March 23, 2020

How are we doing?

The current market decline in 2020 became a bear market (-20%) in a record of 19 trading days! Compared to history, the stock market drops in 1929 and 1987 both took twice as long to fall. The S&P 500 now sits down -31.79% from its recent high.

The big difference today is that the Federal Reserve (Fed) has acted immediately to the dislocation. The response is in sharp contrast to 2008 when it took the Fed months to implement programs to deal with the crisis.

In our informational resource, The 7 Largest US Stock Market Drops Since 1987in all seven cases, the markets around the world recovered and ultimately set new all-time highs. During these down periods, especially for stock market investors, the compounding of reinvesting dividends creates a long-term opportunity.

As we mentioned in our last message, we need two things to happen for the current economic crisis to come to an end (1) contain the virus, and (2) both the monetary (Fed) and fiscal (our elected federal government) policy must create programs to calm the markets and keep the economy moving forward.

So, how are we doing?

Our elected officials are now taking the virus seriously, and social distancing measures are in place across the country. It is now a matter of time as to when the virus will run its course.

As for fiscal and monetary policy, the Federal Reserve continues to act, and the federal government has begun to implement measures that will hopefully provide the necessary equipment and economic measures to keep the country moving forward.

Below is a list of policy actions that have already occurred:

  • 3/3: Federal funds were slashed by 50 basis points – the largest cut since the 2008 financial crisis.
  • 3/12: $1.5 trillion of liquidity was added to the banking system through reverse repos.
  • 3/15: Federal funds were cut by 1% to a range of 0% to 0.25%. In addition, treasury bonds and mortgage-backed securities were purchased for a total amount of $700 billion.
  • 3/16: The Fed increased liquidity to banks with an additional $500 billion of reverse repos.
  • 3/18: The President signed a $100 billion coronavirus aid package into law, which includes provisions for emergency paid leave for workers, as well as free testing.
  • 3/18: The Fed announced a $500 billion Primary Dealer Credit Facility (PDCF) and a $500 Commercial Paper Funding Facility (CPFF) for a total of $1 trillion per day of liquidity.
  • 3/19: The Fed announced an additional $75 billion in treasuries to be purchased this upcoming Thursday and Friday.
  • 3/19: Senate Majority Leader, Mitch McConnell, released a draft bill that would add hundreds of billions of loan guarantees to small businesses and airlines to the Treasury’s tool kit.
  • 3/19: The Fed launched the Money Market Mutual Fund Liquidity Facility (MMLF) to enhance the liquidity of money markets.
  • 3/19: The Fed announced the establishment of temporary US dollar liquidity arrangements (swap lines) with the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Norges Bank (Norway), the Reserve Bank of New Zealand, the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden). The Fed also has standing US dollar liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.
    • Note: The swap lines among these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such pressures on the supply of credit to households and businesses, both domestically and abroad.
  • 3/20: The Fed expanded its program of support for the flow of credit to the economy by taking steps to enhance the liquidity and functioning of crucial state and municipal money markets. Through the Money Market Mutual Fund Liquidity Facility (MMLF), the Federal Reserve Bank of Boston will now be able to make loans available to eligible financial institutions secured by certain high-quality assets purchased from single state and other tax-exempt municipal money market mutual funds.
  • 3/20: The US Treasury and Internal Revenue Service extended the tax filing deadline to July 15.
  • 3/23: The Fed is adding the kitchen sink” to their asset purchases. Details are outlined here.

In other news, IRON Financial will continue to remain open. We are very proud of the response our employees have made in these very difficult times, and we thank them for their service.

As of March 20, IRON Financial is now classified as an “essential business” by the State of Illinois Governor, J.B. Pritzker, in his executive order 2020-10. With the entire state of Illinois currently in a “stay at home” order, 2020-10 allows IRON to continue to operate and respond to your inquiries with our fullest abilities.

We are here if you need us. Stay healthy!


By Aaron Izenstark, Co-Founder and Chief Investment Officer