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For the members. By the membersArchive for Emily Sanders
Bulletin: S&P Downgrade of US Debt
Written by: Emily Sanders
S&P Internal e-mail 4/7/2007: “We rate every deal. It could be structured by cows and we would rate it”
S&P Official Downgrade of US Rating 8/5/2011: “The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.”
S&P is a Nationally Recognized Statistical Rating Organization (NRSRO). These organizations are written into official regulations which determine whether a financial institution is well capitalized. International banking rules for capital adequacy also rely heavily on ratings agencies to determine whether an institution is healthy.
Ultimately the downgrade this past Friday (from AAA to AA+) did not include any revelatory information and came from a source with only marginal credibility. The main underlying issue of whether the US will pay its debts is largely moot as well. The 14th Amendment, ratified shortly after the Civil War, included a clause saying “validity of the public debt…shall not be questioned.” While the President has not invoked this clause, it is likely to be exercised only as a last resort. In addition, a number of economists have pointed out how a country that can print its own currency will not default on debt denominated in that currency. Read the rest of this entry »
Key Player in Global Economy Rises From Down Under
Written By: Emily Sanders, CPA, Sanders Financial Management
In March, I had the opportunity to visit Australia for the first time, meeting with a client as well as a finance professor colleague. During this time, observations were made of the vast country’s unique economic and financial dichotomies. As large an area as the continental U.S., Australia is also the second most sparsely populated country in the world (6.4 people per square mile, second only to Mongolia). There are only 21.8 million people in the entire country – not much more than the New York City metro area.
Although small in population, Australia has certainly exerted its influence on the world stage and is rapidly becoming an economic player. When the Great Recession hit the U.S. and other developed countries in 2008-2009, Australia emerged largely unscathed. Their housing market didn’t correct during the crash and is now showing signs of frothiness. The labor market is so red hot that the government is talking about importing workers to fill labor shortages in its mining industry, although other sectors — construction, manufacturing and agriculture — are weakening.
Overall, business in Australia is running at two speeds: Large businesses, especially those connected to export industries, are running on “high,” while medium to small businesses are more at a slow idle. The country is performing very well on a global scale, aided by the fact that Australian firms with international operations can do more than smaller firms to protect against the rising Australian dollar. Read the rest of this entry »
Money Strategies For Mr. Mom
The Wall Street Journal’s Kelly Greene talks with GSCPA member Emily Sanders, CPA, of Sanders Financial Management about how husbands and wives increasingly are switching the traditional roles of breadwinner and household manager. But many of them haven’t followed through with an appropriate financial tune-up.
http://online.wsj.com/article/SB10001424052748704681904576313602973893970.html
Sanders Market Report – Choosing Your Market Yardstick – June 2011
Written by: Emily C. Sanders, CPA
When you hear people talking about “The Stock Market” what do you think of? The Dow Jones Industrial Average (the Dow) or the Standard & Poor’s 500 Index (the S&P)? Both indices are well known proxies for the collective performance of U.S.-based publically traded stocks. For active money managers, what is considered “The Market” is of great importance as performance is judged against a predefined benchmark. Interestingly the “trend” of both indices is often in the same direction, but the performance of the two has differed significantly during certain periods of time.
Take the ten year period from 2001 to 2010 for example. The total return for the Dow was 36% versus the S&P total return of 15%. Stripping out performance contributed by dividends also reveals major discrepancies in their relative performance. During this same time period the price return for the Dow was 7.3% versus the S&P price return of negative 4.7%. A lost decade indeed!
So what accounted for the difference in performance between the Dow and the S&P? The answer lies in both the composition and construction.
The most obvious difference in the composition is the number of stocks within each index: Dow 30 versus the S&P 500. At the end of 2010, the Dow’s representation of industrial businesses was twice as large as that of the S&P. This should come as no real surprise given the “Industrial Average” within the name.
The second significant difference in weighting is to the financial sector. Without much calculation, we can correctly assume that the relative overweight of financials within the S&P was one reason for underperformance versus the Dow in the last decade. Read the rest of this entry »
CHARITABLE REMAINDER TRUSTS IN THE CURRENT ECONOMIC ENVIRONMENT
Written By: Emily C. Sanders, CPA
Sanders Financial Management, Inc.
The economic downturn of the last two and a half years has created a challenging environment for most individuals, as well as charities. For persons who are concerned that an outright gift to a charity is not practical in the current economic environment, a charitable remainder trust is an excellent vehicle to maximize the benefits to an individual, while still benefitting the charities of choice.
A charitable remainder trust is a strategy that allows a donor to set aside a determined amount of assets and to receive an income stream from that determined amount for a period of time. This can be a certain number of years, the remaining lifetime of the donor or the joint remaining lifetimes of the donor and another person, such as a spouse. At the end of the specified period or lifetime, the assets remaining in the trust are then distributed to the charity.
The benefit to the donor is three-fold. First, the donor receives an income tax deduction for the year the assets are donated to the trust for the present value of the expected remainder interest that will ultimately pass to the charity. The second benefit is that the donor does not have to recognize any capital gain on the assets that are transferred to the charitable remainder trust. The third benefit to the donor is that the choice of charity or charities at the time the trust is created is not irrevocable. You will not be locked in with a certain charity, unless you choose to do so at the time the trust is created.
While there are many tax benefits and other reasons to create a charitable remainder trust, the donor will be required to recognize the income received from the trust each year on his or her personal income taxes. Further, the donor will only have access to the income stream from the trust and not the entire principal of the trust once created. The amount of income that can be received and the choice of investments, to some degree, can be controlled by the donor. There are many different forms that a charitable remainder trust can assume. Read the rest of this entry »
