Market Update Through 12/31/2013


as of December 31, 2013        
  Total Return
Index 12 months YTD QTD DEC
Russell 3000 33.55% 33.55% 10.10% 2.64%
S&P 500 32.39% 32.39% 10.51% 2.53%
DJ Industrial Average 29.65% 29.65% 10.22% 3.19%
Nasdaq Composite 40.12% 40.12% 11.10% 2.94%
Russell 2000 38.82% 38.82% 8.72% 1.97%
EAFE Index 27.46% 27.46% 6.40% 1.41%
Barclays US Aggregate -2.02% -2.02% -0.14% -0.57%
Barclays Intermediate US Gov/Credit -0.86% -0.86% -0.14% -0.63%
Barclays Municipal  -2.55% -2.55% 0.33% -0.26%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $98.42    $96.60
Natural Gas    $4.23    $4.35
Gold    $1,202.30    $1,235.70
Euro    $1.37    $1.37

Mark A. Lewis
Director of Operations

Inflation Is Definitely Not a Problem

There are many things you might want to worry about concerning the U.S. economy, but inflation is definitely not one of them.  We continue to get nothing but good news on that front.

There are two primary measures of inflation in the U.S.  The one that people are most familiar with is the Consumer Price Index (CPI).  It is based on the prices of a basket of goods using fixed weights and is calculated and reported every month by the Bureau of Labor Statistics.  BLS reported the data for October 2013 on November 20.

Chart 1 shows the pattern for the overall CPI since 1946.


Chart 1

The base for this index is 1982-1984=100.  The index in October was 233.5.  This is the index for all urban consumers, the CPI-U.  BLS also publishes a CPI for urban wage and clerical workers, the CPI-W.

There is also the chained CPI index for all urban consumers (C-CPI-U).  That’s the one that has generated lots of discussion in Washington, D.C. as a candidate to replace the CPI-U in calculating the annual cost of living increase for Social Security benefits and income tax brackets.  If those changes happen, many more people will become familiar with this index. The C-CPI-U uses weights that change as consumption patterns change. That’s why it rises less than the CPI-U.

Chart 2 shows the year-over-year percentage changes in the CPI-U.  You can clearly see the big increases in prices after price controls expired after World War II and during the Korean War.  You can also see the period of the “Great Inflation” of 1965-1980 followed by the “Great Moderation.”


Chart 2

The CPI-U only rose by 1.0 percent in the twelve months ending in October 2013.  That’s mostly because energy prices fell by 4.8 percent, led by a 10.1 percent drop in gasoline prices.

The CPI-U excluding food and energy is called the “core CPI-U.”  It rose 1.7 percent in the year ended in October.

Either way suggests there is not much inflation in the system.  The members of the Federal Open Market Committee prefer to follow the implicit price deflator for personal consumption expenditures.  That’s because it both uses changing weights and measures all goods and services that consumers use. This measure is computed by the Bureau of Economic Analysis and is reported in the quarterly national income and product accounts.  The most recent data came out on November 7, 2013.

Chart 3 shows this measure. Its base is 2009=100.  This index was up only 1.1 percent from the third quarter of 2012 to the third quarter of 2013.  The index excluding food and energy was up only 1.2 percent for the same period.


      Chart 3

The raw material for inflation is the rate of growth of the broad M2 money supply.  This includes currency, demand deposits, savings deposits and time deposits of $100,000 or less.  The late Milton Friedman, recipient of the 1976 Nobel Memorial Prize in Economic Science, devoted much of his life to the study of money growth and inflation.  He taught all of us that “Inflation is always and everywhere a monetary phenomenon.”

The Board of Governors of the Federal Reserve System reports these data every week in its “Money Stock Measures-H.6” release. For the 52 weeks ended November 11, 2013, the rate of increase in M2 has been 6.5 percent.  That’s in line with the past three years and is no reason for alarm.

If you want to worry about the U.S. economy, then worry about how to break the U.S. economy out of the slow growth we’ve been experiencing since the recession ended in June 2009.  This has been the weakest expansion after a recession in over 100 years.  We are now in the fifth year of the expansion and real GDP is only 10.0 percent above where it was at the trough in the second quarter of 2009.

Dr. James F. Smith
Chief Economist


Small Steps

This morning, I was reading an online article about simple ways to increase retirement savings.  I started thinking about how to express this to our ERISA/401k plan participants and figuring out a new way to educate them on the importance of saving for their future.  I’m fearful that some have determined in their mind that a secure future is something unobtainable, while others realizing that there’s not enough money to live on. 

My desire for our ERISA clients and plan participants is greater confidence in their ability to accomplish their retirement goal.  We’ve attempted to remove indecision that can arise from creating one’s investment allocation from the line of funds by offering mutual fund models.  We have also ensured that there are financial planning tools and calculators on the Third Party Administrator’s website (for our Daily Valuation plans) that helps to inform the participant about how much money needs to be saved each month.  However, these tools and resources will not overcome indecision.  That is why we also go one step further and provide ongoing education to the participants of these plans.  Herein lies my most sincere desire:  That participants make a choice and take action to move one step closer to a comfortable retirement.  Any journey starts with one step and each successive step gets progressively easier. 

Regarding the article: One of the things we have employed in our retirement plan education meetings are “Simple Solutions”.  These are simple ways of carving money out from our household budget to increase our savings rate.  For instance, I frequently tell plan participants about my coffee and muffin run to the local grocery store and how I would share the muffin with my then 3 year old daughter.  As the story goes, I explain that an intern (now full time Financial Advisor at Parsec and CFP® candidate) helped to make me realize how much money I was spending over the course of 25 years.  I was shocked at the expense and immediately changed my spending habits.  What’s interesting to me is that prior to this conversation, I thought it was a nice daddy-daughter treat.  However, I quickly realized two things:  The seemingly small expense added up to significant sums of money over time.  Also, that an extra cup of coffee and breakfast at home would go a lot further for building memories with my daughter. 

I believe we have the capacity to save something.  Often times, a small step in the right direction is all that is needed to overcome the hurdle.  For others, online calculators and financial planning tools are motivating, as they give the sense of speed and direction.

Check out our twitter post:

Neal Nolan

Director of ERISA  

Market Update Through 12/13/2013

as of December 13, 2013        
                  Total Return
Index 12 months YTD QTD MTD
Russell 3000 29.15% 28.06% 5.58% -1.58%
S&P 500 27.77% 27.06% 6.06% -1.60%
DJ Industrial Average 22.65% 23.22% 4.75% -1.93%
Nasdaq Composite 35.47% 34.17% 6.39% -1.42%
Russell 2000 36.16% 31.96% 3.34% -3.07%
EAFE Index 23.10% 21.16% 1.14% -3.61%
Barclays US Aggregate -1.73% -1.82% 0.07% -0.36%
Barclays Intermediate US Gov/Credit -0.72% -0.82% 0.06% -0.37%
Barclays Municipal  -3.12% -2.47% 0.41% -0.17%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $96.60    $92.72
Natural Gas    $4.35    $3.95
Gold    $1,235.70    $1,250.60
Euro    $1.37    $1.35

Mark A. Lewis

Director of Operations

Market Update Through 11/30/2013

as of November 30, 2013        
                       Total Return
Index 12 months YTD QTD NOV
Russell 3000 31.71% 30.12% 7.27% 2.90%
S&P 500 30.30% 29.12% 7.78% 3.05%
DJ Industrial Average 26.63% 25.65% 6.81% 3.82%
Nasdaq Composite 36.73% 36.11% 7.92% 3.79%
Russell 2000 40.99% 36.14% 6.62% 4.01%
EAFE Index 29.78% 25.69% 4.92% 1.56%
Barclays US Aggregate -1.61% -1.47% 0.43% -0.37%
Barclays Intermediate US Gov/Credit -2.02% -1.75% 0.58% -0.28%
Barclays Municipal  -3.51% -2.30% 0.58% -0.21%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $92.72    $93.84
Natural Gas    $3.95    $3.66
Gold    $1,250.60    $1,287.40
Euro    $1.35    $1.34

Mark A. Lewis

Director of Operations

Market Update through 11/15/2013

as of November 15, 2013        
                      Total Return
12 months
Russell 3000 37.60% 29.40% 6.68% 2.33%
S&P 500 35.78% 28.46% 7.23% 2.52%
DJ Industrial Average 30.53% 24.51% 5.85% 2.88%
Nasdaq Composite 42.68% 33.53% 5.88% 1.82%
Russell 2000 47.13% 32.89% 4.08% 1.53%
EAFE Index 31.13% 20.74% 3.37% -0.01%
Barclays US Aggregate -1.61% -1.47% n/a -0.38%
Barclays Intermediate US Gov/Credit -0.40% -0.37% n/a -0.14%
Barclays Municipal  -3.26% -2.48% n/a -0.39%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $93.84    $96.38
Natural Gas    $3.66    $3.58
Gold    $1,287.40    $1,323.70
Euro    $1.34    $1.35

Mark A. Lewis

Director of Operations

Market Update through 10/31/2013

as of October 31, 2013        
                     Total Return
Index 12 months YTD QTD Oct
Russell 3000 28.99% 26.45% 4.25% 4.25%
S&P 500 27.17% 25.30% 4.60% 4.60%
DJ Industrial Average 21.82% 21.02% 2.88% 2.88%
Nasdaq Composite 33.79% 31.15% 3.99% 3.99%
Russell 2000 36.31% 30.89% 2.51% 2.51%
EAFE Index 27.68% 20.73% 3.38% 3.38%
Barclays US Aggregate -1.08% -1.10% n/a 0.81%
Barclays Intermediate US Gov/Credit -0.03% -0.23% n/a 0.62%
Barclays Municipal  -1.72% -2.10% n/a 0.79%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $96.38    $101.21
Natural Gas    $3.58    $3.79
Gold    $1,323.70    $1,273.00
Euro    $1.35    $1.34

Mark A. Lewis

Director of Operations

Medicare Open Enrollment is Upon Us

Medicare Open Enrollment began October 15 and will run through December 7. For those of you on Medicare, this is your opportunity to compare your existing plan to other options and to make any changes you may want.

Just as we recommend that you perform an annual review of your homeowner’s and auto policies, it is important for you to take the time to review your Medicare policies as well because the plan that’s best for you this year might not be the best next year. In September, you should have received an “Annual Notice of Change” letter from your provider. You should read it carefully for details of how your plan will change next year.

The Medicare Plan finder is a great tool to help you compare costs and coverage of the many plans available. Pay close attention to the prescription drug section. This allows you to enter your prescription medications and compare the policies that will cover them.

If all of this becomes too confusing or time consuming, you may want to consult with a counselor at the NC SHIIP (Senior Health Insurance Information Program). This free service is designed to help you better understand your options and benefits. To find a SHIIP office near you go to:

Market Update through 10/15/2013

as of October 15, 2013        
  Total Return
Index 12 months YTD QTD MTD
Russell 3000 22.79% 22.45% 0.95% 0.95%
S&P 500 20.53% 21.07% 1.07% 1.07%
DJ Industrial Average 15.98% 18.02% 0.33% 0.33%
Nasdaq Composite 25.83% 26.92% 0.63% 0.63%
Russell 2000 32.21% 28.41% 0.57% 0.57%
EAFE Index 25.32% 17.93% 1.00% 1.00%
Barclays US Aggregate -2.00% -2.05% n/a -0.16%
Barclays Intermediate US Gov/Credit -0.72% -0.90% n/a -0.06%
Barclays Municipal  -2.85% -3.30% n/a -0.44%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $101.21    $102.33
Natural Gas    $3.79    $3.56
Gold    $1,273.00    $1,326.50
Euro    $1.34    $1.35

Mark A. Lewis

Director of Operations

Politics and Your Portfolio

A bitterly divided Congress, a government shutdown, an impending debt ceiling debate – this must be a sign that our political landscape is as bad as it has ever been. But, from what I can tell Americans are instead coming together and becoming increasingly united…in their disgust with our government! The Onion, self-acclaimed as “America’s Finest News Source” (they are a satirical news outlet) had a spectacular headline recently titled “Psychiatrists Deeply Concerned for 5% of Americans Who Approve of Congress”.  At least there is still a laugh to be had out of all of the political dysfunction out there!

Regardless of your political opinion and all jokes aside there are implications of the political debates in regards to your investments. Looking back to August 2011 when Congress narrowly avoided defaulting on our debt we can see the results of the poor work efforts by our elected officials. A last minute debt ceiling increase was passed back then, but Standard & Poors still downgraded U.S. Treasury debt from their highest credit quality of AAA based on the political dysfunction. Markets were shaken with uncertainty, and this resulted in a quick decline in the stock market – but oddly enough a rush of investors bought Treasury bonds for their safety. See the irony there?

Several days ago we saw a strong rally when headlines crossed that there were talks that both sides may agree to potentially a six week increase in the debt ceiling. I take this as showing how low the market expectations are for political outcomes – a strong rally on talks of maybe meeting about a maybe making a decision…not now, but within 6 weeks.  Had you have tried to time the market reading the headlines earlier last week, you would have missed this incredible rally that seemingly came as a result of very little.

What we do know is that in the end, as messy as it may be, a solution will come, the government will reopen, and the debt ceiling will be increased. Though the near-term uncertainty can hurt markets, just look at the longer-term results from August 2011 when the S&P 500 traded below 1,200 compared to over 1,700 now. Over time a recovering economy and growing company profits drive the stock market. The politics is just an unfortunate and embarrassing side-show along the way.

Travis Boyer, CFA
Financial Advisor