Monthly Archives: March 2020

Update: Tax & IRA Deadline – March 30, 2020

Over the past several years, you have seen several posts from Albion’s Senior Wealth Advising team designed to help you and your family make a lifetime of good financial decisions. 

The first step in making any good decision is to understand the relevant facts.  However, given recent events, there have been a plethora of changes that have come out over a very short period.  Understandably, it is difficult for anyone to keep up with all these changes.  

Our goal in this post, and those coming soon, is to help keep you informed on some of the important changes that likely impact many of our Albion client families.  Because the traditional tax filing deadline of April 15 is rapidly approaching, today’s post focuses on changes to Federal and Utah tax filing deadlines as wells as IRA funding deadlines.  (Spoiler alert … you have more time)

In the coming days, we will share more information on other areas and possibly revisit previous topics with additional insights.

As always, if you have any questions, please feel free to call us.  These are challenging times, but they are also a time of opportunity.  Your Team at Albion is here to help you successfully navigate this period and continue to make a lifetime of good decisions.

Tax Deadlines Extended:

Federal Taxes:

The tax filing deadline has been moved from April 15 to July 15 without owing penalties and interest.  This relief applies to all individual returns, trusts, and corporations. Taxpayers are not required to file any documentation to take advantage of the delay.  

This relief only applies to federal income tax payments otherwise due April 15, 2020, not state tax payments or deposits or payments of any other type of federal tax. 

Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. You will automatically avoid interest and penalties on the taxes paid by July 15.

This federal tax relief also includes estimated tax payments for tax year 2020 that are due on April 15, 2020.  No guidance has been given about the estimated tax payments for Quarter 2, 2020 that are due June 15.

Individual taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.

State Taxes:

By Utah statute, individuals have the same deadline to file and pay their 2019 taxes as the IRS, which is July 15, 2020. Additionally, interest and penalties are waived for late-filed 2019 tax returns and payments of corporations and pass-through entities such as LLCs.  To receive this adjustment, these returns and payments must be filed no later than July 15, 2020. 

Funding of IRAs and Health Savings Accounts Extended:

You have three additional months to make your 2019 IRA contributions or Health Savings Account contributions.   

The IRA contribution limit for both 2019 and 2020 for those under the age of 50 is $6,000; it is $7,000 for those age 50 and over.

The Health Savings Account contribution limits for 2019 are $3,500 for an individual and $7,000 for a family, with a $1,000 catch up for those over age 55.  

We recommend writing the year of the contribution in the memo section of the check for record keeping purposes.

Roth Conversion Opportunity:

While it may feel counter intuitive, doing a Roth conversion after a market pullback can make a lot of sense.  Why?  Because lower account values also means lower taxes owed. For example, an account that was worth $100,000 might now be worth just $90,000.  Converting that account now result in you paying less overall taxes for the conversion.

You may consider a Roth conversion using existing investments inside of your IRA rather than cash.  Your investments can be converted from an IRA to a Roth IRA, thus allowing future growth to occur in a Roth IRA.  You would pay tax on the amount converted to your Roth IRA as ordinary income.  A Roth IRA grows tax free, and qualified distributions are tax free.  

We are here for you and are happy to help you with any questions that you may have.

Warm Regards,

Your Senior Wealth Advising Team

From the desk of John Bird: On Testing, Therapies, and Vaccines – March 26, 2020

Social distancing, monetary policy, and fiscal policy are important tools to help mitigate the impact of Novel Coronavirus. Monetary policy, guided by the Federal Reserve and Treasury, is providing liquidity and stability to financial markets. Fiscal policy – best understood as the nearly $2 trillion package working through Congress, is designed to support those among us who are out of work, companies of all sizes so there will be places to go back to work, the healthcare system that will likely be pushed well past its capacity, and State and Local governments that find demand for their services skyrocketing while revenues plummet. And social distancing serves the purpose of slowing the spread of the virus.

Those are stopgap measures to give us time to solve the real problem; how do we learn to coexist with COVID-19? While there is not a solution at hand, progress is being made across a number of fronts at an unprecedented pace. The three primary areas our health experts are pursuing are testing, therapies, and vaccines.

TESTING

Widespread availability and implementation of testing both for the virus and antibodies to the virus is a huge priority. We don’t really know what we are dealing with; it’s certain there are far more cases than “confirmed” numbers indicate.

Widespread testing for the virus will inform us of whom in the population is both at risk and capable of spreading the ailment – helpful information to be sure. Viral testing in conjunction with antibodies testing would allow us to discern those who have not had the virus, those who are currently experiencing the virus, and those who have had the virus, have healed, and are no longer contagious and presumably have resistance. Such knowledge would allow us to re-engage socially and economically – and soon.

Testing for the virus is currently available, though in quantities not nearly adequate to meet requirements. Companies including Cepheid, Mesa Biotech, and Biofire (Utah company) have tests approved for use and are ramping up production. Innovation is happening around the world. A lab in London has developed an inexpensive and rapid test; around $5 per test with a piece of hardware that costs about $120. And they are not alone. Click here for a link.

Testing for antibodies we create to fight the virus has also come a long way in a short time. The first serological tests (tests for antibodies) came out of China and Singapore as they had kept capacity in place after being hit hard by SARS. After a slower start work is evolving at a rapid clip in the U.S.. One lab, at Mount Sinai Hospital in New York, has developed the serological assays to detect these antibodies with an eye toward creating a treatment with antibody rich blood serum. What this means – for those of us who are not fluent immunologists – is that there is a way to detect whether we’ve already had the virus and presumably have some immunity to it. The authors of the Mount Sinai work chose to publish their information immediately in an open source format.

A word of caution; the initial serology test roll-outs will be accurate enough to assess the population as a whole and provide insight into broad impacts. They will not be accurate enough to determine whether an individual is disease free and immune from further infection. That will come later.

Yes, we are way behind in our testing capacity. Yet our capacity, and accuracy, are ramping up quickly to a scale significant enough to really get our minds around how this virus is spreading – soon to be followed by sufficient accuracy to inform us whether we are safe to socialize.

PROSPECTIVE THERAPIES

The literature on prospective therapies is loaded with examples of efforts to dust off existing compounds and test their efficacy on the Novel Coronavirus. Antivirals including Remdesivir, Lopinavir/Ritonavir, and Rintatolimod are being tested. Immunomodulators and other investigational therapies including a variety of IL-6 inhibitors including sarilumab, tocilizumab (Actemra), and TZLS-501 are being examined. Hydroxychloroquine and chloroquine – widely used antimalarial compounds – have also been tried and may have some efficacy in critically ill patients. And this is but a small sample of the long list of compounds researchers are exploring.

To be clear I am no immunologist, virologist, or expert of any kind in this area. Journal articles that would take twenty minutes for someone fluent in the language to consume took me far longer – and unfortunately with less comprehension. But I did have a couple takeaways. First, early indications are that there is no magic bullet. Most compounds have not demonstrated a statistically significant benefit. The second takeaway, however, is that every “failed” test leads to scores of new questions and avenues for exploration which are being pursued at a rapid clip.

VACCINES

Per the Medscape article updated March 25th 2020 Coronavirus Disease 2019 (COVID-19) Treatment & Management there are currently a dozen investigational vaccines in various stages of research and/ or development including one that is scheduled to begin Phase 1 human clinical trials in April 2020. We have all heard the mantra that a vaccine will be available in twelve to eighteen months at the soonest and I have no reason to question that timeline. However it is heartening to see the wide variety of avenues of exploration.

Our scientific community is strong and persistent; they’ll not give up until they’ve succeeded.

THE WORLD AS A LABORATORY

In one sense we are embarking on a worldwide experiment. Some countries, and specific geographies within countries, will work hard to flatten the curve; to implement distant socializing and other policies to minimize the spread while simultaneously ramping up the capacity of their healthcare systems to better handle those who do fall ill.

Other countries, or geographies within countries, due to poverty, crowding, or cultural factors, will not be able to effectively flatten the curve. Those areas will most likely have the virus advance through the population largely unchecked until they reach herd immunity – typically defined as having 60% of the population having experienced illness and achieved immunity whereupon the spread slows to a trickle. It’s likely areas without robust healthcare and the ability to enforce distant socializing will move past the peak of the crisis far sooner than those countries, like the U.S., that are working to slow the spread while we search for therapies and vaccines. It is to be a harsh experiment, one that will cause significant suffering and potentially high mortality while wreaking havoc on economic systems.

Yet… We will come through this event intact. In this country, and every other country with the capacity to do so, feverish efforts are being made to buy time for our scientific and medical communities to develop the testing, therapies, and vaccinations that will put this challenge in the past.

In closing:

  • Testing will begin rolling out at scale. With knowledge we can become more discriminating in who needs to isolate and who is safe to socialize. This WILL make a huge difference in getting our economic system going again!
  • Therapies will be developed to help some of the sickest among us. They are being tested as I write. Successes will be leveraged. Dead ends will provide insights.
  • And a vaccine is in our future. Vaccines, and those who have had the illness, will build our herd immunity.

I have written quarterly letters at Albion for nearly forty years and attempted to offer clarity and insight into how wars, financial crises, oil shocks, technology bubbles and myriad other challenges would play out in our markets and lives. No event across the decades has offered a clear way out. Yet each time the path materialized, obvious only in hindsight. This time will be that way too. We’re going to be OK.

Stay safe,

John Bird

CEO

From the desk of John Bird: On the Federal Reserve and the Treasury – March 23, 2020

What a week it’s been. As individuals, communities, and local, state and federal governments we have all been reeling to catch up with the reality on the ground. This morning I read a piece about West Virginia Case #0 – a description of the challenge and frustrations of the individuals’ spouse as she doggedly pursued help on behalf of her husband and soon found she too was infected. Unfortunately, neither were able to be tested or treated. The highest levels of our Federal Government began the week at least fifty steps behind and thankfully have closed the gap to being only twenty-five steps behind.

The exceptional lack of clarity on how this will unfold is reflected in financial markets with big daily swings in the equity markets as participants grasp at wisps of information and attempt to extrapolate it into the future. The capital markets – better known to most as bond markets – are also struggling to find solid ground. Spreads on bonds have exploded. The spread on a bond is the difference between the price a bond dealer will pay for a bond and the price at which the dealer will sell the same bond. For example in a typical market the dealer may be willing to buy the bond for 105.0 and sell the bond for 105.25. That’s a spread of 0.25. We have seen spreads expand to fifteen or twenty points; the dealer now may only be willing to buy that same bond for 90 and will sell it for 109 – a spread of 19 points. While this is primarily happening in the corporate and municipal bond markets it also impacted the Treasury markets for several hours. It is worthwhile to point out that similar bond spreads occurred at the peak of uncertainty during the Financial Crisis of 2008/9.

As stated last week, and as I believe we all know, the news will get quite a bit worse before it gets better. Our goal is to provide a perspective across time on the areas we highlighted last week that are essential elements for managing this crisis. This note addresses some of the actions taken by the Federal Reserve and Treasury. Further notes on fiscal policy, medical and epidemiological advances, and social distancing will follow.

The Federal Reserve and Treasury have had an active week, quickly dusting off and putting in place many of the programs that were designed and implemented in the 2008 financial crisis. In this time of unprecedented uncertainty many investors are racing to raise cash, often selling securities of high quality in an effort to sell something another investor may be willing to buy. Investors are also fleeing money market funds, creating an untenable challenge for fund managers who, in order to generate liquidity for the withdraws, have to sell high quality short-term securities into a market with no buyers. Companies with bank lines of credit are drawing down the maximum amount – Boeing alone drew $13.8 billion while scores of other companies are doing the same. To meet these cash demands banks must sell portfolio assets – commonly U.S. Treasury securities. But there are no buyers.

The Fed and Treasury, in an effort to stabilize the market, have come in with guns blazing to provide liquidity. They are providing liquidity across the range of capital markets, from money market funds, to major banks and even central banks of other countries – taking as collateral high quality securities for which there is currently no other buyer. This is an essential step and while it alone will not stabilize our economy, it is a critical component to keeping the capital markets functioning . For those of you interested in a deeper dive click here for a Brookings Institution summary of fed tools and actions.

NOTE: The above paragraphs were written Sunday March 22nd. This morning the Fed announced new measures including the following as outlined by Mike Kessler on our investment team:

  • Unlimited (i.e., as much as needed) purchases of Treasuries, Agency Mortgage Backed Securities (MBS), and Agency Commercial Mortgage Backed Securities (CMBS)
  • Partnering with the Treasury to provide $300 billion in credit to consumers and businesses
  • Establishment of facilities to buy corporate bonds and loans in the primary (PMCCF) and secondary (SMCCF) markets
  • Establishment of a facility to buy ABS backed by student loans, auto loans, credit card loans, Small Business Association (SBA) loans, and other assets
  • Expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include additional assets, including variable rate demand notes (aka auction rate securities) and bank CoD’s
  • Expanding the Commercial Paper Funding Facility (CPFF) to include tax-exempt municipal CP, with reduced pricing

(Here’s a link to the Fed’s press release.)

These additional steps make clear the Federal Reserve’s commitment to keeping the financial markets working in these unprecedented times. They have in essence positioned themselves to be the buyer of last resort taking as collateral quality securities for which there is currently no market. While it can come across as dry and technical this is a really big deal.

This note is not intended to address the other three significant areas – fiscal policy, medical and epidemiological advances, and social distancing – but it’s worth noting fiscal support is working its way through Congress. The highest levels of the federal government are working to catch up with and support the solid work our medical community has been engaged in for several weeks, and more and more of us are taking social distancing (better described as distant socializing) seriously.

As mentioned last week it will look a lot darker before we start seeing rays of sunshine. Yet progress is being made.

Please stay safe and healthy,

John Bird

CEO

Albion Conference Call Recording – March 20, 2020

For those of you unable to join our conference calls this week. Here is audio from one of the calls.

Call Contents:

  • 00:00 –  Introduction:  John Bird, CEO
  • 06:52 –  Markets and Economy:  Jason Ware, CIO
  • 15:19 –  Planning and Tactics:  Devin Pope, Senior Wealth Advisor
  • 20:30 –  Q & A

Download the MP3:

AFG Conf Call 2

From the desk of John Bird: COVID19 – March 16, 2020

The Coronavirus situation is evolving rapidly and causing everyone to adjust plans on the fly to protect the health of our communities, our clients, our families, and ourselves. The recent announcement of the closing of Utah schools and schools around the nation – while a challenge – was not unexpected.

I want to share with you Albion’s two main overriding mandates for helping clients during this challenging time:

First Albion is doing everything we can to shepherd our clients through this very difficult period. The investment team is deeply engaged to make the best possible decisions for our clients’ long-term financial success. Second, all our Senior Wealth Advisors and Associate Wealth Advisors are working constantly to communicate our thinking and help our clients make good decisions given each of their specific situations. In addition, the operations group is helping in myriad ways to deal with both the ordinary and extraordinary demands we are encountering.

Questions we’ve been asked include “is the market pricing in the worst case scenario?” and “how will we know when the market has bottomed?” The market is a dynamic interaction of millions of participants around the world who, in aggregate, determine what the value of a company should be. Determination of “the right” value is a combination of logic and emotion. The rampant volatility of late makes it clear that financial market participants do not know what “the right” value is. In such a situation – staring into the unknown – the emotional side of our analysis tends to override the logical side of our analysis. This lack of clarity is creating volatility that we expect to continue at least several more weeks. For a variety of reasons, we believe the headlines – and images – will remain scary (and become worse) over the next 12-14 days. Why? Because this virus has an incubation period of up to 14 days. Therefore much of the benefits from the nation’s focus on social distancing will not impact the case numbers for at least 7 days, maybe 14.

So no, the market is not pricing in the worst-case scenario. The market is pricing what the aggregation of market participants think is the most likely scenario at any given moment.

How will we know when the market has bottomed? We won’t. Until months after the fact. The last three weeks have seen unprecedented market volatility with the most rapid swing from peak to bear market (defined as a drop of 20% from the peak) in history. ​It took just nineteen trading days. Yet as we all know the last four weeks have had nearly as many up days as down. Big down days have been followed by not quite as big up days. We expect to see the reverse in the recovery; big up days followed by not so big down days. The market recovery will most likely be exceptionally volatile just as the selloff has been. And while it is happening most investors won’t trust it; they’ll remain bearish expecting an even bigger down day just over the horizon to take us to new and more painful market lows. Only with the long lens of hindsight will we know where the market bottom was.

What is an investor to do? First, refer back to the piece we sent out last week to help reorient on why you invest in the first place. Second, recognize that while the situation seems surreal and overwhelming, critical steps are being taken to put the Novel Coronavirus behind us. Third, ask yourself whether firms like Amazon and Google are likely to be more valuable companies in 3-5 years than they were at the end of 2019. We think they will be. Yes, the journey from here to there will be bumpy but we believe strong companies will continue to find ways to deliver their products and services better, faster and cheaper – especially in a world of big data and artificial intelligence.

There are four legs to putting the Coronavirus genie back in the bottle: Monetary policy, fiscal policy, medical and epidemiological progress, and social distancing. We are finally seeing an awareness at the Federal level of the importance of concerted public-private action in each of these four areas.

Perhaps the least impactful yet earliest to act has been the Federal Reserve with aggressive monetary policy. Between a rate drop a few weeks ago and today’s announcement taking the overnight rate down to zero – as well as their efforts to support liquidity further out the yield curve – the Fed has worked with the tools they have to help the economy stabilize.

Fiscal policy – better known as spending and taxation primarily at the Federal level – is finally kicking in. Late last week Speaker Pelosi with the Republican administration crafted a $50 billion support bill that the President has assured all he will sign. This is a first step toward stabilizing the families and businesses that have been and will be hit hard for the next few months. Of course as in all things the devil is in the details. But there is now a will to act in Congress and the Administration; a positive development.

Every day there is additional information on the medical and epidemiological insights gained and progress made as we get more experience with COVID-19. Our understanding of the life cycle of the virus and how it spreads improves daily. After a slow start it looks like we will soon be able to ramp up testing capacity and over time improvements will be made to the test allowing for far more accuracy. There is also progress toward creating a test to determine who has had and recovered from the virus.

Social distancing has the potential to have far and away the most significant impact on stopping the spread of the disease. This is where every one of us can immediately be part of the solution. If there is no person to person contact the virus cannot spread. Of course it’s impossible to limit all contact for the month or so it would take. However we as a nation – and a world – need to do the best we can to get as close to no contact as possible. Albion has a part to play in this effort. We are a company that can transition to working remotely for most of our team. Because we can we must. There are loads of companies that can’t do this (think healthcare and construction) so those that can need to make a strong effort.

Starting today we have switched our paradigm from having a handful of the team working remotely with the rest of us in the office to having a handful of us in the office with the rest working remotely. Fortunately the groundwork we’ve laid over the last decade makes this transition straightforward. We will also suspend in-person client meetings. There are a variety of online tools available to facilitate face to face electronic interaction which we will offer as an alternative. To be clear we very much want to continue to meet with our clients yet for the foreseeable future we’ll do it electronically.

For many of us maintaining social distance while at work is the easy part. It is the myriad conscious and unconscious interactions we have with scores of people most every day that will be harder to change. Yet no contact among anyone anywhere for a month makes this virus go away – so we all need to do what we can to limit interactions.

Clearly implementing Social Distancing on a global scale involves a tradeoff between current economic activity and limiting viral spread. Social distancing immediately impacts the economy. Weighing the relative impact of these two factors is difficult; the impact of a reduction in economic activity is front and center and impossible to ignore; financial markets have plummeted, hours are being cut for workers, cancellations of gatherings are rampant and businesses are shutting down.

Less obvious is the impact of the virus. With close to 4,000 confirmed cases in the U.S. as of this writing it is easy to feel like we are overreacting. We are not. There are scores of analyses of how the virus may spread available online. This one does a good job of describing the current state of affairs in layman’s terms. We’ve all heard by now the notion of “flattening the curve”. If you’ve not then click here for a description of what it means. Our choice is to absorb the economic shock now allowing the crisis to pass sooner or delaying the economic shock, perhaps for several weeks, and have the economic pain – and death toll – be much greater. Countries around the world are quickly changing from the latter course to the former course; they are implementing policies to stop the spread now.

On a side note, I personally have commiserated with son Ian who’s a college senior and was looking forward to the amazing celebration the last couple months of college represents and am also sympathetic to the truncated competition season for son Andrew. Yet it is clear that ours are first world problems. I do not question whether I’ll have a roof over my head, where my next meal will come from or whether I’ll have access to healthcare if necessary.

We are heartened by the acceleration of social distancing measures we’ve seen in the last few days. While it is painful in the moment these efforts will help us “bend the curve” and put Coronavirus in the past.

Thank you for your patience and understanding as we all work through this most unusual period.

Please stay safe and healthy,

John Bird
CEO