Benchmark Returns – 2010

as of December 31, 2010      
  Total Return
Index 2010 4th QTR December
Stocks      
Russell 3000 16.93% 11.59% 6.78%
S&P 500 15.06% 10.76% 6.68%
DJ Industrial Average 14.06% 8.04% 5.33%
Nasdaq Composite 18.15% 12.34% 6.29%
Russell 2000 26.86% 16.25% 7.94%
EAFE Index* 4.90% 6.23% 8.02%
*EAFE index does not include dividends.      
       
Bonds      
Barclays US Aggregate 6.54% NA -1.08%
Barclays Intermediate US Gov/Credit 5.89% NA -1.25%
Barclays Municipal  2.38% NA -1.94%
       
  Current   Prior
Commodity/Currency Level   Level
       
Crude Oil  $92.25    $91.12
Natural Gas  $4.56    $4.11
Gold  $1,419.00    $1,401.30
Euro  $1.33    $1.31
       
       
RECOVERY! Since 3/09/09    
   Total Return TR annualized  
Index      
Stocks      
Russell 3000 99.39% 46.30%  
S&P 500 93.08% 43.73%  
DJ Industrial Average 86.07% 40.83%  
Nasdaq Composite 112.97% 51.71%  
Russell 2000 134.04% 59.81%  
EAFE Index* 81.95% 39.10%  
*EAFE index does not include dividends.      

 

Mark A. Lewis

Research & Trading Associate

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Gold-Plated Paper Clips for All!!!

I recently saw one of the “Oprah” episodes where she gave away mountains of stuff.  I am always shocked at the reaction.  She could say she is giving away a gold-plated paper clip, and people in the audience would lose it.  I mean, people were screaming, crying, hugging each other, jumping up and down.  Really?  The only thing that would garner that type of reaction from me would be if she brought out George Clooney, in an electric blue Bugatti Veyron.  He hands me the keys and says, “Let’s go for a ride.”  Oh, yeah. 

As I continued to watch the show, I realized that I have been working at Parsec way, way too long.  She brought out expensive gift after expensive gift.  Two thoughts popped into my head: “Geez, the taxes on this stuff will be terrible” and “I wonder if you could say no to some of this junk and yes to the other stuff, to reduce the tax liability.”  I doubt anyone in the audience thought the same thing.  They were too excited about rhinestone-studded mop handles.

Just out of curiosity, I asked one of our advisors about the tax consequences.  Unfortunately, the answer is more complicated than I anticipated.  It all depends upon each person’s individual situation and state of residence.  How you receive the gift also comes into play.  Oprah’s gold-plated paper clip might be considered contest winnings, so you might have to pay tax.  However, if Uncle Joe gives you a wad of cash, he might incur a tax liability, again, based upon certain factors.  So, if Clooney does appear in my driveway on Christmas Day in that lovely sports car, I should consult with a tax professional.  (I wonder what the tax appraisal for Clooney himself will be?)

Should Santa be extra generous to you this year, keep the gift tax in the back of your mind.  Do not get all excited about the gift and forget that the tax man always cometh for someone, either Santa or you!

I hope you and your family survives the madness of the holidays and has a healthy, happy new year. 

Cristy Freeman, AAMS
Senior Operations Associate

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New Estate Tax Exemption

The new tax package stipulates that the estate tax exemption amount for each individual will be $5,000,000 – a new all-time high. The estate tax exemption was $50,000 in 1916 and rose slowly to $675,000 in 2000-2001. Interestingly, the value of $50,000 in 2000 dollars (3% inflation added) is $598,820 so in reality the exemption amount hadn’t grown that much. It was $3,500,000 in 2009 and zero in 2010.

Most of us are well under the $5,000,000 threshold, but for others, this means that a couple can pass $10,000,000 to their beneficiaries estate tax free. Of course, they will need a trust to shelter the first $5,000,000. A single person can pass the $5,000,000 and all values over that are taxed at a modest 35%. While 35% may not seem modest, the tax has been as high as 55% in previous years.

The exemption amount was scheduled to go back to $1,000,000 in 2011 unless Congress agreed on a different amount. While $1,000,000 is a lot of money, it isn’t what it used to be. According to Money Magazine, there were 7.8 million individuals classified as millionaires in the US at the end of 2009. The ultra-high net worth individual, which is categorized as $5 million or more, was only 980,000, which is a pretty exclusive group.

At the end of 2009, the average US resident’s net worth – the market value of property and investments minus mortgage, credit card and other debts – was $175,600 according to data from the Fed and the Commerce Department That is a long way from $5,000,000 or even $1,000,000! How do you get there from here? Live within your means and save between 15% and 20% of your income. When you live within your means you do not use a credit card to buy things that you cannot afford. It sounds pretty simple but I know it is hard to do. The media blitz of things that we must have, that we can’t live without, that seem to be an absolute necessity, are just never ending. It is hard to be frugal in the current climate. However, if you are not frugal in the years you are earning an income, I can guarantee that you will be frugal in your retirement years because you will not have enough assets to last your lifetime.

Barbara Gray, CFP®
Partner

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Weekly Market Update through 12/17/10

as of December 17, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 17.92% 15.63% 10.35% 5.59%
S&P 500 15.79% 13.74% 9.48% 5.46%
DJ Industrial Average 14.53% 13.19% 7.22% 4.52%
Nasdaq Composite 22.52% 17.68% 11.90% 5.86%
Russell 2000 30.62% 26.10% 15.56% 7.29%
EAFE Index* 4.69% 2.58% 3.88% 5.63%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 4.91% 6.15% NA -1.44%
Barclays Intermediate US Gov/Credit 4.50% 5.70% NA -1.43%
Barclays Municipal  1.98% 2.24% NA -2.07%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $88.36    $89.08
Natural Gas    $4.11    $4.54
Gold    $1,386.70    $1,391.00
Euro    $1.31    $1.32
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 97.17% 46.58%    
S&P 500 90.86% 43.92%    
DJ Industrial Average 84.64% 41.26%    
Nasdaq Composite 112.12% 52.74%    
Russell 2000 132.63% 60.89%    
EAFE Index* 77.92% 38.34%    
*EAFE index does not include dividends.        

Mark A. Lewis
Research & Trading Associate

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Weekly Market Update through 12/10/10

as of December 10, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 17.32% 15.22% 9.96% 5.22%
S&P 500 14.81% 13.39% 9.15% 5.13%
DJ Industrial Average 12.66% 12.35% 6.42% 3.75%
Nasdaq Composite 21.64% 17.40% 11.63% 5.62%
Russell 2000 32.13% 25.62% 15.11% 6.88%
EAFE Index* 3.81% 2.68% 3.98% 5.74%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 5.04% 6.06% NA -1.52%
Barclays Intermediate US Gov/Credit 4.56% 5.63% NA -1.49%
Barclays Municipal  2.62% 2.90% NA -1.44%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $89.08    $89.24
Natural Gas    $4.54    $4.48
Gold    $1,391.00    $1,415.40
Euro    $1.32    $1.32
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 96.47% 46.90%    
S&P 500 90.27% 44.24%    
DJ Industrial Average 83.28% 41.20%    
Nasdaq Composite 111.62% 53.24%    
Russell 2000 131.74% 61.38%    
EAFE Index* 78.10% 38.91%    
*EAFE index does not include dividends.        

Mark A. Lewis

Research & Trading Associate

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Weekly Market Update through 12/03/10

as of December 3, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 16.22% 13.68% 8.49% 3.81%
S&P 500 13.61% 11.91% 7.72% 3.76%
DJ Industrial Average 12.81% 11.99% 6.08% 3.42%
Nasdaq Composite 20.48% 15.32% 9.66% 3.74%
Russell 2000 30.09% 22.29% 12.06% 4.05%
EAFE Index* 0.30% 2.32% 3.62% 5.36%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 5.86% 6.97% NA -0.68%
Barclays Intermediate US Gov/Credit 5.56% 6.66% NA -0.53%
Barclays Municipal  3.98% 4.13% NA -0.26%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $89.24    $84.55
Natural Gas    $4.48    $4.42
Gold    $1,415.40    $1,364.10
Euro    $1.32    $1.31
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 93.84% 46.38%    
S&P 500 87.79% 43.73%    
DJ Industrial Average 82.69% 41.47%    
Nasdaq Composite 107.87% 52.39%    
Russell 2000 125.60% 59.74%    
EAFE Index* 77.47% 39.13%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Job Picture Improving, But Slowly

On the first Friday of each month at 8:30am, the Bureau of Labor Statistics (BLS) releases information on job gains or losses from the previous month.  This is referred to as the nonfarm payroll report. 

The November report was released this morning, indicating a gain of +39,000 jobs.  This was below the consensus expectation of +145,000 jobs.  The unemployment rate increased from 9.6% to 9.8%.

Many people are questioning the economic recovery since the unemployment rate continues to climb.  The first thing to remember is that there is a large margin of error in the nonfarm payrolls report (plus or minus 100,000).  This means that the current report could be anywhere from +139,000 to -61,000.  As a frame of reference, it takes a monthly increase of about +125,000 jobs to keep unemployment rate steady and +250,000 to make it decline.  Furthermore, the numbers are often revised significantly in subsequent reports.  For example, in September the original report was a decline of -95,000 in total payroll employment.  This was revised upward to -41,000 in October, then up again to -24,000 in November.  October was initially stronger than expected at +151,000 versus an expectation of +60,000.  In November, this gain was revised upward to +172,000.

Earlier in the week, the ADP jobs report came out slightly better than expected.  While ADP is the nation’s largest payroll processor, I have found that their report has its limitations.  The ADP report is more focused on small businesses, while the government statistics are broader in nature. Unfortunately both the BLS and ADP reports can create short-term volatility in the stock market.  In the long run, it’s like last year’s Super Bowl:  I don’t even remember who played.

Rather than focusing on the month-to-month changes, we believe what is important is the bigger picture.  We are encouraged that payroll employment has increased by an average of 86,000 per month since its recent low point in December 2009.  Since that time, the economy has added about 1 million jobs.  Jobs are being created, although a bit more slowly than we would like.  It is important to remember that the current pace of job creation is a dramatic improvement from the monthly job losses of -524,000 to -651,000 that we were seeing in late 2008 and early 2009.  Unemployment is a lagging indicator, and will be one of the last things to improve as the economy recovers.

 Bill Hansen, CFA

Managing Partner

December 3, 2010

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Weekly Market Update through 11/26/10

as of November 26, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 11.87% 10.32% 5.29% 1.33%
S&P 500 9.27% 8.63% 4.56% 0.73%
DJ Industrial Average 8.90% 9.04% 3.29% 0.08%
Nasdaq Composite 19.73% 12.77% 7.23% 1.25%
Russell 2000 28.53% 18.43% 8.53% 4.26%
EAFE Index* 1.05% -0.71% 0.54% -2.90%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate NA 7.50% NA -0.76%
Barclays Intermediate US Gov/Credit NA 7.03% NA -0.86%
Barclays Municipal  NA 4.18% NA -2.21%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $84.55    $81.54
Natural Gas    $4.42    $4.14
Gold    $1,364.10    $1,354.50
Euro    $1.31    $1.36
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 88.13% 44.47%    
S&P 500 82.28% 41.84%    
DJ Industrial Average 77.88% 39.83%    
Nasdaq Composite 103.26% 51.12%    
Russell 2000 118.49% 57.61%    
EAFE Index* 72.21% 37.22%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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Weekly Market Update through 11/19/10

as of November 19, 2010        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 14.36% 10.87% 5.81% 1.83%
S&P 500 11.45% 8.84% 4.75% 0.94%
DJ Industrial Average 10.68% 9.27% 3.48% 0.29%
Nasdaq Composite 18.53% 11.99% 6.40% 0.42%
Russell 2000 25.13% 16.76% 6.94% 2.68%
EAFE Index* 4.46% 2.85% 4.15% 0.58%
*EAFE index does not include dividends.        
         
Bonds        
Barclays US Aggregate 6.52% 7.51% NA -0.75%
Barclays Intermediate US Gov/Credit 6.13% 7.04% NA -0.85%
Barclays Municipal  4.35% 3.64% NA -2.72%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $81.54    $85.59
Natural Gas    $4.14    $3.81
Gold    $1,354.50    $1,362.90
Euro    $1.36    $1.36
         
         
RECOVERY!        
  Since 3/09/09      
Index  Total Return TR annualized    
Stocks        
Russell 3000 89.06% 45.23%    
S&P 500 82.65% 42.32%    
DJ Industrial Average 78.27% 40.31%    
Nasdaq Composite 101.74% 50.86%    
Russell 2000 115.37% 56.75%    
EAFE Index* 78.39% 40.37%    
*EAFE index does not include dividends.        

 

Mark A. Lewis

Research & Trading Associate

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What would you say ya do here?

I was recently asked to write a summary of Parsec’s investment process, in a relatively jargon-free, easy-to-understand manner. As it happens, it is also my turn to post the blog, so surprise! I’ll be killing two birds with one stone. In much the same manner Andie Walsh created her prom dress in Pretty in Pink, I have fashioned this summary from bits and pieces of preexisting brochures and other client materials, so it may look a little familiar:

We follow a long-term investment strategy based on diversification and reduced risk. Although we create a customized portfolio for every client, our overall investment approach includes:

  • Balanced investment between growth and value, including small-, mid- and large-cap companies, with some weight in international markets;
  • Individual stocks for the large-cap portion of a portfolio (when appropriate to account size), carefully researched and chosen by our Investment Policy Committee;
  • Equity mutual funds for the mid-cap, small-cap, and international portions of a portfolio;
  • High-quality short- and intermediate-term bond funds or individual bonds for clients who require a fixed-income allocation.

We follow a bottom-up stock selection process focusing on several fundamentals including:

  • Current valuation relative to projected earnings growth;
  • Price/earnings ratio relative to the overall market and to the company’s own historical range;
  • Degree of financial leverage, avoiding heavily indebted companies;
  • Level and consistency of profit margins.

Based on our research and analysis, we have compiled a recommended list of securities. We continually monitor the prices of the securities on this list, as well as any news regarding these holdings. In addition, every security in our coverage universe is formally reviewed at least 3 to 4 times a year, and more often if circumstances dictate.

Our Investment Policy Committee meets weekly to discuss each company and vote on a recommendation. If the committee votes to sell a holding, a block trade is initiated across all discretionary client accounts so that the committee’s convictions are effected on a firm-wide basis in an orderly and timely fashion. When the trade is executed, all accounts participating in the trade receive the same price.

Investing in securities involves risk of loss that clients should be prepared to bear.  Investment risk consists of both systematic risk and unsystematic risk.  Unsystematic risk is not related to the market as a whole, but rather is associated with a specific firm or investment.  Systematic risk is the risk associated with the overall market that is not unique to any one investment vehicle. It is possible to reduce unsystematic risk by creating a portfolio diversified across many different companies and sectors.

It is not possible to eliminate systematic risk.  Macroeconomic factors such as inflation, unemployment, corporate earnings, commodity prices, and interest rates all contribute to systematic risk since they influence the prices of all risky assets. However, it is possible to lower systematic risk somewhat by diversifying internationally, since economic variables in the U.S. are not necessarily correlated with those in other countries. Of course, investing internationally exposes investors to risks related to social, political, and economic factors, as well as fluctuating exchange rates.

Sarah DerGarabedian, Research and Trading Associate

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