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This is a publication by Scott Anderson Financial. Scott K. Anderson, CPA, CFP®, EA is a Registered Investment Advisor in Newport Beach, California.
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Scott Anderson Financial

In This Issue

 

Financial Trivia


The US Government funds itself by issuing debt securities known as bills, notes, and bonds.  What is the difference among the three?​

Click here for the answer.

Quote


A wise person should have money in his head, but not in his heart." 
- Jonathan Swift, writer

August is the Last Month of Summer

August is the last month of summer - last chance to do the things that were planned for the summer, including that fanciful change of venue known as a summer vacation.  

September starts fall and the last of the preparations for the coming winter. School starts for many families.

The Republican and Democratic conventions were held in July. In less than 100 days, there will be an election and then deafening silence as all the political ads roll off the broadcast schedule.

Standby as the financial press rolls around in the financial and economic prediction mud for and against the plans of each candidate.

While each candidate is undoubtedly sincere in their respective programs, the reality is that the vested interests on the other side of the table are equally sincere and will seek to protect themselves just as strenuously. Watch out because when the politicians cannot agree, they will “compromise” which means putting it on the national credit card. The biggest loser in this battle of the shadows will be the average American who is standing there looking at a $20 trillion national debt without anyone seemingly interested in stopping its growth and/or paying it back.

When I talk to my students about the national debt, I always say: “Thank you. My parent’s generation and my generation had a great time spending the money, and we are leaving it for you to pay back. So along with your student loan debt, car loan debt, credit card debt, payroll taxes, and income taxes, would you mind covering our tab as well?”

Some will argue that America is a great country and has the resources to carry that debt load.  If interest rates increase making the debt more expensive, taxes on the rich will just have to be raised to compensate. Everyone knows the rich do not pay their fair share.  

Others will argue that the US Government can just simply print more dollars to pay off the debt. Unfortunately, if the US Government printed more dollars, there would be that many more dollars out there chasing the same goods. That is called inflation - the great silent destroyer of the social order.

So as we bask (fry?) in the warm days of August and get ready for fall and winter, look at your household debt. Is it growing? What are you doing to shrink it? Who is inheriting your debt?

Then consider the national debt and the dark shadow it casts over all the blather of the politicians and the financial press. Who is inheriting that debt?

I asked Riley, the Golden Retriever with whom I share my office, what she thought about the political conventions and the emerging national economic debate. She got up and hobbled over to her water dish (arthritis in her left hip). She turned her head to look at me and then starting slurping up the water. You are right, Riley. Economic debates are very dry subjects. Paying down debt is even dryer and harder to contemplate.

Fortunately, Riley has a water dish that is constantly refilled. May my students and their generation be so lucky.
All the best,
Scott K Anderson Jr., CPA, CFP®, EA
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Summer Brings Surge in Robo Call Phone Scams

In an information press release, IRS warned taxpayers of an increase in IRS-impersonation scams that employ automated phone calls demanding tax payments on iTunes and other gift cards.

IRS has seen an increase in "robo-calls" where scammers leave urgent callback requests telling taxpayers to call back to settle their "tax bill." These fake calls claim to be the last warning before legal action is taken. When the taxpayer calls back, the scammers may threaten the taxpayer with arrest, deportation, or revocation of their driver's license if they don't agree to pay.
 
Read More

By The Numbers: As of July 29, 2016

Provided by GW Financial, Inc
Click Here For The Monthly Economic Update

Yield Curve: Interest Rate on US Treasury Securities Versus Time to Maturity

Dark Color – August 1, 2016; Light Color – One Year Ago
The Yield Curve is a graph of the interest rate on US Government securities based on maturity. All interest rates use the US Government yield curve as the reference as the US Government rates are considered riskless which means there is no chance of bankruptcy – the US Government  can simply print money to meet its obligations.

Analysis

This is a “normal” yield curve – upward sloping – longer maturities command higher rates than shorter maturities reflecting (among other things) the higher risk of inflation in the meantime. 

Shorter term rates (two years or less) continue to be higher than a year ago due to Fed’s efforts to lever the yield curve up (increase interest rates).

Longer term rates are lower than a year ago reflecting (among other things) the tremendous number of investors (particularly foreigners) seeking to own US Government securities because US Government securities are considered the safest investment in the world. 

Since the price of a fixed income security varies inversely with interest rates (Finance 101), the demand for US Government securities pushes up the price of those securities (Micro Economics 101) which in turn pushes down the associated interest rate.

The dilemma for the Fed is that they may have no more arrows in their quiver. The Fed’s efforts appear to have little impact on interest rates which the Fed believes it should increase as the economy recovers in order to keep inflation at bay (Macro Economics 101).

(Observation: If you have a mortgage on your home or rental property, you might consider refinancing it at these historically low long-term interest rates.)

Source: http://news.morningstar.com/TreasuryYield/bonds.aspx
Trivia Answer:
a) Technically, all three are bonds and are backed by the full faith and credit of the US Government and all three are issued in $1,000 denominations.
b) Bills are debt securities issued with a maturity of two years are less.  They are sold at a discount which means the holder collects the interest at maturity.
c) Notes are debt securities issued with a maturity of 10 years or less.  The interest is paid to the holder every six months and the face value of the security is paid to the holder at maturity.
d) Bonds are debt securities issued with a maturity of more than 10 and up to 30 years.  The interest is paid to the holder every six months and the face value of the security is paid to the holder at maturity.
IRS Circular 230 Disclosure: if this newsletter contains any type of tax advice, please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to the matter.
Copyright © 2016 Scott Anderson Financial, All rights reserved.​

P.O. Box 7463 | Newport Beach, CA 92658 ​| (949) 200-7111​

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