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Home My WebLink About2007/2008 Investment Advisory Board - IAB - Annual Report on CITY OF HUNTINGTON BEACH INVESTMENT ADVISORY BOARD (IAB) ANNUAL REPORT TO THE CITY COUNCIL FOR THE PERIOD OCTOBER 1, 2007 TO SEPTEMBER 30, 2008 October 1, 2008 Establishment of Board The IAB was created to act in an advisory capacity to the City Council and City Treasurer in matters pertaining to all of the City's investments by the City Council in May 1995 by Resolution #3284. The seven Board members are appointed by a member of the City Council and are as follows: Name Council Member Christopher Palmer(Chair) Cathy Green Joe Foye Debbie Cook Bob Glass Don Hansen Angela Rainsberger Joe Carchio Brian Olson Keith Bohr Diann Shelton Gil Goerper James Steinkirchner Jill Hardy Board Activities The meetings of the Board for the fiscal year ended September 30, 2008 were open to the public as required by Government Code 54950 and held on the following dates in City Hall: October 24, 2007 January 23, 2008 April 30, 2008 July 30, 2008 In addition, a joint study session with the City Council is scheduled to be held on November 17, 2008. The two major activities of the Board consisted of reviewing each monthly investment report and reviewing the City of Huntington Beach Investment Policy annually, prior to their presentation at a City Council meeting. Investment Advisory Board Page Two Annual Report to the City Council October 1, 2008 As required under HB Municipal Code 2.110.040(b), the Board has reviewed matters pertaining to the City's investments in the following areas: • Reviewed the annual Investment Policy • Discussed the Management Letter from the City's independent financial auditor in conjunction with the annual financial audit and was advised that there were no comments relating to investments for the IAB to review. • Discussed Cash Management and ensured that there was sufficient liquidity to meet the next six month's estimated expenditures for all funds including the General Fund. • Reviewed Risk-Return Analysis as it relates to Safety, Liquidity, and Yield • Reviewed Long Term Investments and how cash flow forecasting enables the City to match investments to budgeted expenditures • Reviewed New Investment Sources, as appropriate • Reviewed Proposed State or Federal Legislation impacting the City's Investments • Reviewed any Anticipated Exposure to Loss by looking at liquidity, credit & market value of investments • Reviewed Quarterly and Monthly Reports prior to them being presented to the City Council • Reviewed Quarterly Compliance with Investment Policy and no exceptions were identified Based on the information reviewed by the Board for the period October 1, 2007 to September 30, 2008, it appears that the City Treasurer has maintained compliance with all requirements in the City's Investment Policy. Respe tfuify sub tted, Christopher Palmer Chair—Investment Advisory Board cc: Shari L. Freidenrich, City Treasurer CADocuments and Settings\cpalmer\Local Settings\Temporary Internet Files\OLK17\IAB annual report fy 07O8.doc Joint Study Session 1AB/City Council s e `�$ 17..19W P ® o Investment Advisory Bard Members: Chris Palmer, Chair-, Joe hoye, Bob Glass, Brian Olson, Angela Rainsberer, Diann Shelton Jams Steinkirchner 1 November 17, 2008 Study Session Topics • Overview of year - IAA report • Investment outlook/Economic Update with an expected Fed Policy Ease z Overview of IAA Annual Report * investment policy compliance • Legislation impacting investments/treasury operations • Cash management • Month ly/q uarterly investment report 3 Investment Outlook with an Expected Fed Policy Ease * Market Overview/Economic Forecast * Interest Rate Yield Curve • Investmen4 Strategies for the City Market Overview 2008 • Real Estate Values declining substantially • Default rates rising in subprime and other mortgage classes • Dramatic Credit Contraction Worldwide — Significantly impacting market liquidity • Inflation peaked in July/ now plummeting • Economy Slowing rapidly 5 Market Overview 2008 • Consumer confidence at recession levels • Commodity Prices Collapse as demand falls Financial Sector Consolidation — Independent Investment banks are history — Super banks will dominate (top 4 — 40% of deposits) — US securities market dominated by global dealers 6 Impact on Capital Markets • Financial Asset Deflation (ie . ) Securitized Loans of all types • Equity Markets Down Sharply (S& P 500 down 34% ytd 10/31 /08 ) • Credit Yield Spreads dramatically wider • Treasury Yields much lower on flight to quality is Yield Curve Steepening What are the Fed and Treasury Doing About It? • Monetary Policy: Fed Funds lowered to 1 % and possibly lower • TARP-Troubled Asset Relief Program • TAF-Term Auction Facility • US Treasury Capital Purchase Program • CPFF-Commercial Paper Funding Facility • FDIC increasing insurance limits from 1 00k to 250k • FDIC to guarantee Certain Debt Issued by Financial Institutions $ What are the Fed and Treasury Doing About It? • FNMA/FHLMC Conservatorship — 9-7-08 — Implicit guaranteed debt — Line of Credit for liquidity — GSE Equity prices dropped — GSE Sr. fond spread to Treasuries narrowed — GSE MBS Purchase Program • Provide stability of the mortgage market • Improve availability of credit to American hornebuyers • Temporary program sunsets 12/31 /09 9 Where does the market say rates are going ? 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Msg :J .BINGBAM Enter all values and hit <GO>> H X T F IC C t- Y Et-CO C:tJ F I-= PAGE I OF 2 DATE RANGE 10 14 O 1 13 G Milt' RANGE 0 Olt 5 + - - - - - - - - -- _ _ - - - - - - - 4 Y I 13'' - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 E - - - - - - - - - - - - - 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 -0- 10f14-�08 R ® - - - - - - - - 00 E A D -.50 -1 .00 3 6 1 2 3 5 10 30 Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 9204 1210 Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2008 Bloomberg Finanoe L.P. H130-1142-2 13-Nov-2008 15:19:28 11 Interest Yield Curve �t 701-7 IT - { r "`• • MLAy-®0 1 -- ®- — Oct-03 • e a 2 i y 4_ —®ct ®5 ® 4 it ig } ® •Lb. X . NOv-.06 OdM 74 ® k 'k4z, 12 The Economy • Economic Growth Slowing Rapidly s Consumer Confidence at record lows • Unemployment 6 . 1 % and Rising • Oil and other commodity prices down sharply • Inflation Fears replaced by Deflation threat 13 Investment Strategies for the City • Use LAIF and Short terra Treasuries and Agencies for cash needing within lyr(avoid CP for now) • Monitor any pooled investments for credit risk • Fine tune cash flow forecast to optimize investment risk/return • Longer terra 1 -5yr Maturities — Avoid Corporate IVITIV's for now — Invest in a Diversified Laddered Portfolio of Treasuries, Agency Bullets and Agency Callable Securities 14 Conclusion • Overaiiew of year - IAA report Investment outlook/Economic update with an Expected Fed Policy Ease 15