization of how fortunate we are as a nation. Although we do not have a fixed menu for the celebration of the Fourth, you can almost count on traditional favorites such as hamburgers and hot dogs, chicken, ribs, garden salads, potato salad, chips and watermelon. Following is a summary of where these foods come from:
There's a 1-in-6 chance the beef on your backyard grill came from Texas. The Lone Star State is the leader in the production of cattle and calves.
The chicken on your barbecue grill probably came from one of the top broiler-producing states: Georgia, Arkansas, Alabama, North Carolina and Mississippi.
The lettuce in your salad or on your hamburger probably was grown in California, which accounts for nearly three-quarters of USA lettuce production.
Fresh tomatoes in your salad most likely came from Florida or California, which, combined, produced more than two-thirds of U.S. tomatoes. The ketchup on your hamburger or hot dog probably came from California, which accounts for 95 percent of processed tomato production.
As to potato salad or potato chips or fries, Idaho and Washington produces about one-half of the nation's spuds.
For dessert, six states — California, Florida, Texas, Georgia, Arizona and Indiana — combined to produce about 80 percent of watermelons last year.
And the apples in your apple pie? They most likely came from Washington or New York, the two top apple producing states.
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