FSG Updates as of March 20, 2020

“The secret of crisis management is not good vs. bad, it’s preventing the bad from getting worse.”—Andy Gilman

FSG Coronavirus related updates

In an abundance of caution and respect for the unknowns related to this crisis, we have postponed our small-group learning events. Rescheduled dates will be sent when things settle a little. Also, we are suspending face-to-face meetings in our office for the time being. We have technologies in place that will allow us to stay in touch remotely via phone calls and video conferencing. We want to apply this cautionary measure in deference to our clients as well as our staff.

The IRS has announced the deadline for filing 2019 taxes has been moved to July 15. Taxes owed for 2019, and Q1 estimates normally due on April 15, will not be due until July 15.

If you have tax info to drop off, please mail it in, use the mailbox located in the rear of our building (lift flag), or use the dropbox in the entry of our building during business hours. Completed returns are now being mailed to clients unless you specifically request to pick them up. In that case, we are asking you to call our office (262-554-4500) from the parking lot and someone will come out to your vehicle to hand you your completed tax return.

Interpreting recent headlines

There’s so much news out there, it’s hard to keep it all straight or understand what some of it means. To help with that, we’re offering a few headline interpretations from the last week…

“Fed Slashes Rates to Fight Coronavirus Slowdown”

What: The Federal Funds Rate is the interest rate that banks charge each other to lend Federal Reserve funds overnight. This in-turn influences the prime rate (the rate that banks charge their customers), mortgage rates, credit card rates, and more.

Why: By decreasing the Fed rate (and buying government securities), the Fed is increasing the supply of money and making it cheaper to borrow money. This makes it easier for businesses to acquire loans and continue paying employees and vendors.

Key Point: Mortgage rates are influenced by the Fed rate, but are more closely aligned to yields on the 10-year Treasury note. Market volatility, supply and demand, Federal Reserve actions, and limited lender capacity have all impacted mortgage rates and resulted in rapid fluctuations day-to-day.

“Market Volatility Trips Circuit Breaker”

What: Pauses imposed during the trading day triggered by steep market movements.

  • Level 1: S&P 500 falls 7% from its previous close, trading is halted for 15 minutes
  • Level 2: S&P 500 falls 13% from its previous close, trading is halted again for 15 minutes
  • Level 3: S&P 500 falls 20% from its previous close, trading is halted for remainder of the day

Why: Market circuit breakers are intended to curb panic selling. Individuals and corporations are required to take a breath; more importantly, algorithms that are built to automatically sell when the market falls to a certain level are temporarily shut off.

Key Point: In the past two weeks, the market hit the level 1 circuit breaker several times. It has yet to hit the level 2 circuit breaker. Although this is an unprecedented frequency, market analysts and economists believe that circuit breakers are doing the job for which they’re intended.

“FDIC: Deposits Safe Amid Coronavirus Crisis”

What: The Federal Deposit Insurance Corp. (FDIC) is an independent U.S. government agency that insures bank deposits in the event that an insured bank fails. It is backed by the full faith and credit of the U.S. government. Deposits are insured up to $250,000 per depositor, per FDIC insured bank, per ownership category.

Why: During times of uncertainty, concerns develop regarding the safety of assets and many feel the urge to withdraw their bank deposits. In the event of a bank run, FDIC insurance promises to recoup the losses (up to $250,000) of anyone with assets at an insured bank so they do not feel the need to withdraw.

Key Point: Money markets held by a bank are called money market deposit accounts and are protected under FDIC insurance. Money market mutual funds held by investment companies are not covered by FDIC insurance. But in an announcement made on 03/18/2020, the Federal Reserve created a lending facility that would back up money market mutual funds and prevent the consequences of a mass sell-off.

More, next week, no doubt! If you have any questions or concerns, please be sure to let us know! Meanwhile, stay safe and well.

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