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Examiner
  • Ron Finke: Treasury bonds can't hold up indefinitely

  • How can it be July already? Oh well, that is a personal problem of aging. Halfway through the second quarter, we finally got the stock market correction started we had all been expecting for some months now. It is not clear yet that it is finished either.

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  • How can it be July already? Oh well, that is a personal problem of aging. Halfway through the second quarter, we finally got the stock market correction started we had all been expecting for some months now. It is not clear yet that it is finished either.
    Other than volatility indices, the clear winner of the rising tide race was the yield on Treasury bonds. A client reminded me that I have been talking about this for a long time, but in my opinion the dike is beginning to crumble around Fed Chairman Bernanke’s finger. It is not going to end nicely, having tried to fool the markets.
    On the Chicago Board of Exchange, the five-year treasury rose from 0.769 percent to 1.385 percent. That is a small move in absolute numbers, but over 80 percent in change. Yields on 10-year and 30-year treasuries also rose by percentages of 33.8 and 12.6 respectively. How high can they go?
    Thirty years ago, the 30-year bond paid more than 11 percent, and I hope we don’t see those times again. As this trend picks up though, the Fed will not be able to print enough money to feed the government everything it wants. The bonds you have now will drop in value if you keep them.
    The Dow Jones 30 Industrials index rose 2.27 percent during the quarter, slightly behind the S&P 500 at 2.36 percent. Led by technology issues, the Nasdaq Composite ended 4.15 percent higher. If not for the upturn of last Tuesday through Thursday, each of them would have ended much lower.
    Among sectors, automotive and Internet stocks both ended almost 10 percent higher. Seventeen of 31 sectors were at least positive in three months. The worst of the lot included metals and mining, with a 22 percent loss; materials and construction, down 6.34 percent; and energy at minus 4.75 percent. For some reason, gold and silver prices have lost their luster and the mining companies extracting the stuff from the ground have taken a beating.
    The small and mid-cap funds were the winners as far as the size categories of mutual funds were concerned. For example, the Buffalo MicroCap fund earned more than 11 percent, and the Lord Abbett Developing Growth Class A fund hit 10 percent right on the nose. These are both in the category of small-cap growth funds.
    With Independence Day this week and more lazy days of summer ahead, don’t be surprised if stocks move primarily sideways for a couple of months, as is the usual course. At present, I don’t foresee the sky falling in this near future though, so have a good time with your family anyway.
    Past performance is no guarantee of future results. All statistics derived from Worden Brothers, Inc., TeleChart Gold and TeleChart 2000 Funds software, 2013.
    Ron Finke is president of Stewardship Capital in Independence. He is a registered investment adviser. Reach him at rcfinke@stewcap.com.
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