Consumers Ride to the Rescue Again

Despite recurring unpleasant experiences with ice, sleet, snow, exceptionally low temperatures, wind and rain so far in 2014, consumers have kept on spending. On March 13, the Census Bureau gave us our first look at retail and food services sales for February.

The chart shows this story. After a 0.6 percent decline in January from December, total retail and food services sales posted a 0.3 percent increase in February from January. The total of $427.2 billion is the best February ever and 1.5 percent above February 2013.

untitledhttps://research.stlouisfed.org/fred2/series/RSAFS

It is the fourth-best month ever, behind only October, November and December (in descending order) of 2013. In what is undoubtedly at least partially due to the unusually bad weather endured by so many parts of the nation, by far the best increase (6.3 percent) above February 2013 was racked up by nonstore retailers. So long as people had electricity they could order over the Internet or by telephone.

The second biggest increase was posted by “Health and personal care stores,” where sales rose by 5.5 percent above a year before. “Building materials and garden equipment supplies dealers” were next with a 3.2 percent year-over-year rise.

Gasoline stations had sales 4.6 percent lower than a year earlier. That was the result of slightly lower crude oil prices and less demand.

No matter the weather, people kept eating. Sales at “Food and beverage stores” were up 2.8 percent from a year earlier with the grocery stores part up 2.4 percent. “Food services and drinking places” (aka bars and restaurants) saw sales rise by 2.6 percent.

Consumers remain reasonably optimistic about the economic future for good reasons. The demand for labor is rising, which means that jobs are easier to find while wages and salaries are also growing.

With rising incomes, consumers have more money to spend on goods and services. This causes increases in retail sales and new orders from retailers to restock shelves keep industrial production growing. That in turn leads to more employment and more income. Economists call this lovely situation a virtuous cycle.

While the period since the end of the recession in June 2009 is still the weakest expansion in over 100 years in the US, we are finally entering a virtuous cycle. This year should be the first year with real GDP growth above 3.0 percent since 2005. That would be very good news indeed. The weather will improve and most of the output lost in the first quarter will be made up in April, May and June.

There will be some impact on the monthly profile of retail sales in 2014 because Easter is several weeks later this year than last. This year it will be on April 20 and last year it fell on March 31. Thus, we may have to wait for May to get a clear picture of exactly how robust retail sales are.

The Census Bureau will release revised data on retail and food services sales for the period from January 2012-March 2014 on April 30. Those data may change our understanding of consumer spending patterns somewhat. They will undoubtedly reaffirm the vital contribution of consumer spending to US economic growth.

Dr. James F. Smith
Chief Economist

 

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How much is that Doggie in the Window?

According to a recent announcement from the American Pet Products Association, Americans spent $55.7 billion last year on their pets. That’s billion, not million. An article at Time.com (http://time.com/#23451/pets-dogs-cats-spending-americans/) cleverly noted that the figure is $10 billion more than Germany spends on its defense budget.

I admit I am one of these people. My little rescue dog hit the lottery when she came to live with me. She has seven dog beds, if you include her car seat (yes, car seat). She owns more jackets than I do, although they are all for function, not fashion. She has multiple, color-coordinated harnesses, collars, and leashes so that she need never feel ashamed about how she looks. When we go on vacation, she has as much luggage as I do. Yes, she is spoiled rotten.

I am not alone. Bill Geist of the “CBS Sunday Morning” program tells a hilarious story about his “free” rescue dog: http://www.cbsnews.com/news/even-cat-people-fall-in-puppy-love/.  Sometimes, the unexpected costs can really add up.

In our industry, I see a number of fees that some people pay for investments: high commission rates for certain products, either on the front or back end of the transaction; frequent, unnecessary trade costs from a practice called “churning;” and expensive investment counsel fees. Before long, that simple purchase of 100 shares of ABC Widget Works has cost a fortune in added fees.

When you are evaluating an investment advisor, consider how the person earns his or her money. Does he receive a commission for his or her investment recommendations? Is he or she directly affiliated with a broker? Does he or she charge an additional investment counsel fee? While he or she may promise a great gross return on investment, the net return after all of those fees may be no better than what you would find with a simple savings account.

At Parsec, we do not receive commissions for any of the investment products we recommend – no commission from the trade, no commission for recommending a certain security, nothing. In addition, when we recommend mutual funds, we look for funds that do not carry significant internal fees.

We are not beholden to a particular broker. We have four brokers who we like to recommend, based upon client needs.

We do charge an investment counsel fee that we think is reasonable to industry standards. When you sign a service agreement, you see upfront what your fee schedule will be. On a quarterly basis, you receive a reports package that includes information about net-of-fee investment performance, current holdings, et cetera. We are also here to help with planning – everything from college savings to retirement to estate. We like to think service goes beyond placing a trade. Our clients pay us to act as a partner in planning their future.

Everything in life – from owning a home to adopting a rescue dog – has the potential for unexpected costs. How you invest your money, though, should be a little more straightforward. With a little research in advance, you can evaluate whether or not fees charged for service are reasonable and affordable.

Now, if you will excuse me, I need to order organic food for my doggie. And maybe I will pick up a bottle of shampoo. She told me she is tired of smelling like a bowl of oatmeal.

Cristy Freeman, AAMS
Senior Operations Associate

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Market Update Through 3/14/2014

as of March 14, 2014        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 21.45% 0.57% 0.57% -0.85%
S&P 500 20.28% 0.07% 0.07% -0.88%
DJ Industrial Average 13.21% -2.53% -2.53% -1.47%
Nasdaq Composite 31.98% 1.90% 1.90% -1.41%
Russell 2000 25.60% 1.75% 1.75% -0.06%
EAFE Index 10.26% -3.54% -3.54% -3.78%
         
Bonds        
Barclays US Aggregate 0.56% 2.01% 2.01% -0.01%
Barclays Intermediate US Gov/Credit 0.60% 1.31% 1.31% 0.00%
Barclays Municipal  0.76% 3.34% 3.34% 0.19%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $98.89    $102.59
Natural Gas    $4.43    $4.61
Gold    $1,379.00    $1,321.60
Euro    $1.39    $1.38

Mark A. Lewis

Director of Operations

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Taxable Income Reduction Strategies

As a trusted financial advisors for our clients, our priority is to stay apprised on current tax laws, as well as provide planning opportunities to reduce future tax liabilities. For many of our clients, their Traditional IRAs are also their largest tax liability. When an IRA is responsibly managed, the hope is that the account will continue growing until the owner’s late 70s. At that point in time, the mandatory withdrawals from the account may offset any capital appreciation and earnings on the account. When taking into account these growth expectations, as well as the client’s necessary cash flow, many clients find that the RMDs in their 80s will far exceed their necessary cash flow. These factors contribute to an increasing likelihood of the client having a higher tax rate later in life. Higher Modified Adjusted Gross Income(MAGI) is one concern that has a trickle down effect. When MAGI gets high enough, it can result in an income based adjustment for Medicare Part B and D. It should be clear by now that a healthy retirement can actually increase tax concerns.

So, by now you may be saying, “Thanks for the depressing news Daniel, I don’t think I want to read any further. ” I encourage you to keep reading.
 
Controlling Income

The first step in keeping MAGI low is controlling income. For retired individuals, there are two main sources of cash flow. The first being social security and pensions. These are fixed amounts that cannot be changed. The second source is income from personal assets. This includes brokerage accounts, Traditional IRAs, and Roth IRAs. A brokerage account is not a tax-deferred account. Therefore any income produced by the account will contribute to MAGI. It is possible to manipulate a brokerage account’s holdings to reduce taxable income. The second source of cash flow is withdrawals made from Traditional IRAs to supplement income or fulfill an RMD. These withdrawals are fully taxable to the individual. In addition to Traditional IRA withdrawals, Roth IRA withdrawals can be made, however, these withdrawals are not taxable to the individual if made after 59 ½. The IRS gives us tax tables, from these, we are able to determine the maximum amount of taxable income we want to produce for clients. As I said before, it may become impossible to keep income below this desired threshold when RMDs get larger and larger. If this is the case, we move on to advanced planning techniques.

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Roth Conversions and Charitable Remainder Trusts 
One of our favorite techniques to reduce the impact of RMDs is to combine the benefits of a Roth IRA with a charitable gift. The establishment of a Charitable Remainder Trust may allow someone with charitable intentions for their estate to realize the benefit now. The Charitable Remainder Trust can provide a lifetime income stream for the donor, as well as provide a large charitable deduction. In this tandem planning technique, the charitable deduction can offset the income incurred from a Traditional to Roth conversion. The reduction in the size of the Traditional IRA will also truncate the amount of the RMD going forward.
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This particular technique is just an example of some of the advanced planning options we evaluate with our clients. Every situation is different with special circumstances to consider. If you have any questions about these strategies, contact one of our advisors.
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Happy 5th Anniversary, Bull Market!

That’s right, it’s the Wood Anniversary for the market, which hit bottom on March 9, 2009. Since then, it has come roaring back – the S&P 500 is up 174% for the 5-year period (that’s price change only, not total return). Not too shabby.

The WSJ has a nice article here showing the anniversary in five charts. According to one of the charts, this rally is the second-best since WWII (beaten only by the S&P’s 228% gain from 10/82 through 10/87). The article’s author thinks there is still room to go in the market recovery, saying that investors’ confidence in the rally will continue to fuel stock market inflows.

No one knows what the future will bring where the market is concerned, but the present is a far cry from five years ago. Happy Friday, happy bull market anniversary, and here’s to five more years!

Sarah DerGarabedian, CFA
Portfolio Manager

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Market Update Through 2/28/2014

as of February 28, 2014        
  Total Return
Index 12 months YTD QTD Feb
Stocks        
Russell 3000 26.74% 1.43% 1.43% 4.74%
S&P 500 25.37% 0.96% 0.96% 4.57%
DJ Industrial Average 19.01% -1.07% -1.07% 4.34%
Nasdaq Composite 38.10% 3.36% 3.36% 5.15%
Russell 2000 31.56% 1.81% 1.81% 4.71%
EAFE Index 18.48% 0.26% 0.26% 3.74%
         
Bonds        
Barclays US Aggregate 0.15% 2.02% 2.02% 0.53%
Barclays Intermediate US Gov/Credit 0.31% 1.31% 1.31% 0.38%
Barclays Municipal  -0.21% 3.14% 3.14% 1.17%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $102.59    $100.30
Natural Gas    $4.61    $5.21
Gold    $1,321.60    $1,318.60
Euro    $1.38    $1.36

Mark A. Lewis

Director of Operations

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Market Update Through 2/15/2014

as of February 14, 2014        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 24.29% -0.08% -0.08% 3.18%
S&P 500 23.45% -0.26% -0.26% 3.31%
DJ Industrial Average 18.46% -2.19% -2.19% 3.16%
Nasdaq Composite 34.42% 1.76% 1.76% 3.52%
Russell 2000 26.06% -1.14% -1.14% 1.67%
EAFE Index 17.62% -1.57% -1.57% 1.85%
         
Bonds        
Barclays US Aggregate 0.02% 1.45% 1.45% -0.03%
Barclays Intermediate US Gov/Credit 0.39% 1.01% 1.01% 0.09%
Barclays Municipal  -0.87% 2.21% 2.21% 0.26%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $100.30    $97.49
Natural Gas    $5.21    $4.94
Gold    $1,318.60    $1,239.80
Euro    $1.36    $1.34

Mark A. Lewis

Director of Operations

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Does Jiro Dream of Retirement Too?

I recently moved to the Asheville area after living in Atlanta for twelve years. Ironically, the seeds of my move started around the time I purchased my very first home in Brookhaven, a charming neighborhood in Atlanta. I say ironically because for the prior ten years I held a fairly good and financially stable job, yet had never considered buying a house. Why not you ask? Well, I wasn’t sure myself until last week when I watched the documentary, “Jiro Dreams of Sushi” – which, by the way, I highly recommend.

Jiro is a world-renowned – – perhaps the world-renowned – – sushi chef, operating a tiny ten-seat restaurant inside one of Tokyo’s hundreds of subway stations. Jiro seemed to have no worries about money as far as I could tell, and at age ninety-something, he wasn’t quite ready to retire either. Something about Jiro, his perspective on- and relationship to his work prompted questions within me, questions about my own career, my relationship to my work, and my dreams for the future. Because as far as I can tell, most of us, myself included, work and save, plan and invest, with the hope and dream of one day retiring so that we no longer have to work. But in Jiro’s case, his work was his dream. It was one and the same. Which really hit a nerve in me and at the same time provided some clarity.

What I realized was that for the ten years prior to buying my first house, despite having a good job that would allow me to do it, my dreams and plans for my future life did not involve doing the work I was doing at the time. Meaning, I was not fully engaged in my career or my life and as a result I was often on the lookout for an escape route – and buying a house would have been a major impediment to escape. The job was a good one, interesting enough, and certainly gave me financial stability, but I believed happiness lived in some other job, at some other firm, pursuing some other career. I became so hungry for change that in 2008 I actually quit my job and moved to France for nine months. Interestingly enough, despite a fantastic, and in many ways, unexpected trip, I came home to find myself in almost exactly the same place. I say almost because while the circumstances, people, and places looked about the same, my perspective had changed.

I returned to my old job, worked with the “old” coworkers, and rented another apartment in the same old city. But having lived across the pond, having had the experiences I had, and having returned, I saw in the end that there actually was no escape. Good news really, because before France I planned and saved my money to escape my life, but after France I planned and saved my money to live more deeply into my life. As a result of this small shift, life and I were much more on the same page. It was in the midst of this shift that I started taking a deeper interest in my work as a financial analyst. I became more curious and engaged, and in turn the work itself grew more engaging and satisfying. A virtuous cycle had begun and continues today. It was when I finally stepped into my life and stopped trying to escape it that a new life, as such, presented itself. Just a year and half after purchasing my first house in Atlanta, a new and exciting career and life opportunity presented itself, and in my dream-city (Asheville), no less.

All this to say, that while planning for retirement, setting goals, and making smart choices are hugely important and necessary components of a satisfying and rewarding retirement, so too is engaging with our current circumstances, in our current jobs, and in our current lives, just as they are today. Thanks Jiro.

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Market Update Through 1/31/2014

 

as of January 31, 2014    
     Total Return
Index 12 months YTD/QTD/JAN
Stocks    
Russell 3000 22.60% -3.16%
S&P 500 21.52% -3.46%
DJ Industrial Average 16.07% -5.19%
Nasdaq Composite 32.33% -1.70%
Russell 2000 27.03% -2.77%
EAFE Index 16.31% -3.36%
     
Bonds    
Barclays US Aggregate 0.12% 1.48%
Barclays Intermediate US Gov/Credit 0.41% 0.92%
Barclays Municipal  -1.07% 1.95%
     
  Current Prior
Commodity/Currency Level Level
     
Crude Oil  $97.49  $94.17
Natural Gas  $4.94  $4.33
Gold  $1,239.80  $1,238.30
Euro  $1.34  $1.35

Mark A. Lewis

Director of Operations

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Where is My Money?

It seems there are always stories in the news about the latest scheme that has defrauded many people. Seeking a big return, people give their hard-earned dollars to criminals. The big return is never realized. All the money is lost.

With all the bad guys in our industry, I can understand how someone would look at Parsec with a skeptical eye. I am not going to discuss our performance returns or market strategies in this post. I want to discuss something a little more basic that everyone should consider when interviewing a potential investment advisor: “Where is my money?”

In some cases, the victim gives the criminal money to buy investments. In turn, the fraudsters provide the victim with a statement showing assets purchased with that money. It may contain the names of easily recognizable companies. Without an actual stock certificate behind that piece of paper, the statement is worthless.

At Parsec, we do not take custody of your assets. The assets are held at an independent broker, in your name. We recommend Charles Schwab, Fidelity, and T.D. Ameritrade, all brokers whose names you probably recognize. You will receive a quarterly statement from us that contains performance statistics and other information. You also receive a monthly statement from the independent broker so you know exactly what you own in each investment account.

Furthermore, we do not have the authority to move those assets to an unlike-registered account without your consent. You must sign a letter or form to authorize the movement of securities to unlike-registered accounts, which adds another layer of security.

When assets are held at a broker and registered to you, an independent source tells you what you own. There are no “phantom” assets. Also, giving someone the ability to move assets to accounts not registered in your name can be dangerous if in the wrong hands.

When you select an investment advisor, I hope you will ask this very basic question. You worked hard to accumulate what you have. Don’t let an unscrupulous person take it away from you.

Cristy Freeman, AAMS
Senior Operations Associate

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