Carolinas Investment Consulting // Summer 2015 // The Consultant

Dustin Barr

In the first half of 2015, international markets outpaced domestic markets after trailing in 2014. Returns were modest for nearly all asset classes, but it’s important to note we didn’t get here in a straight line. The first quarter saw strong gains in U.S. bonds and international equity, followed by mixed results in U.S. equities and negative returns in commodities. The second quarter

experienced positive commodity returns, flat U.S. and international equities, and negative returns in the bond market. As the table below shows, market returns in June were negative in most cases and led to the muted 2015 YTD numbers. Commodities fell more than 10% in July, on pace for a fifth consecutive year of negative returns.
*Source: Zephyr Associates, Inc. All returns represent total return for the stated periods as of June 30, 2015.

*Source: Zephyr Associates, Inc. All returns represent total return for the stated periods as of June 30, 2015.

Continued on page 4


Wade Austin

For over a year – long before the summer’s Grexit and a Bear in a China Shop drama dominated headlines
– an intense spotlight across the globe has been shining on the U.S. Federal Reserve. When will the Fed begin to tighten, and how will financial markets react?

The current consensus on the first hike, which Fed Chair Janet Yellen reinforced during her July 15th testimony before Congress, is before year-end, with a slight nod to September over December among economic prognosticators. Keep in mind that projections for liftoff have been a moving target for some time. Just last fall, leading economists forecasted the first increase to occur in March or April and June at the latest. Yet now in August, the futures markets are inferring the Fed won’t act until 2016.

What happens until then? Mark Twain suggested “history doesn’t repeat, but it does rhyme.” As Heidi Murkoff’s bestselling guidebook has reassured anxious moms- and dads-to-be for over three decades, perhaps a look back at prior instances of initial Fed tightening periods can prove insightful for investors.

J.P. Morgan’s research (see chart) revealed that, in each of the past five 90-day periods prior to liftoff, the S&P 500 closed higher on the date of the first hike. The 10-Year U.S. Treasury bond yield closed modestly higher 80% of the periods.

Fed tightening is their signal that the economy is doing well and on solid footing – traditionally, favorable conditions for corporate earnings as well as consumer spending and optimism, and, in turn, drivers for advancing stocks prices. Yellen explained that Fed officials expect growth “to strengthen over the remainder of this year and the unemployment rate to decline gradually.”


However, the caution this time around comes from exiting an unprecedented seven years of easing monetary policy that has pumped liquidity into the U.S. and global economies and suppressed interest rates and volatility. We simply don’t have a precisely relevant guidebook to reference in determining what masked problems or unintended consequences may be lurking in these uncharted waters. Also, it is noteworthy that none of the current members of the Federal Reserve Board of Governors served during the last “first hike” cycle in 2004.

Once the Fed does act, the focus will quickly shift to the pace of subsequent increases. If the path is gradual as most anticipate, then this lengthy bull market likely will have more room to run.

We aren’t expecting a smooth ride in either equity or fixed income markets, as evidenced by July’s action. But, as long-term investors, you can expect us to focus on the implications of economic and corporate fundamentals (improving at a slow but steady pace
as punctuated by the somewhat disappointing GDP report of only 2.3% growth and mixed corporate earnings data for Q2.), while resisting the temptation to react to short-term fears that can negatively impact returns and whipsaw portfolios.


Walker Shelton
Having given them cash at graduation – quickly spent at the Apple Store, Amazon, Uber or… consider a gift of more permanent value as they head off to college.

The summer after your child or grandchild graduates from high school is a time of mixed emotions for most parents and grandparents. You spent the past 18 years guiding them on the path to adulthood. Now help them with another key strategy which neither of you may consider until an unforeseeable event occurs.

Let’s face it – their newfound freedom and independence may include late night parties, road trips, intramural sports activities, or a semester abroad. Young adults too often encounter unexpected challenges and emergencies. And just like their parents, college-age and young adults need to have certain legal arrangements in place to help them – and you – make the best decisions should emergencies arise.

Legally your child or grandchild is considered to be an adult at the age of majority, as determined by each state (18 years of age in North and South Carolina). Absent proper legal documents, your ability to advocate for them may be difficult and untimely.

As premature as it may appear, adult children should consider having these and other all-important estate planning documents executed:


  • HIPAA Authorization – allows you and other named persons to speak with your child or grandchild’s doctor and get information about their health. Without this release, HIPAA privacy regulations will likely prevent you from accessing even basic health information.
  • Health Care Power of Attorney – provides you and other trusted individuals the authority to make health care decisions
    in the event your child or grandchild is unable to on their own.
  • General Power of Attorney – provides you or another trusted individual the
    legal authority to manage your child or grandchild’s financial and/or legal affairs in the event of incapacity. This document would allow the named person to manage their bank accounts and pay their rent, utility, credit card, and tuition bills.
  • Last Will and Testament – allows your child or grandchild to name individuals or entities as recipients of their personal property in the event of death.
  • The good news is that many colleges and universities offer their students legal services, and these documents can be drafted, often free of charge.

    We all encounter challenges, and there is no way to know when an accident or tragedy may strike. During this first phase of adulthood, encourage the young adults in your family to begin their journey prudently with these protective documents in hand.

Community Service

WE ARE EXCITED TO ANNOUNCE that Dustin Barr, CFA has recently joined the CIC team! Dustin will assume the Director of Research role from Oliver Cross, who will focus exclusively on serving clients as a Consultant. Dustin brings a wealth of investment research experience from TIAA-CREF Asset Management where he most recently was Director, Investment Product Management. Dustin is a Chartered Financial Analyst (CFA®) charterholder. We look forward to introducing Dustin to you during your next visit.



In late June, markets received a jolt of uncertainty as news broke on the Greece situation and Chinese equity market drop. While the increase in volatility is concerning, it’s important to keep in mind that we are just now reaching average volatility levels and are nowhere near the levels we saw in the 2011 European debt crisis or the 2008 financial crisis.

The developments in Greece appear to be far more political than financial, and the risk of contagion is relatively low. China most likely poses a greater risk as the recent market declines followed a rampant increase in stock prices, which were largely driven by margin trading. It’s quite possible that China will be successful in staving off a crisis; however, valuations are elevated, and the use of leverage is concerning.

In addition to the news cycle abroad, the markets are closely following the Fed’s impending decision to raise rates for the first time since 2006. We would be surprised to see anything more than a modest rate hike in 2015, unless economic data turns strongly positive. The Fed tends to lock in growth before addressing inflation, and we have no reason to believe that this time will be any different (see article on page 2 for commentary on what to expect in a rate hike scenario).

Recent market events highlight the importance of big picture, long-term investing. We remain focused on interest rate levels, global economic signals, and corporate earnings, as we believe these factors should have a greater impact on longer-term investment returns than the Greek news cycle. Now, more than six years into the equity bull market, we should be mindful that equity returns will most likely be lower in the future five years than they have been in the previous five years. However, given the improving labor market, cheaper oil prices and historically low interest rates, there is reason to believe that equity markets still have an upward trajectory.


More than $438 million in unclaimed property is being held by the State Treasurer of North Carolina today. Some of this property may belong to you. Would you like to claim it?

Unclaimed or abandoned property includes assets or accounts held with financial institutions or other companies that have lost contact with their client or customer over a period of time, typically resulting from old or inaccurate contact information. The type of unclaimed property can vary from uncashed dividend checks to contents left in a safe deposit box or perhaps an unknown inheritance. After a specified period of time, the institution must turn the property over to the state. The state then makes a claim for the property through a process called escheatment.

Once claimed through escheatment, the state will typically hold the assets as a bookkeeping entry until the former account owner makes a valid claim. Most states will sell the unclaimed asset. Upon a valid claim, they provide the rightful owner a cash equivalent value as of the date of escheatment. Accrued interest and earnings remain with the state and are allocated towards a general fund, in North Carolina’s case, the State Education Assistance Authority (SEAA).

Each state’s Treasurer’s office maintains a searchable database of unclaimed property via free, online access. To claim property, you must complete the state’s online claim form providing proof of your social security number and address. Groups like the National Association of Unclaimed Property Administrators (NAUPA) and help make multi-state searches convenient.

While there is no time limit for claiming your assets, you may quickly check if you are due property by visiting North Carolina’s or NAUPA’s multi-state searchable websites below. Claim-Your-NC_Cash/Pages/Search.aspx

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R. Wade Austin
Oliver R. Cross III
R. Christopher Gammon, CFA, CFP®
Christopher K. Grogan
Thomas E. (Ted) Highsmith
David A. Perkins, J.D., CPA, CFP®
and George H. Edmiston, Jr., President & Founder

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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