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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

“It can’t happen here” - has any individual state in the United States ever defaulted on its debt?

Click here for the answer.

Monthly Quote

“[We] contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself by the handle”
– Winston Churchill

Greece Meets Grease

Grease (the musical) is set in 1959 and follows ten teenagers as they navigate the complexities of high school, are caught between two rival gangs (the T-Birds versus the Flaming Dukes), deal with hormones run amuck, watch greasy mechanics (hence the name of the show) race souped-up hot rods, and follow Danny Zukow as he woos Sandy Olsson (John Travolta and Olivia Newton-John in the movie). The post-graduation finale appropriately takes place in a carnival and features the title song of which the second verse goes like this:  
 
We take the pressure and we throw away
Conventionality belongs to yesterday
There is a chance that we can make it so far
We start believing now that we can be who we are
Grease is the word

It's got a groove, it's got a meaning
Grease is the time, is the place, is the motion
Now, grease is the way we are feeling

Note the self-absorption. Feelings are in. Convention is out. Just believe in yourself and you can do anything, which is the core of New-Age thinking.

Fast forward a few years. Greece (the country) is equally absorbed in itself.  Zorba the Greek has replaced Danny Zuko as the central character, the Syrtaki, the traditional Greek folk dance featured in the Zorba movie has replaced the sock hop at Rydell High, and Sandy is nowhere to be found. Unlike Grease (the movie) which left open the suggestion/possibility that the kids might actually grow up and move on into the Real World, Greece (the country) never did.    

I was stationed in Greece for three months with the US Navy in 1971 as part of the forward deployment (home porting) of a squadron of Navy destroyers as the US sought to expand its influence in the eastern Mediterranean.  Beautiful country, wonderful people, great food, and saturated with history. At the same time, Greece was infested with sclerotic labor laws, quiet but equally historic corruption, and rampant tax evasion.  That was in 1971.

Greece made the news a few years ago when it said it was likely to default on its sovereign debt and was not interested in continuing any sort of austerity program or paying back its debt. World financial markets did not know what to make of this confrontation so there was much turmoil and gnashing of teeth as world markets watched the ‘Strum und Drang’ of Germany and Greece pushing back and forth on each other like the T-Birds and Flaming Dukes. 

Now, some years later, world markets have adjusted to the reality that Greece cannot pay back its debt.  While the haircut on the debt may come in the form of stretching payments into the next century, the even harder austerity measures now being contemplated by lenders will seek to forcibly change the fundamentals of the country and its culture in order to…make it live within its means.

So whether Greece stays in the Eurozone and continues to use the Euro or leaves the Eurozone and goes back to a heavily discounted drachma, only time will tell.  Nonetheless the banks and other market institutions have already written off the Greek debt and will not be harmed by the eventual Greek decision one way or the other.

What is the lesson of Greece?  It may be boring and unexciting but governmental entities must live within their means and pay their debts just as you and I do. As Dame Margaret Thatcher so famously noted, “At some point you run out of other people’s money”.

Grease (the musical) is revived periodically and could eventually be playing at a theater near you. 

Greece (the country) is now playing in Puerto Rico which has already announced it cannot make part of  the next debt service payment. 

Greece (the country) will soon be touring in Chicago and/or in the state of Illinois itself where attempts to rein in underfunded public pension plans and the other public indebtedness have run afoul of the state constitution as interpreted by the state supreme court. It is a foreseeable disaster waiting to happen. 

California is not far behind.  While the governor plays with his trains that run from no place to nowhere, California runs out of water and runs up deficits all the while state liabilities compound.

So what do I advise my clients given these potentially catastrophic events? 

First, live within your means and pay down debt.  Debt is dangerous to all – large governments as well as individuals and households. Paying down debt allows flexibility to meet any crisis. 

Second, diversify, diversify, and diversify. There may be short-term shocks to the markets when the events already anticipated happen but a well-diversified portfolio will withstand the shocks and continue to reward cash-generating investments.    

I asked Riley, our golden retriever, what she thought about all this. She was lying at my feet under my desk as I was writing. She raised her head, looked at me, got up, went to the kitchen and checked that there was food in her food dish and water in her water dish.  She then came back, sat back down next to me, and gave me that look that says it is time for a walk.  I think she was telling me that when things are set right, then enjoy the world as there is nothing more one can do.

All the best,
Scott K Anderson Jr., CPA, CFP®, EA

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.  
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By The Numbers: As of July 31, 2015

Brought to you by GW Financial, Inc.

Yield Curve: US Treasury Securities Vs. Maturity

July 31, 2015
              Darker line – July 31, 2015     Lighter line – 1 year ago

“Normal” curve – sloping upward – longer maturities command higher rates than shorter maturities reflecting higher risk of inflation in the meantime.
 
Source: http://news.morningstar.com/TreasuryYield/bonds.aspx
 
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IRS Warns Taxpayers to Guard Against New Tricks by Scam Artists; Losses Top 20 Million  

IR-2015-99, Aug. 6, 2015
 
WASHINGTON — Following the emergence of new variations of widespread tax scams, the Internal Revenue Service today issued another warning to taxpayers to remain on high alert and protect themselves against the ever-evolving array of deceitful tactics scammers use to trick people.
 
These schemes – which can occur over the phone, in e-mails or through letters with authentic looking letterhead – try to trick taxpayers into providing personal financial information or scare people into making a false tax payment that ends up with the criminal.
 
The Treasury Inspector General for Tax Administration (TIGTA) has received reports of roughly 600,000 contacts since October 2013. TIGTA is also aware of more than 4,000 victims who have collectively reported over $20 million in financial losses as a result of tax scams.
 
“We continue to see these aggressive tax scams across the country,” IRS Commissioner John Koskinen said.  “Scam artists specialize in being deceptive and fooling people. The IRS urges taxpayers to be extra cautious and think twice before answering suspicious phone calls, emails or letters.”
 
Scammers posing as IRS agents first targeted those they viewed as most vulnerable, such as older Americans, newly arrived immigrants and those whose first language is not English. These criminals have expanded their net and are now targeting virtually anyone.
 
In a new variation, scammers alter what appears on your telephone caller ID to make it seem like they are with the IRS or another agency such as the Department of Motor Vehicles. They use fake names, titles and badge numbers. They use online resources to get your name, address and other details about your life to make the call sound official. They even go as far as copying official IRS letterhead for use in email or regular mail.
 
Brazen scammers will even provide their victims with directions to the nearest bank or business where the victim can obtain a means of payment such as a debit card. And in another new variation of these scams, con artists may then provide an actual IRS address where the victim can mail a receipt for the payment – all in an attempt to make the scheme look official.
 
The most common theme with these tricks seems to be fear. Scammers try to scare people into reacting immediately without taking a moment to think through what is actually happening.
 
These scam artists often angrily threaten police arrest, deportation, license revocation or other similarly unpleasant things. They may also leave “urgent” callback requests, sometimes through “robo-calls,” via phone or email. The emails will often contain a fake IRS document with a telephone number or email address for your reply.
 
It is important to remember the official IRS website is IRS.gov. Taxpayers are urged not to be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov.  Taxpayers should never provide personal information, financial or otherwise, to suspicious websites or strangers calling out of the blue.
 
Below are five things scammers often do that the real IRS would never do:
 
The IRS will never:
  • Angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
  • Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
 
Here’s what you should do if you think you’re the target of an IRS impersonation scam:
  • If you actually do owe taxes, call the IRS at 1-800-829-1040. IRS workers can help you with a payment issue.
  • If you know you don’t owe taxes or do not immediately believe that you do, you can report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484. 
  • If you’ve been targeted by any scam, be sure to contact the Federal Trade Commission and use their FTC Compliant Assistant at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.
 
For more information on reporting tax scams, go to IRS.gov and type “scam” in the search box.
 
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Financial trivia answer: Yes.  Following the early success of the Erie canal in upper New York State (which was the ultimately the reason for New York City becoming the largest city in the United States), many states began construction of canals and other internal improvements (aka “infrastructure projects”) and issued bonds to that end. In 1841 and 1842, Florida, Mississippi, Arkansas, Indiana, Illinois, Maryland, Michigan, Pennsylvania, and Louisiana defaulted on their respective debts. Mississippi, Florida, Arkansas, Louisiana, and Michigan ultimately repudiated part or all of their debts. Illinois and Indiana resumed payments later in the decade after renegotiating the terms of the debt (i.e. after a “haircut” on the debt). Maryland and Pennsylvania repaid their obligations with minor adjustments.  

When the Confederacy surrendered, all debts of the Confederate states were repudiated by the Federal government.
 
Arkansas defaulted on its highway bonds in 1934 but eventually made good on its debt with Federal government help.
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 © 2015 Scott Anderson Financial, All rights reserved.​

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

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