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A Government Deal is finally at hand to help the citizens they serve

by Fortem Financial March 25, 2020

Good morning. The federal government and the Federal Reserve are using their massive balance sheets to fight any significant surge in unemployment stemming from the coronavirus. Policymakers are viewing the fight against the coronavirus as a wartime-like event and they are putting wartime resources behind the effort.

Last night, negotiators reached agreement on a roughly $1.8 trillion fiscal stimulus, with most of the tax and spending changes front loaded to cushion the blow from a temporary decline in demand stemming from the coronavirus. The Fed is likely to lever up some of these fiscal policy funds for its lending facilities and that could lead to as much as $4 trillion of liquidity.

Congressional delays this week have been frustrating given that so many people are losing their jobs, small businesses are closing, and COVID-19 cases are increasing. But the process is now beginning, with the Senate expected to vote to start the debate at noon and with the goal of voting for final passage later today or tomorrow.

We don’t anticipate an issue with the Senate passing this negotiated deal. However, we are interested in the size of the final vote. A strong bipartisan vote is needed to put pressure on the House to quickly pass the legislation.

We raise this because we are in a fairly unprecedented situation with the House on recess, the House not planning on coming back to Washington, and House rules not permitting mobile voting. To get around this, Speaker Pelosi is pushing for a concept under which all House members unanimously consent to passage of the Senate bill. This will ensure quick passage of the legislation for the president to sign it into law.

The drawback, however, is that if one of the 435 House member objects, the legislation cannot move forward. And if this happens, House members will be forced back to Washington to vote on the measure. This could further delay getting the economic and health funding delivered in a timely fashion.

While there is some risk to the House vote, tomorrow’s initial unemployment claims release is expected to show a large increase in Americans filing for unemployment. A surge in the number of Americans losing their jobs should be a catalyst to ensure the House clears the Senate measure and the president can sign it into law this week (targeting late Thursday or Friday).

We are awaiting the final text of the compromise deal, but below is a rough outline based on previous drafts. We break the allocation of the plan into five categories: 1) Direct household relief; 2) Small business direct aid; 3) Distressed company assistance; 4) Corporate and municipal liquidity facility; and 5) Health care response. As a side note, $3 billion for the US government to purchase oil for the Strategic Petroleum Reserve was removed in the final version.

Households: $500 Billion

Tax refunds: $250 billion
Expanded unemployment insurance: $250 billion

Expand unemployment benefits to 39 weeks and include an additional $600 per week in unemployment benefits for four months.

$1,200 in direct payments (additional $500 per child) for those with incomes up to $75,000; phased out entirely for those with incomes above $99,000.

Small Businesses: $367 billion

Small Business Lending/Grants: $350 billion
Community Lending: $17 billion

Corporate Lending Facility: $500 billion

$500bn fund ($425bn for loans to the Fed and $75bn for industry loans) and will include oversight from an inspector general and a congressionally appointed 5-person panel.

Companies that receive government aid must agree to halt stock buybacks for the entire time they receive the aid, plus one year. Restrictions on employment cuts.

SPV Lending Facility: $425 billion

Treasury funds for corporate loans, Fed purchases of munis & corporate bonds and secondary mortgage market.

Distressed Grants/Loans: $75bn – oversight by a 5-member board

There is still a debate about whether the airlines and others will receive direct aid or just loans. We need the final text to determine.

Airlines $50 billion

Air Cargo $8 billion

“National Defense” Boeing $17 billion

Corporate Tax Changes: $100 billion (rough estimate)

NOL 5-year carryback

Interest deduction at 50% of EBITDA

Employee Retention Tax Credit

Healthcare Response: $150 Billion

Hospitals: $100 billion

Aid to State & Local Governments: $150 billion

Education: $30 billion

As we get more details, we will keep everyone updated.
Source: Strategas Research

Fortem Financial
www.fortemfin.com
(760) 206-8500

 

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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