The CARES Act

Yesterday evening, the Senate passed an updated version of the Coronavirus Aid, Relief and Economic Security (CARES) Act (Stimulus Phase III).  The bill is intended to be a third round of federal government support for individuals and businesses and is the product of negotiations between Democrats and Republicans for a bipartisan response to the crisis.  Please note that at this time it has not been enacted into law but is expected to be by Friday, March 27th

We are fielding a number of questions from our business owner clients, who have already been significantly impacted by COVID-19, regarding their options for access to short- and long-term liquidity to minimize business disruption.  If this applies to you, please feel free to read ahead to the “business” section of this letter.

Click here to read key provisions for individuals and businesses

Tax Extension

In response to the COVID-19 pandemic, Treasury Secretary Steven Mnuchin announced yesterday that individuals can defer April 15th tax payments up to $1 million, and Corporations can defer up to $10 million of tax payments, for 90 days.  Please note that many details remain unclear with respect to this relief, and no official written policy has been released yet, but we expect additional guidance from the IRS in the coming days and will provide details once available.  For now, here is an overview of what to expect:

  • Tax payments due April 15th can be deferred until July 15th without incurring any interest or penalties.  This extension is available for all individual taxpayers who owe < $1 million for 2019.
  • This 90-day extension of time to pay will likely also apply to 1st and 2nd quarter 2020 estimated tax payments due April 15th and June 15th respectively.
  • Mnuchin’s statement did not extend the tax filing due date, so all taxpayers must still file their tax returns or request extensions (Form 4868 automatically extends the filing deadline to October 15th) by April 15th.
  • For anyone that anticipates a refund for 2019 taxes, as usual we recommend you go ahead and file by April 15th, if not sooner, to have that money refunded.

“We encourage those Americans who can file their taxes to continue to file their taxes by April 15,” Mnuchin said, especially encouraging people who will be getting tax refunds to do so. “Just file your taxes,” he said, and “you will automatically not get charged interest and penalties” on payments made within the 90-day deferral period.

We are following the Families First Coronavirus Response Act (FFCRA) closely, which will address relief in the form of tax credits and/or cash payments to businesses and employees affected by COVID-19 and will send an update once there is an agreement. For our business owners, we are also closely monitoring federal and state incentives (including low interest loans, grants, unemployment for employees, etc.) and will send details and guidelines once available.

Letter on COVID-19

As we briefly highlighted a few weeks ago, as the equity markets began to sell-off, we continue to monitor the economic turmoil and remain confident that global markets will recover from the economic uncertainty that we are facing with COVID-19 (Coronavirus). As we have told clients in the past, volatility and economic/political uncertainty is very normal in financial markets and it’s important to not overreact and panic. It is very normal for investors to feel like this time is different as we go through a correction. While the circumstances driving each are always different, one thing we know is that we eventually emerge, and over time, the markets continue to move higher.

Of course, we are closely following all the headlines and like everyone else don’t know how long this will persist; but what we do know is that the underlying US economy appears strong and the financial system is well-capitalized. We are still in the early stages of truly understanding the full economic, financial and social impact to our economy and globally. There is no doubt at this point that global GDP will slow, but we remind clients that the market is forward looking and already pricing this in to some extent. That said, the possibility of more downside is very real, and the bottoming process may take a while.

We are closely monitoring client portfolios and will adjust as new information becomes available, but we are not in the business of timing markets and calling tops/bottoms. Each of our clients are allocated based upon the plan that we set in place for them and we do not believe it’s a time to deviate from that by either dialing up risk or by bringing it down significantly. With the range of outcomes being so vast, we feel it best to stay the course. It’s not time to sell but it’s also not a time to ditch your bonds and cash for stocks.

We are hard at work trying to identify how we can use this downturn to our advantage: tax loss harvesting, buying great companies at steep discounts, & shedding exposure to areas of the economy that we view as being unstable, such as Energy. You have heard us harp on the importance of diversification and periods like we are currently experiencing are a reminder of why it is vitally important. Our bonds and other diversifying strategies have performed quite well over the last few weeks.  

As always, we are here to answer any questions and be a resource. Please feel free to reach out at any time.

Sincerely,

Canal Capital Management