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How Financially Disastrous Are Natural Disasters?

By | 2017, Money Moxie, Newsletter | No Comments

Since our last Money Moxie®, we have seen two massive hurricanes lash the U.S. coast. In spite of these and other risks, the stock market has continued to add to its 2017 gains. What’s going on? Is the market’s response rational?

Counting on rational behavior —or even reasonable behavior—from investors during a crisis could be costly. So, even if you don’t expect to be directly impacted by a hurricane or other disaster, you may still feel some financial fallout.

Gas Prices: Hurricane Harvey pushed gasoline futures up 10 percent in trading on the New York Mercantile Exchange as investors anticipated refineries would shut down. The increase soon spread. According to AAA, the national average rose from $2.35 to $2.66 a gallon—a 13 percent increase.

Employment: Economic suffering is also evident in employment. Following Hurricane Harvey, the Labor Department reported the largest one-week jump in initial jobless claims since superstorm Sandy. Two weeks after Sandy (2012) and Katrina (2005), jobless claims soared higher by 23 percent and 30 percent, respectively. So, the full impact of Hurricane Irma on this measurement is still coming.

Consumer Spending: Nearly 70 percent of the U.S. economy is driven by stable consumer spending. When gas prices rise nationally and employment falls locally, there is less money for discretionary spending. The city of Houston, for example, has nearly 3 million workers and contributes around $500 billion to the economy. (Internationally, that places Houston’s economic value above that of the entire country of Sweden.)

Destruction and Reconstruction: Destruction is not counted in economic output. It shows up only as falling wealth. Reconstruction, often financed by debt, will eventually have a large impact on growth and cause a bump for inflation.

The overall impact could subtract around one half of a percent from U.S. growth. Fast forward 6 months and there should be a boost that approximately evens things out.

Investors concerned with natural disasters would be wise to maintain perspective. The lasting impact will be evident in the higher debt and human costs. Ultimately, this impact on individual lives is the most devastating.

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2017 Predictions

By | 2017, Money Moxie, Newsletter | No Comments

Market movement since Election Day has been massive and investors see this as confirmation of just how good Republicans are going to be for the economy. How could so many investors be wrong? Actually, fairly easily.

Right or wrong, investors should be careful not to get carried away. There is a high amount of uncertainty and no way to know what the future will bring.

(1) Trump Rally
The big move in stocks in November and December has been an acceleration of the positive momentum already taking place in the economy. It has been characteristic of many presidential election years with a good economy.

It is completely normal to get excited, but don’t let it lead to overconfidence. Few things last forever and most years have their ups and downs.

It is not unusual to see inauguration day (Friday, January 20, 2017) mark a change for investors as they realize the new president does not have a magic wand.

(2) Dow 20K
The Dow stock index has been flirting with 20,000. It just could not quite get there in 2016. In 2017, I believe it will! And it will likely cross that mark many times.

The first time the Dow reached 10,000 came in March of 1999. Over the next 11 years, it crossed that level on 34 days until it surpassed it a final time in the summer of 2010.

It’s hard to fight gravity and it’s hard to turn a large ship. There is so much positive momentum right now that I expect it to continue. Unemployment is falling. Wages are rising. Confidence is climbing.

One unknown is the impact of policy changes on global trade, which may decline this year as the United States turns its focus inward.

(3) Fed Does Its Job
The Federal Reserve is likely to “take away the punch bowl just as the party is getting started.”

For two consecutive years I have accurately predicted that the Fed would be more cautious than its own forecast. This year, I am accepting the Fed’s forecast that it will raise rates 3 times in 2017.

Of course, no one knows with certainty because with each rate hike, I expect investors will become more concerned.

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2016 Review

By | 2017, Money Moxie, Newsletter | No Comments

“If you want to see the sunshine you have to weather the storm.” In its first 3 weeks, 2016 delivered investors more than a 10 percent loss–the worst start in 80 years. Our natural human instinct at such moments is to feel that it will continue, but predicting the markets is extremely difficult.

In a dramatic turnaround, the U.S. stock market rose in February and March–recording the best recovery in 83 years.

(1) Fed will move slowly. The Federal Reserve planned to raise rates 4 times in 2016. This aggressive forecast in combination with falling oil prices spooked investors. Then came the uncertainty of Brexit and the U.S. elections. By year end, the Fed raised rates just once (in December).

(2) Election years are not recession years. I expected the economy to grow and for the market to continue to rise as our bull market entered its 8th year.

This positive outlook proved beneficial in the early days of 2016 when the resolve of many investors was tested. The market turned positive and remained there for most of the year.

(3) United States grows and the dollar slows. A strong U.S. dollar is not as good as it sounds. Sure, it’s great for Americans traveling overseas, but it presents challenges for large U.S. companies and investors.

The year began with too much strength: From July 2014 to January 2016, our dollar rose against every major currency around the globe! It gained 20 percent versus the euro and 54 percent versus the Russian ruble!

Fortunately, the U.S. dollar spent 9 of the last 12 months below January 2016 levels. That gave investors more opportunity as we invested globally.

This international diversification helped a great deal until a great divide formed in November.

These investments have taken a break as U.S. stocks rose in November, but I believe the worldwide economy still looks positive and may offer benefits to investors again in 2017.

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Stocks Predict Elections

By | 2016, Money Moxie, Newsletter | No Comments

Yes, stocks can help predict who will be the next President of the United States. While this particular election season has been filled with an unusual amount of conflict, the stock market has been surprisingly calm.

What does this calm predict? Very little, so far. Direction of the market in the final 90 days is what matters.


In 19 of the 22 presidential elections the change in the stock market in the 90 days preceding the election has correctly revealed the winner.

When the market rises during these 90 days then the incumbent’s political party wins. When the market falls then the opposite occurs.

In August, the market was flat, which means that this election may be closer than some polls currently predict. Of course, there are no guarantees.

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When Will Stocks Go Higher?

By | 2016, Money Moxie, Newsletter | No Comments

Stocks got off to a rough start in January and February as investors began to fear another recession. At the same time, consumers continued to keep the U.S. economy moving in the right direction. This divergence caused us to ask, which one is right? Are things getting better or worse? If the market is going to improve how strong will it be? Below is a list of what I think we need for stocks to move to new highs. Feel free to check the boxes if they become a reality.


(1) Oil prices stabilize.
Investors need a dose of reality: low oil prices are good for the economy. Falling oil prices often follow, but do not lead to, recessions. What we need is for prices to stop declining so rapidly.

Oil is falling because the global supply is much
greater than demand. Even at these low prices, producers need to pump oil for cash. Fortunately, the decline is slowing. This is because demand and supply are getting close to a balanced level.

Global oil demand is at 96.5 million barrels/day and growing at 1.5%. Global supply is at 96.9 million barrels/day and is currently falling at a rate of -0.5%. This does not mean prices will move significantly higher, but they may stop falling.

With sanctions lifted, Iran could boost supply by 4 million barrels/day. Demand won’t grow fast enough to balance that much oil for a few years.

So, get used to low oil prices. They may be with us for a while–probably until several indebted producers cease oil production. At that point, oil prices could rise a little, fear over corporate debt should ease, and stocks will be more likely to climb.

(2) Political frontrunners emerge.
Who will be the next President of the United States? Investors are uncomfortable with this uncertainty, but they don’t have to wait until Election Day to feel better. With each election primary, the uncertainty diminishes.

(3) The Fed acknowledges global volatility.
What happened to “data dependence”? With its December rate hike the Federal Reserve announced that it intends to slowly raise rates in 2016 and 2017. It defined slowly as four rate hikes of 25 basis points each.

Rather than applaud transparency, investors have questioned the Fed’s determination.

Globally, central banks are doing the opposite: dropping rates to levels below zero in order to encourage risk taking, economic growth, and job creation.

(4) Evidence of consumer spending increases.
Will consumers continue to hold up this economy? The U.S. consumer represents 70% of the U.S. economy. China, on the other hand, represents approximately 2% of direct trade with the United States. That means that the consumer is 35 times more important.

Consumers are stronger than any time in the last 25 years. They are pocketing roughly $1,000 a year in energy savings. In 2015, spending increased 3% while purchases rose for autos (+5.8%) and homes (+7.5%).

With all of the good news about the consumer, the main concern is if these numbers are peaking. I think not. Unemployment is low (4.9%). Job postings are high (5.4 million). Wages and salaries increased by a reasonable and healthy level (+2.9%).

The final bit of good news on the consumer is that their debt-to-income levels are near their lowest point since the government started tracking them in 1981. That means there is still room for this 70% of the economy
to grow.

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The Irony and The Ecstasy

By | 2016, Executive Message, Money Moxie | No Comments

Dear Valued Financial Partners and Friends,

The evening news often features the familiar image of the New York Stock Exchange (NYSE). It typically shows a group gathered on the balcony overlooking the trading floor ringing the opening or closing bell.

The irony. I’ve always shared a chuckle with Sharla’s husband, Rich, for his astute observation: “When the stock market drops significantly, why do the people on the balcony clap so enthusiastically during the closing bell?” Great question. (Actually, it’s because their company is being featured or recognized.) But the celebrating of a down day is truly ironic!

More irony. The stock market dislikes uncertainty. However, it is that very uncertainty that creates the opportunity for profits over the long run. The irony: The stock market, or more correctly, the market of stocks, thrives on uncertainty.

The ecstasy. Here’s what Jeremy Siegel, PhD, said in the foreword of the 5th edition of his book, Stocks for the Long Run: “…there is overwhelming reason to believe stocks will remain the best investment for all seeking steady long-term gains.”

Most of us are worried about our money lasting as long as we do. If we are too conservative or if we are too aggressive in our investing, we could easily end up with the same outcome—not having adequate funds. If we are too conservative and are averse to taking any risk, then our investments cannot keep up with inflation. If we are too aggressive and take too many chances, then we may forfeit what we have because we have risked too much.

For most of us seeking stock market gains, the stock market could be considered boring. It’s like watching paint dry or grass growing. However, time and patience work wonders. Keep Jeremy Siegel’s professional research and expert opinion in mind.

The ecstasy can come from sound investing and prudent financial planning. Remember, as a nationally recognized wealth manager, Smedley Financial’s motto is, “Your financial success is our passion!”

Bullish Best Wishes,

Roger M. Smedley, CFP®

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Investing in 2016 The Fed and Election Years

By | 2016, Money Moxie, Viewpoint | No Comments

January MarketPoint_Page_1

(1) Historically, when rates rise they rise sharply, but “this time will be different.” This phrase raises a red flag. However, I see no need for the Federal Reserve to increase rates quickly. Our economy is growing slowly and inflation is near zero.

Oil and food are unlikely to keep dropping in 2016 like they did in 2015. So, inflation may rise. (Without food and energy inflation is currently 2 percent.)

The Fed stated it may raise rates 4 times this year, but I am not convinced it will do that many.

Normally, rate hikes would be negative for bonds, but U.S. bonds are still paying attractive dividends compared to others overseas.

(2) Election years are not recession years. The economy will expand as the recovery in the United States enters its 8th year. The next slowdown is coming and no one knows when. However, I don’t see convincing data for its arrival in 2016.

Election years usually start positive, slow down in the summer, and then rally in autumn–similar to most years. However, the rally in the fall does not typically begin after election day like many investors believe. It usually begins before the uncertainty is over–catching many off guard that are waiting. The average for a presidential election year is 9 percent.

(3) United States grows and the dollar slows. Global diversification should help investors in 2016, but the United States will continue to be a financial leader. Global returns will hinge on the U.S. dollar.

Since July 2014, our dollar has risen in value against every major currency around the globe! It gained 20 percent versus the euro and 54 percent versus the Russian ruble!

Why the big move? In all the world, our economy is one of the best and we are the only ones raising rates. Both of these make our dollar more attractive to global investors.

With so many countries lowering rates to stimulate growth, it is possible their economies will strengthen and the dollar’s rise will slow. Overall, this would be good news. It would likely help those that have diversified globally.

market graph

Does 2015 offer any clues as to what 2016 will bring? In 2015, the S&P 500 finished within 1 percent of where it started. This has only happened in 4 previous years (1947, 1948, 1978, 2011). What happened following those respective years? In 3 out of 4, the market was up more than 10 percent. The outlier was 1947. It was followed by another low return year and then came the double digit. Of course, there are no guarantees.

History does firmly support the value of diversification and investing over the long run.


*Research by SFS. Data from Federal Reserve Bank of St. Louis. Investing involves risk, including potential loss of principal. The S&P 500, S&P 600, and Dow Jones Global are indexes considered to represent major areas of stock markets. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

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Surviving A Bear Attack

By | 2015, Money Moxie | No Comments

bear claw

We have all heard that when a bear attacks, the best thing to do is to stand still! Sounds simple enough, right? Well, it isn’t that easy. A few years ago I had the privilege of hearing Michael Dunn’s story on surviving a grizzly bear attack in the Grand Teton National Park.

Dunn was on a family vacation in the Tetons on August 14, 1994. He woke up before the rest of the family and quietly slipped out the door for a run. He saw signs of danger, but kept moving forward. He had made it just a couple miles on the dirt trail when he heard some branches snap. Suddenly, a large shape moved towards him, knocking him off his feet. He landed nine feet from the trail, where a 500-pound grizzly sunk its teeth into Dunn’s hip.

There was little chance for Dunn as he struggled. The bear clawed at his back, swiped at his neck, tore open his face, and almost stuck a claw right into Dunn’s eye.

The end seemed near and Dunn decided to play dead, which calmed the bear enough that it was distracted. Dunn’s survival was nothing short of miraculous!

Bear markets
Bear markets are not life threatening but can be financially devastating, especially if we make poor decisions. A bear market is typically defined as a loss of 20 percent or more. Smaller losses are often referred to as corrections because they are less damaging and could even be viewed as healthy market behavior. (After all, if stock values just went straight up then how could they represent value from real ownership of real companies?)

This summer, the S&P 500 officially hit correction territory with a 12 percent drop. These drops can be alarming, but often the best thing to do is to stand still. I have compiled more advice for these difficult times.

Last 50 years

Don’t panic
These corrections are normal and are to be expected. Remember 2008 and 2009? The financial markets melted down in a frightening manner, but then recovered to new highs. The current market is nowhere even remotely close to as bad as that was.

Trying to time the market by getting out at a high point and getting back in at lower prices is almost impossible. Most investors would be better off staying the course. Historically, the U.S. stock market has recovered from every correction and every bear market to eventually reach new highs.

Keep perspective
Stock prices experience dips frequently. In fact, only 53 percent of days are positive. Positive months are only slightly more common at 59 percent.

Even though 10 percent corrections occur on average once every three years, the three-year return has been positive 78 percent of the time and the three year average has been a 24 percent increase.

Fortunately, bear markets are rare—occurring, on average, about once every six years. In fact, based upon history, an investor willing to diversify and weather the storms is four times more likely to make 20 percent than to lose 20 percent.

Total Returns

The real positive difference comes over longer periods as the positive numbers begin to compound. For example, over the last 50 years 74 percent of the calendar years have been positive for the stock market.

Over the same 50 years, the chance of losing 20 percent in a calendar year has been extremely rare—occurring just once every 17 years. (Bear attacks resulting in death have occurred once every 18 years on average in Yellowstone.)

Don’t fixate on your statement or the news. If checking your statement every day is going to make you feel like something needs to be done then try checking less often. It is important to stay in tune with what is happening in the world around us, but again, if the news makes you feel like you have to do something then beware. Good news is harder to find in the media, especially regarding financial headlines.

Look for opportunities
A market correction is a good reminder that risk is real. If you or someone you know has any doubt that their investments match their financial plan or their ability to accept financial risk, then come see an SFS Wealth Consultant.

When the market drops, some people get nervous and want to get out. Others welcome the fall as an opportunity to take advantage of better prices.

Remember diversification
“Don’t put all of your eggs in one basket” is a classic phrase to describe diversification. Overall, history has shown this to be one of the most prudent ways to invest.

We don’t know if the current correction will grow to become a bear market. No one knows. However, we do have over 100 years of combined experience at SFS and we feel confident that the market will come back. Stay the course and your long-term results will not only help you survive, but you may even thrive.


*Research by SFS. Data from public sources. The S&P 500 is often used to represent the U.S. stock market. Calculations are based upon a 50-year history in this index. One cannot invest directly in an index. Investing involves risk, including potential loss of principal. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or investment plan.

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Crisis Overseas Taking Investors on Wild Ride

By | 2015, Money Moxie, Newsletter, Viewpoint | No Comments

This July, the Lagoon amusement park in Farmington, Utah, opened its most thrilling ride ever: Cannibal. This coaster reaches 70 mph. It includes a 208 foot drop and 3 vertically inverted free-falls. The L.A. Times rated it 2015’s 20th best ride in the world!*

Honestly, I haven’t been on the ride, yet. I have found plenty of excitement this summer in the stock market as it has risen and fallen with news from overseas.

The market often feels like a roller coaster and it seems like it has been steeper lately. As our economy has improved, others have faltered, particularly China and Greece.

We know that over long periods of time the U.S. markets have been good at dropping investors off higher than where they started. So, the key for us is to get on the ride correctly and stay seated until it is over.

Diversification Is Our Safety Belt
One of the first things we do on a roller coaster is secure our restraining device and keep it on during the ride.

As investors, we live with uncertainty and we expect to be rewarded for it. Deploying a globally diversified portfolio can help us capture more opportunity.

Greece is a long way from the United States, but it has had a large impact on our daily stock market returns this summer. Greek debt is twice as big as its economy and growing. In the entire world, only Japan has it worse. (U.S. debt is approximately equal to its economy.)

As part of the European Union (E.U.), Greece has received more loans just to service the payments on the existing ones. In return, the Greek government has been forced to cut spending and raise taxes (ingredients not typically found in a recipe for economic success).

What’s next for Greece? Its economy is deteriorating, but I expect the alarm will quiet down for a little while. In the coming years, the Greek crisis may return.

Fortunately, the United States is an economic leader, not a follower. The Greek crisis is unlikely to drag us down. Its economy represents 2 percent of that of Europe and just 0.28 percent of the world’s.

Learn to Love the Dips
The twists and turns of the ride can be unpredictable, but we know where the roller coaster ends. Loving market declines may be asking too much from any of us.

If we truly believe the market will be higher years from now then we should view every short-term drop as an opportunity to buy low. So, stay in your seat and if you really want to prosper in a crisis, try the Warren Buffett way and buy more during the dip.

It also helps to remember that the stock market is not the economy. The market goes up and down daily on all kinds of news that may seem important, but does not fundamentally change the economic future.

Over the last five years, China has had one of the best economies in the world and one of the worst markets. In the last year, its economy has slowed from 7.5 percent growth to just 7 percent. (The U.S. economy is currently growing at 2.8 percent.) In response, the Chinese stock market is down almost 30 percent since June.

The Chinese government often states that “confidence is more valuable than gold.” So, even though it sees this bear market more like an interruption than an economic emergency, it is trying to stop the drop. Will government efforts to control the free market work? It is doubtful. Expect more news of volatility from Asia in the coming months. Over the years, look for the economy to continue to grow and the market to eventually follow.

Investing can be a wild ride. There are days, weeks, and months that can be difficult. So keep your arms and legs inside the ride at all times and hold on! Unlike a real roller coaster your long-term, diversified investments should help you end higher than where you started.


*Brady MacDonald, “32 Best New Theme Park Additions of 2015,” L.A. Times, December 14, 2014.
Research by SFS. Data from public sources. Investing involves risk, including potential loss of principal. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or investment plan.

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Indexing: Best Thing Since Sliced Bread?

By | 2015, Money Moxie, Newsletter | No Comments

There has been a lot of buzz lately about indexing, and for good reason. Statistics show that many actively managed investments don’t beat their benchmarks.1 So, should we all invest solely in indexes? To answer this question, let’s look under the hood to get a deeper understanding.

Let’s say that the U.S. economy is like an engine made up of 500 parts. Each part is important and together they create motion, either forwards or backwards.

The S&P 500 is most widely regarded as the engine of the of the U.S. economy. This engine is made up of 500 stocks like GE, IBM, Apple, and Chevron. If most of these stocks are heading up, the economy is moving forward. The converse is also true.

For most people it would be too complicated to go out and buy 500 parts and build an engine from scratch. We go to a dealership to buy a whole engine already assembled.


The investment challenge is that buying all 500 stocks in the exact quantity of the index is impractical for most and one cannot buy an index directly. An index investment can assemble one portfolio that resembles the 500 parts of the index.

When you buy an index fund you usually get several important benefits such as clear goals, diversification, and reasonable fees.

The objective and implementation should be clear. One does not have to spend hours researching prospectuses to determine exactly what is being held.

When buying an engine, one gets the parts. This diversification reduces your risk because if one stock drops another may do better. With diversification there is a better chance of making money over long periods of time.

Passive investing requires little tinkering under the hood. This helps keep fees reasonable.

Like any investment there are drawbacks: risk, investor behavior, and inefficient markets.

Index investments behave almost exactly like their indexes. This seems so simple that it shouldn’t need mentioning. However, many people only look at the potential return without contemplating the risk.

A good illustration is the “Great Recession” when the S&P 500 went down by 57 percent from October 2007 to March 2009. People indexing only in the S&P 500 lost over half of their 401(k) and couldn’t retire as planned. This greatly impacted people planning to retire who were taking too much risk.

Research shows that individual stock investors have significantly underperformed the S&P 500.2 This is mostly due to investors buying and selling at the wrong time. Just holding an index investment does little to solve this problem and accomplish your goals.

Indexing works best where markets and information are efficient. However, many investors believe that when searching for worthwhile opportunities in other places where information is scarce, it may be worth it to hire an expert to gather more information.

Indexing has become popular and new indexes are introduced all of the time. Not only can you find indexes tracking “the market” but also segments of the market like tech stocks, international markets, and even commodities like oil.

The success of indexing might also be its downfall. “Investing theories run in cycles. A success becomes a fad and a fad becomes a failure. Smart people bet against fads.”3

One must ever be on the watch to ensure they aren’t just following a fad, but that they are using a strong investment strategy built for the current market environment and their own risk tolerance.

What do you do if your engine isn’t working perfectly or you want some improvements? You can either do it yourself or go to a mechanic. In the investing world, the mechanic is an active manager. That active manager is going to replace the parts he/she thinks are hindering performance with other parts designed to boost performance.

Smedley Financial specializes in designing efficient portfolios for the current market environment. We don’t just build engines, we build cars. We typically use indexing to be the engine of a portfolio but then we use other investments to build the remainder of the car.

If you would like to know if your engine is tuned correctly and your car is ready for the road ahead, please contact us for a free review.


  1. “The Case for Index-Fund Investing,” Vanguard, March 2015. https://personal.vanguard.com/pdf/s296.pdf
  2. Dalbar Study
  3. “Is Vanguard Too Successful?” Forbes, January 21, 2015.
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