Just the facts – and they are good!

Is the economy really doing poorly? Is it mostly gloom and doom, or should you be more optimistic?

Presidential race polls reflect a great concern about the economy and that about half of the country thinks the US is “losing ground” on economic issues.

However, in economic surveys and data collected that are not part of the political process, a much more positive attitude of the economy is shown. Why is there such a difference?

Let’s look at the real information, not just rhetoric.

While people express concern about the economy, actual car and truck sales reflect a different reality. Consumers and businesses buy cars and trucks when they feel confident and positive about the future. They don’t make major purchases when they are truly worried or concerned about losing their job in the near-term.

US vehicles sales for 2016 are expected to exceed 17 million cars and trucks. They may not reach 2015’s record 17.5 million units, but should reach 17.3 million vehicles, based on sales data through August. US vehicle sales were far below 17 million vehicles from 2007 – 2014.

For decades, non-politically related economic surveys have been published monthly, which reflect greater confidence and a brighter economic future than the political polls. These surveys ask many specific questions to people about their jobs, houses, financial expectations, as opposed to broad questions about the direction of the country, for example. When framed in this manner, people tend to be more positive.


The University of Michigan’s Surveys of Consumers has published an “Index of Consumer Sentiment” for 70 years. Michigan’s National survey data shows attitudes consistent with a solid economy. As the chart above reflects, the Index has been in the low 90s during 2015 and 2016, while it had been in the 60s and 70s from 2008-2013. Prior to 2015-16, the last time the Index of Consumer Sentiment had been in the 90s was in 2000.

The Conference Board, a global non-profit organization, publishes a monthly “Consumer Confidence Survey.” Their most recent report, published this week,showed consumer confidence at a 9 year high. They stated that “consumer confidence …is now at its highest level since the recession …consumers continue to rate current conditions favorably and foresee moderate economic expansion in the months ahead.” Business conditions were considered “bad” by only 16.2% of the respondents.

Political polls appear to be poor predictors of major economic variables, such as consumer spending or job growth. However, the two confidence surveys have been found to be increasingly accurate in their predictive ability. UM has done its survey for 70 years and has eliminated questions that were thought to have predictive power, but did not, making the survey more predictive.

Former Federal Reserve Chair Ben Bernanke wrote a blog post for the Brookings Institution with this conclusion earlier this year. He stated “when Americans are asked specifically about the economy, in an apolitical context, they are for the most part not nearly as pessimistic as the conventional wisdom would have it.” He feels most Americans are positive about their personal situation and future, as would be natural in this stage of a business cycle, but are more worried about the economy as a whole due to political polarization and other social factors.

The consumer confidence data is consistent with other measures that show the economy performing solidly, but not spectacularly. It appears that election-related surveys are skewed by political views and that non-political surveys are more accurate at representing Americans’ actual economic outlook.

We recommend that you focus on what you can control, rather than on what the media or politicians are saying. We are optimistic about the future, as are most Americans, when asked specific, non-politically related questions.


Note: Full sources are available upon request. Sources include The Conference Board’s Consumer Confidence Survey, University of Michigan’s Surveys of Consumers, fivethirtyeight.com article by Tim Mullaney on 9/28/16 and Brookings Institution blog post by Ben Bernanke, 6/30/2016.

Why the Wells Fargo controversy is important to everyone

Two weeks ago, Wells Fargo, one of the nation’s largest banks, was fined $185 million for opening up bank and credit card accounts for customers without their approval, as well as phony accounts for fictitious people.

Even if you are not a customer of Wells Fargo, this development is relevant for two significant reasons:

  •  It is another reminder of the risk of investing in a specific company, as even ones with previously good reputations can get hit with unexpected bad news, which can hurt their stock price.
  • You should always understand how a bank, financial advisor or stock broker is being paid or incentivized to provide, sell or recommend a product, account or investment advice.

Wells Fargo is now under intense scrutiny and criticism for the actions of thousands of their employees who apparently acted improperly in an effort to meet aggressive sales goals and quotas.

As a result of this news becoming public, their stock has fallen. What is unknown is the impact of these events on the company’s future earnings and business reputation, and thus, Wells Fargo stock. Will they lose customers? Will potential new customers go elsewhere? Will top executives lose their jobs? Even if top executives don’t lose their jobs, this will certainly be a major distraction for Wells Fargo.

This is another example of why our firm’s stock investment philosophy is notbased on individual stock picking. Until the huge penalty announcement, this bad news was not factored into Wells Fargo’s stock price. Wells Fargo previously had an excellent reputation as a well-run financial institution.

We recognize that it is not possible to predict bad news like this, which is why we recommend owning a broadly diversified set of funds. This way, you are not hurt as much by the risk of bad news affecting a single company’s stock.

Incentives, commissions and trust

Wells Fargo employees were under pressure to generate account openings and new credit card accounts. They had sales goals and were incentivized to “cross-sell” products, even if it was not in their customers’ best interest. As a large publicly held company, Wells Fargo had growth targets which certain employees had to meet.

Warren Buffett’s Berkshire Hathaway is by far the largest shareholder of Wells Fargo stock, with nearly 10% ownership. Buffett has yet to speak publicly about these incidents, but many years ago he made the following statement, which is shown at every annual shareholder meeting: “Lose money for my firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”

At our firm, WWM is compensated only by the management fee which is clearly disclosed to you during our initial meeting(s), as well as in the Investment Advisory Agreement (IAA) which all clients sign. We do not make more money for recommending a specific fund, bond or any other investment. We are fee-only investment advisors, which means you are not charged a sales commission or “load” when we buy or sell any investment on your behalf. We are proud that our firm meets a high “fiduciary standard,” which requires us to always act in your best interest. Period.

Most banks and large brokerage firms are compensated very differently than how WWM is, for investment advice or products. We are very transparent and clear about our fees. Most of these other firms do not clearly explain how customers are charged or what incentives may exist for certain products or investments they recommend.Most of these firms do not meet the high fiduciary standard which WWM adheres to.

For example, banks and insurance companies often recommend annuities to their customers, but they do not clearly disclose the commissions of up to 8% or the surrender charges you may incur if you don’t hold the annuity for many years. Brokerage firms may not charge a commission on a bond purchase, but they don’t tell you they “marked-up” the price to make a profit on the transaction.

Compared to many of the issues and causes of the 2008-09 financial crisis, the Wells Fargo actions are not nearly as bad. However, the cause of the Wells Fargo penalties, such as employee sales incentives and lack of transparency, are still symptomatic of many large financial institutions.

You should feel confident that as your financial advisor, we have no hidden fees and no sales incentives. When we provide advice to you, it is based solely on what we think is best for you and your family. Our actions and advice are not motivated to meet a revenue quota.

Our advice and service are motivated to develop and maintain very long-term, trusting relationships. Good things will follow from that, for you, our clients, as well as our firm.

Better than

Over the long term…..

Being optimistic is better than being pessimistic.

Being patient is better than reacting quickly.

Staying in the market is better than getting in and out of the market because you are worried.

Small company stocks do better than large company stocks.

Value company stocks do better than growth company stocks.

Globally diversified portfolios of index-like funds do better than concentrated holdings of US individual stocks.

Using complex computer passwords is better than using a few simple passwords.

Avoiding annuities and hedge funds is better than using them.

Lower mutual fund fees are better than higher fees.

Using a password manager program is better than keeping your passwords on a piece of paper.

Having a financial advisor who monitors the tax management of your portfolio throughout the year is better than an advisor that only does it at year end.

Making a financial decision after consulting with your financial advisor is better than making a decision without talking to your advisor.

These should help you to be better.


Every client of our firm had to make a change to become a client.

They had to decide to leave another advisor to become a client of our firm or decide it was in their best interest to have us as their first financial advisor.

We know that many changes can be difficult and stressful. Important changes and decisions are not easy. We are truly grateful and appreciative of our clients who have made the choice to work with us.

Deciding to try a new restaurant, TV show or to watch a movie has only short term implications. At most, you will have a good or bad few hours. Life goes on.

Other changes are more complicated and have much greater impact. Where should you live? What house to buy? Should you change jobs or when should you retire? Should you buy a second home? How much life insurance should you have?

One of my mentors, Dan Sullivan, founder of Strategic Coach, has a four step process for dealing with change and decisions, called the 4 C’s.

Commitment: To commit can be scary. You have to evaluate many factors in making difficult decisions and it is likely you may not be 100% sure of your decision. There may be rational factors and emotional feelings, which you have to contemplate and balance. Even if you were referred to us by a close friend or relative, you may meet with us, feel comfortable with us as people and our firm’s philosophies and principles, but you still have to take a leap of faith and commit to the decision, to make the change.

Courage: To make a decision to change takes courage. Even after you make a decision and change, it takes courage to stick with your decision and to get comfortable with that change. It takes a while for an investment plan to be implemented and to experience the ups and downs of the financial markets with your new advisor. Trust is built between a client and the advisory firm over time.You have to have the courage to maintain the relationship and trust the decision that you made.

Capability: As you develop a relationship with us, you will gain capabilities. When we meet, you will ask questions and we will talk. You will develop the capability to be resilient and to better handle the volatility of the financial markets. You will realize that because you had the courage and commitment to make a change, you have a financial advisor that you can rely on when the stock markets seems scary or you have financial issues, questions or concerns. You are not alone.

Confidence: Through our relationship and over time, you will gain confidence in yourself and your financial future. You will gain confidence in our investment approach and advice. You will be confident that our advice is only in your best financial interest, as we have a fiduciary responsibility (which brokers do not have).You will benefit from our adherence to a consistent strategy, which is appropriate for the long-term and we have used since our firm was founded in 2003. By focusing on what each of us can control and what matters, you will gain confidence. You will be comforted and have a greater likelihood of financial success by having an advisory firm which does not rely on guessing about individual stock picking and market timing.

  • Reading our weekly blogs will increase your confidence, as they provide information, analysis, thoughts and very timely advice in response to current events and changes in the world.

If you are a long-time client, you have developed the commitment, capabilities and confidence in our firm, as well as the courage to follow our financial advice through volatile financial markets.

If you became a client more recently, you will develop these skills and trust in our advice. We want you to talk with us before you make any major financial decision, even if it is not directly investment-related.

If you are not yet a client of our firm, we hope this blog post is helpful for you to understand the process of making a significant decision, such as changing your financial advisor. We realize that it takes courage and a commitment to decide to work with a firm you may not know closely, especially if you have worked with a broker for many years. We are willing to invest the time necessary for you to make this courageous decision, which you will be confident and comfortable with in the future.

Federal Reserve, Interest Rates, Stock Market and Odds

When will the Federal Reserve next increase short term interest rates?

The next move may be as early as September 21st, based on a speech last Friday by Federal Reserve Chair Janet Yellen. At the annual Federal Reserve research conference she said “the case for an increase in the federal-funds rate has strengthened in recent months.”

She based her comments on “the continued solid performance of the labor market and our outlook for economic activity and inflation.”

Of course, her comments were qualified that any decision would be based on more economic data. Later in the day, another Fed Board member stated two quarter point increases were possible yet this year.

What is surprising is that most Wall Street forecasters are not anticipating a September rate increase. Goldman Sachs said last Friday that Yellen’s speech increased the odds of a September increase from 30% to 40%. Fed fund futures see only a 27% likelihood of a September rate increase and the odds of a December increase at 59%.

What are the implications to you?

We want you to be prepared for possible strong reactions by the financial markets to the Fed’s future decisions, whether they raise rates or don’t raise rates in September or December. We want you to be prepared if the financial markets react in sudden ways to Fed statements, speeches and decisions.

The stock market does not like surprises. And though there are early indications of future rate hikes this fall, it seems that many on Wall Street are not realizing this yet.

If economic data continues to be positive and job growth is in excess of 170,000 per month, the Fed may increase short term interest rates by .25% in September and/or December. As Wall Street is not anticipating these increases, and clearly not two increases, these moves would be a surprise to many institutions. This could lead to volatility in the stock and/or bond markets. This potential volatility should not affect you and will not affect our short or long term investment strategy.

We think the economy is strong enough for these rate increases and these moves would be positive, even if they cause a near term negative market reaction. The US economy will not come to a screeching halt if short term interest rates go from 1/2% to 3/4% or even….hold your breath….to 1% by the end of 2016. Interest rates are still incredibly low and even after these increases, whenever they do come, rates would still be historically very low.

Keep in mind that the Fed can only directly impact short term interest rates. Broader trading and expectations influence longer term interest rates, such as the 10 and 30 year Treasury notes and bonds, as well as longer term corporate bonds and bank CDs.

Our investment strategy of not making interest rate bets is still appropriate, as guessing the actual moves of the Fed is very difficult. We will continue to recommend holding a diversified portfolio of high quality bonds and fixed income securities, with varying maturities, or short term bond funds, as applicable.

That the Fed is considering interest rates increases is indicative of the continuing positive economy and stronger labor market. Inflation is well under control. Despite what politicians and the media say, real economic data has continued to be stronger, not getting weaker.

While there is still room for more economic growth, the economy is not worsening. Despite what the stock market may do in the short term, we remain rational optimists for the long term. The stock market has increased and will continue to do so in the future. We strongly recommend maintaining a globally diversified stock allocation that is appropriate for your risk tolerance and time horizon.

Be prepared for gradually rising interest rates.

They are a good sign.

The stock market can always be risky. But if you stay in the game, and remain invested, you will benefit in the long term.

If you have questions, contact us. This is what we are here for.

Note: This blog post was written on Thursday, September 1, before the monthly jobs report was released at 8:30 AM on Friday, September 2nd. This jobs report may have a significant impact on the Fed’s thought process and decision at their next meeting, scheduled for September 20-21.