Housing Market

I’ve been obsessively searching for a new home ever since my third child was born last summer.  I can’t stop looking at the listings in my neighborhood (we won’t leave it).  The tough thing is, the listings almost never change.  There are about three houses in my price range that have been on the market ever since I’ve been looking that won’t sell for one reason or another.  Every other time a reasonable house gets listed, it gets bought right away.  Just last week my husband and I were outbid on a house that had been on the market for 12 hours.  Now I know why.

 

According to Bloomberg.com’s Economic Calendar, the supply of existing homes sold in March reported lower than analysts expected.  The report, released today, showed that sales were at a 4.92 million rate, down slightly from the previous month.  The reason for the lower sales data is that the supply of homes on the market is very low.  The supply of existing homes for sale in March was 4.7 months worth, which is down considerably from the supply in March of 2012, which was 6.2 months worth.  During the housing crisis the supply was closer to 10 months worth, as evidenced by the “for sale” signs in every other person’s yard.  At that time the fear was that housing would continue to spiral out of control and never return to normal.

 

The good news is that the lower volume is expected to do very good things for prices.  When the supply is low, but the demand is high, prices will rise.  Hopefully that will help my current house when we sell it.

 

There are a number of  very hot housing markets right now.  Bidding wars on houses are the norm in these areas.  It appears that the forces of supply and demand are at work here.  It’s hard to believe that just a few years after the depths of the housing crisis, there could be bidding wars, too low of a supply, and rising prices.  Markets change quickly, which is a reminder that investments that are either volatile or ill-liquid should have longer time frames.  For houses, a reasonable expected holding period is five years.

 

Harli Palme, CFA, CFP(r)

Partner

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Market Update through 4/15/13

as of April 15, 2013        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 16.02% 9.42% -1.49% -1.49%
S&P 500 15.88% 9.51% -0.99% -0.99%
DJ Industrial Average 16.73% 12.19% 0.23% 0.23%
Nasdaq Composite 8.52% 6.86% -1.53% -1.53%
Russell 2000 15.60% 7.19% -4.63% -4.63%
EAFE Index 18.72% 7.19% 1.80% 1.80%
         
Bonds        
Barclays US Aggregate 3.81% 0.72% n/a 0.85%
Barclays Intermediate US Gov/Credit 3.37% 0.71% n/a 0.45%
Barclays Municipal  5.32% 1.00% n/a 0.71%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $88.71    $96.36
Natural Gas    $4.14    $3.99
Gold    $1,360.60    $1,597.70
Euro    $1.30    $1.28

Mark A. Lewis

Director of Operations

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Parsec Supports Brother Wolf Animal Rescue

In this quarter’s newsletter, I talked about volunteering.  We all have a passion for something – helping homeless people, caring for the elderly, providing financial education, et cetera.  My cause is animal rescue. 

I mentioned that some of us at Parsec set up a fundraising team for Brother Wolf’s 4th annual “Run for the Paws.”  Our team, Hoofin’ for Woofin’, raised $1,275 for the no-kill shelter.  Several people here have pets.  The majority of them are rescues, so we received almost all of our donations from folks here at Parsec. 

Held this past Sunday, the event itself brought in over $15,000.  Brother Wolf will use the funds to provide medical care, food, and shelter for hundreds of animals at the shelter or in foster homes. 

Our mascot, Quinn.
Our mascot, Quinn.

Misty Cardone, her husband Phil, their dog Quinn, Laura Greene, and I participated in the one-mile walk along with lots of other walkers and their dogs.  Barbara Gray and her Yorkie, Brianna, cheered us on from the sidelines.  

Our cheerleader Brianna
Our cheerleader Brianna

The weather was beautiful.  We finally had a warm, sunny day instead of the persistent gloom and cold we have endured all winter.

Our involvement with the shelter does not end with “Run for the Paws.”  For the second year, we are sponsoring Brother Wolf’s Critter Camp.  Children will learn about animal care, pet behavior, pet training, and animal rescue.  In my opinion, teaching children to be caring and compassionate to animals makes them better human beings. 

I encourage all of you to consider what inspires you and get involved in your community.  As I said in the newsletter article, volunteering may not lead to higher portfolio returns or increased financial worth.  It can provide you with personal satisfaction, something money cannot buy.

Cristy Freeman, AAMS
Senior Operations Associate

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Remember, Wear Sunscreen

My husband and I spend many an evening discussing world affairs and social issues. The health care crisis is a popular subject. While I will not profess to have the solution to all of our country’s woes, I have come to one important conclusion. Preparing for a financially secure and comfortable retirement is not just about saving and investing wisely; it is about taking care of your physical well being as well.

In a 2010 study, the Bureau of Labor Statistics estimated that the a 65-year-old couple with median drug expenses would need $271,000 to have a 90% chance of having enough money to cover health expenses in retirement (82 for men and 85 for women). This amount includes the Part B premium for physician services and Part D for prescription drugs. Couples with a high level of prescription drug spending could see that number jump to a whopping $371,000!

Medicare currently covers just over 50% of health care expenses. The program does not cover vision, dental or hearing aids, nor does it cover long term care expenses. In addition, health care costs have historically grown at a rate far exceeding overall inflation rate. Some experts suggest you assume a 6% inflation rate when calculating health care expense.

For those of you who are still working, take the right steps to secure a healthy retirement. If your company offers a Qualified High Deductible health insurance plan, you would be eligible to establish a Health Savings Account to start saving for future medical expenses. And think twice before retiring early. Private insurance is expensive, sometimes costing more than $1000 per month for an individual.

If you are already retired, be a prudent shopper for your Medigap policies. Make sure all of your prescriptions are covered, and if they are not, talk to your doctor about an alternative that is covered. And price policies annually, as the prices tend to change yearly.

Lastly, remember that you need to act fiscally and you need to act physically. Eat right, exercise and of course, wear sunscreen.

Tracy Allen, CFP®
Financial Advisor

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Market Update through 3/31/13

as of March 28, 2013        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 14.56% 11.07% 11.07% 3.92%
S&P 500 13.96% 10.61% 10.61% 3.75%
DJ Industrial Average 13.37% 11.93% 11.93% 3.86%
Nasdaq Composite 7.39% 8.51% 8.51% 3.49%
Russell 2000 16.30% 12.39% 12.39% 4.62%
EAFE Index 7.80% 4.40% 4.40% 0.41%
         
Bonds        
Barclays US Aggregate 3.77% -0.12% n/a 0.08%
Barclays Intermediate US Gov/Credit 3.53% 0.26% n/a 0.14%
Barclays Municipal  5.25% 0.23% n/a -0.43%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $96.36    $93.67
Natural Gas    $3.99    $3.88
Gold    $1,597.70    $1,600.10
Euro    $1.28    $1.29

Mark A. Lewis

Director of Operations

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Gross National Happiness

One of the most commonly used measures by which we gauge the health of our economy is GDP growth. GDP, or gross domestic product, is defined by Investopedia as, “the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.” Economists look at GDP growth over time (quarter over quarter, year over year, etc.) to determine a country’s economic health and productivity. If you look at the definition, you can see that the implication is that more money = good. Nothing unusual there – most people tend to agree that more money = good, right? Take the recent winner of the $338 million Powerball jackpot. We all assume that whoever bought that ticket is about to be the happiest person on the planet. I can’t tell you how many times I catch myself daydreaming about what I would do if I won the lottery (note to my employers: I NEVER do this on work time, and it never involves me running out of my office without a backward glance). In talking with others about it we tend to agree that, while money can’t exactly buy happiness, a certain amount can provide the freedom to pursue what makes us happy, unfettered by the drudgery required to pay bills and feed our families. At least, that’s what we think.

I recently watched a documentary entitled, “Happy” which touches on the lives of various people around the globe, and seeks to discover what makes them happy. Surprisingly, some of the happiest people were also the poorest, financially speaking. A common theme among these self-described happy people was a supportive community of family and friends, as well as a sense of purpose in life. Researchers have found that money does affect happiness, up to a point – the point where basic needs are met. Beyond this, levels of happiness do not vary significantly between those making $50,000 a year and those making $5,000,000 a year (note to my employers: this does not get you off the hook for raises). Some of this is determined at a genetic level, almost as if we are all born with a “set point” for happiness, and no amount of good fortune or tragedy will cause a person to deviate from their set point for long.

Getting back to GDP – my favorite part of the documentary was about Bhutan, a country that has chosen to measure growth not by the monetary value of goods and services, but by the happiness of its citizens. Instead of a GDP index they have a GNH index, which stands for gross national happiness. According to the “short” (over 100 page) guide to the index I found online, “the GNH Index is meant to orient the people and the nation towards happiness, primarily by improving the conditions of not-yet-happy people. In the GNH Index, unlike certain concepts of happiness in current western literature, happiness is itself multidimensional – not measured only by subjective well-being, and not focused narrowly on happiness that begins and ends with oneself and is concerned for and with oneself. The pursuit of happiness is collective, though it can be experienced deeply personally. Different people can be happy in spite of their disparate circumstances and the options for diversity must be wide.”

One of my coworkers wrote a piece for our second quarter newsletter about the positive physical and emotional benefits we can reap by volunteering and giving back to our communities. The researchers interviewed for the documentary agreed that the happiest people tend to be the ones with strong ties to friends, family, and community, and who feel they have a sense of purpose in the world. As folks transition into retirement, I think it is especially important to remain active in the community and regularly get together with friends and family. Humans are social animals; we have evolved to thrive in groups and to enjoy helping others. That kind of happiness is free and available to everyone. But I’m still going to buy an occasional lottery ticket.

Sarah DerGarabedian, CFA
Director of Research

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Market Update through 3/15/13

as of March 15, 2013        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 14.27% 10.42% 10.42% 3.30%
S&P 500 13.82% 9.96% 9.96% 3.14%
DJ Industrial Average 12.54% 11.44% 11.44% 3.40%
Nasdaq Composite 7.99% 7.85% 7.85% 2.86%
Russell 2000 16.26% 12.40% 12.40% 4.62%
EAFE Index 9.44% 6.84% 6.84% 2.75%
         
Bonds        
Barclays US Aggregate 3.74% -0.50% n/a -0.30%
Barclays Intermediate US Gov/Credit 3.52% -0.05% n/a -0.16%
Barclays Municipal  5.17% -0.05% n/a -0.76%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $93.67    $90.63
Natural Gas    $3.88    $3.50
Gold    $1,600.10    $1,583.90
Euro    $1.29    $1.29

Mark A. Lewis

Director of Operations

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Record Highs – Now What?

The stock market continues on an impressive winning streak with the Dow Jones Industrial Average continuing to set new record highs. The index, through this Thursday’s close, has seen ten consecutive gaining sessions – a streak not seen since 1996. The S&P 500 closed on Thursday just two points shy of its record closing high of 1565 set in October 2007 and is up an impressive 9.0% year to date (which excludes dividend income).

The basic investing mantra of “buy low, sell high” can cause one to have concern of buying new stock positions at record high levels. But a deeper look would suggest that though prices are at or above record highs there is still good value in equity investing. When you buy stocks, you are really buying the company’s earnings.  Even though stock prices are up, so are company earnings.  To properly evaluate stocks, one important measure to consider is the price-to-earnings ratio (P/E).  Company earnings in aggregate are well past their previous record high which leaves the current market P/E under 14. At the October 2007 highs the P/E on the market was around 15.7 – which suggests you are now paying less for each dollar of company earnings when you buy stock than you were in 2007.

Dividend yields on stocks are also attractive relative to fixed income in this low rate environment. The current yield across the S&P 500 is at about 2.14%, which is higher than the current yield on the 10 year Treasury of 2.04%. This is a tough comparison since there is much more investment risk inherent in stocks, but as a result of recent price appreciation in stocks and the relative yield comparisons many individual investors are continuing to pour money into stocks in hopes for continued gains. This is seen by the recent positive net inflows into stock mutual funds – a reversal of the trend over the last few years of investors moving money from stock funds into fixed income funds. Though the individual investor is probably kicking themselves for not buying into stocks earlier in the rally, their return to stocks is a positive for equity holders as their additional purchases could provide for further price gains.

So while it may be tempting to sell some of your investments following the recent strong gains in stock markets we still feel that is not advisable. As part of our ongoing portfolio management process we may sell positions that have had strong recent gains to rebalance the portfolio, but selling stock at record highs simply in an attempt to prevent a future loss is market timing which we want to help clients avoid.

According to the Wall Street Journal the average market return received once the DJIA hits a new record high, prior to the next bear market, has been 28%. Though we can’t predict the future we can comfortably say that over time stocks could rise further, then decline, then rise to set a new record high just as has happened many times over the course of market history. And that is as vague of an answer to the “Now What” question as I can give you!

Enjoy the new market highs! Every investor who stuck it out through the 2009 lows and fully participated in the market’s recovery deserves a celebration for their proper investing discipline. Cheers!

Travis Boyer, CFA
Financial Advisor

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Stock Market Perspective

It’s a new high for the Dow Jones Industrial Average, closing Friday at 14,397.  The S&P 500, currently at 1,550, is just shy of its high of 1,565 in October of 2007.  Friday, the unemployment rate dropped to an unexpected 7.7%.  It’s hard to believe that four years ago in March of 2009 (S&P 500 low of 676) we were hearing from clients their concern about another Great Depression, the potential for martial law in the streets, and the end of America as we know it.  Thankfully, there were careful, albeit scary and unprecedented, steps taken to slowly and painfully back away from brink of the abyss.  Miraculously we moved on from that to these new highs.

Recently the CFA Institute conducted a poll of the readers of their news digest, many of whom are CFA charter holders.  They asked what the next major financial-market mover, with effects significant enough to last more than one year, would be.  About 27% chose the option “a macroeconomic event” (pretty vague), and another 24% said “a random unforeseeable event.”  The remaining chose more concise, specific options having to do with quantitative easing, corporate profits, technology, etc. 

What I took from this is that over half of the poll respondents, who are presumably well-informed professionals in the field of investment management, have no clue what will happen next to shake the markets.  This may be disconcerting at first glance, but I found it comforting.  We often receive pressure to predict the short-term future of the financial markets.  But we don’t believe it is possible to do this with any real success. 

However, we do believe in the long-term success of a well-diversified portfolio that is suited to the investor’s risk tolerance.  We believe that keeping your allocation intact during good and bad times is the best way to avoid the pitfalls of market timing.  The crash of 2008-2009 may have been “unforeseeable” but so was the stock market reaching new highs this spring — even just one year ago we thought Greece was going to fall off the map. 

Predictions may be interesting, but they shouldn’t be used to decide whether or not to make a short-term investment in an asset class.  Maintaining your chosen asset allocation is crucial.  Of all of the predictions that I recall from the spring of 2009, I don’t remember anyone suggesting that we’d see new highs on the stock market in four years with unemployment slowly ticking down to 7.7%.

Harli L. Palme, CFA, CFP(r)

Partner

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Market Update through 2/28/13

as of February 28, 2013        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 13.02% 6.89% 6.89% 1.33%
S&P 500 12.94% 6.61% 6.61% 1.36%
DJ Industrial Average 11.05% 7.77% 7.77% 1.76%
Nasdaq Composite 7.51% 4.86% 4.86% 0.75%
Russell 2000 12.25% 7.43% 7.43% 1.10%
EAFE Index 10.15% 4.35% 4.35% -0.89%
         
Bonds        
Barclays US Aggregate 3.12% -0.20% n/a 0.50%
Barclays Intermediate US Gov/Credit 3.01% 0.12% n/a 0.48%
Barclays Municipal  5.01% 0.72% n/a 0.30%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $90.63    $95.91
Natural Gas    $3.50    $3.15
Gold    $1,583.90    $1,609.80
Euro    $1.29    $1.33

Mark A. Lewis

Director of Operations.

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