BREAKING: March 17, 2020 - Letter to Our Clients at Jason Howell CompanySubmitted by Jason Howell Company | Developing High-Net-Worth Families on March 17th, 2020
This is the time when our family of clients rely on our expertise the most. And we are happy to serve. If you or a family member has been worried about the markets, feel free to share our most recent message (dated 03/17/2020).
March 17, 2020
Dear Family of Clients,
The past few weeks of stock and bond market volatility have caused concern for many investors. I am proud of so many of you who have remained calm. You are committed to your financial plans and you have been confident that we at the Jason Howell Company are paying attention. Thank you. Below is a summary of how our representatives and appointees in the federal government and federal reserve are managing the economic uncertainty.
About a week and a half ago on Friday, March 6th, President Trump signed a strongly bipartisan bill designed to stem the tide of COVID-19 (coronavirus). This $8.3 billion bill will direct about $6 billion to the Department of Health and Human Services (HHS) for medical supplies, research, treatments, telemedicine and drug purchases. Another $2 billion is designed for use by the Center for Disease Control (CDC.gov) to help coordinate efforts with state and local governments, to contain the virus.
Last Week & Monetary Policy
The Federal Reserve, and the United States Department of the Treasury's Secretary, Steve Mnuchin supported efforts to reduce the federal funds rate and add over $1 Trillion of liquidity to the markets. How does that directly affect us? The federal funds rate is the rate that banks and other financial institutions - like brokerage companies and hedge funds - use to lend each other money. That matters to you and me because every financial transaction/trade these days is backed up by an institutional buyer or seller (as long as they have money). Millions of daily transactions occurring at the speed of light are only possible because of these institutions. Sometimes they have the money and sometimes they need to borrow it from each other. When it's easy to borrow money, our financial system works smoothly in the background of our economy. This is why getting monetary policy right is important.
This is the moniker for this $105 billion Families First Coronavirus Response Act designed to ensure free coronavirus testing, assist hourly service workers with paid sick leave and unemployment insurance. The bill is also designed to ensure that the children who typically receive free and reduced breakfast and lunch at public schools continue to receive those meals. Fairfax County Public Schools for example is taking the lead on the issue by providing "Grab & Go" food locations for parents of children in need*. It was passed by the United States House of Representatives last week but it has not yet passed in the United States Senate or been signed into law. It was being fast tracked but got muddled with other measures that are now being outlined in PHASE III of the federal government's response (see below). Treasury Secretary Steve Mnuchin has been working directly with Speaker Nancy Pelosi on ironing out differenced between Republicans and Democrats on this bill and it's passage is expected in the coming days.
This Week & Monetary Policy
Admittedly, there is so much happening on the monetary policy side of things that it's hard to keep up! In addition to what was announced last week, a fresh round of what is called Quantitative Easing was implemented this week by the Federal Reserve. They "bought" $500 billion of U.S. Treasury Bonds and $200 billion of Mortgage Backed Securities. How does that affect us? It means you can get loans easier through banks that now have a credit of $700 billion for the reserves they are supposed to carry before lending money.
In addition to all of last week's trillion dollars and this week's billions of dollars, guidance was relaxed for what is know as "leveraged lending." This 2013 interagency guidance came from the Office of the Comptroller of the Currency and other organizations under the U.S. Department of the Treasury. Relaxing these rules allows banks to lend money to what in 2013 were considered risky borrowers. Today those risky borrowers represent our US based oil companies who have lost a lot of value thanks to Saudi Arabia's determination to reduce the price of oil. This was almost less monetary policy and more "bailout" but it's so complicated it seemed appropriate to list it here.
Of worthy note is the establishment of a new (department?) of the Federal Reserve called the Commercial Paper Funding Facility. Let St. Patrick's Day henceforth be known as CPFF Day: the day that the Treasury Secretary announced that the Federal Reserve will provide support to commercial paper! How does that affect us? Because by providing support to the financial instrument known as "commercial paper," our money market savings/checking accounts have a backstop in case money gets tight. Again, there are large institutions that allow for funny things like "money market accounts" and this is literally how the financial sausage gets made (and saved).
This is the big one that the stock market is waiting to hear more about. And all day today there has been talk of an $850 billion to $1 trillion fiscal stimulus package to rescue our economy. The stock market closed 5% higher today based on the expectation that Treasury Secretary Steve Mnuchin, Speaker Nancy Pelosi and Majority Leader Mitch McConnell can work out a deal that likely includes:
- $50 to 60 billion to support (loan guarantees) to the airline industry
- $200 to $250 billion for small business support
- $500 to $550 billion in checks sent directly to Americans
- $300 billion for delaying April 15 IRS tax payments for 90 days
There is now a $750 billion bill that's started in the House of Representatives and an $850 billion to $1 trillion bill that's started in the United States Senate. Typically this would mean gridlock but with the help of Steve Mnuchin (that name keeps popping up) and a national election in less than 8 months, something big will get passed quickly. Perhaps within two weeks!
Everything we are following is pointing towards an economic recovery sooner rather than later (with sooner being within 2 years and later being 10 years). To succeed economically we need to give attention to both monetary and fiscal policy (and that is happening). To succeed personally, you need a plan and as our client, you have a long term plan.
It also helps to have a good firm behind you with people who are paying attention and getting better every day. I am proud to announce that today, March 17th, 2020, Doug Tees passed the CFP Board of Standards, CERTIFIED FINANCIAL PLANNER™ examination. Now all clients will not only have two financial planners, they will have two financial planners who bear the CFP® marks. Congratulations Doug! If you would like to send your regards, just email him here: Doug@JasonHowell.com
And if you would like to talk about how we see your personal financial plan affected by today's economy, just set up a call here.
Thank you for being a part of our family of clients.
JASON & DOUG
Jason Howell Company is an independent, family wealth management firm run by two owners who consider it their family business. Jason J. Howell, CFP® and Douglas W. Tees, MBA are both married to patient wives and are dedicated to their kids. They have built a firm with a great reputation based in Northern Virginia and in 2019 the firm (founder) was listed as a TOP WEALTH ADVISER by WASHINGTONIAN magazine. They hope to honorably serve their family of clients for decades.
To book an introductory call, click this link to choose a day/time: Free Consultation
*SettleTheDebt.org is an organization that believes "A hungry kid can't learn." Started by a friend of a friend, they raise money for Prince William County schools to pay off debts owed by parents who's kids don't qualify for free lunch but still struggle to pay for school lunch. Like many organizations, they've had to cancel their inaugural fundraiser, a Roaring 20s Gala. If this is a cause that sparks your interest, check them out here: https://settlethedebt.org/