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.