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Home My WebLink About2008/2009 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, 2008 TO SEPTEMBER 30, 2009 October 1, 2009 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 Jerrold Clarke Devin Dwyer Joe Foye Keith Bohr Bob Glass Don Hansen David Hatch Joe Carchio Diann Shelton Gil Goerper James Steinkirchner Jill Hardy Board Activities The meetings of the Board for the fiscal year ended September 30, 2009 were open to the public as required by Government Code 54950 and held on the following dates in City Hall: October 29, 2008 January 28, 2009 April 29, 2009 July 22, 2009 In addition, a joint study session with the City Council is scheduled to be held on November 16, 2009. The three major activities of the Board consisted of reviewing each monthly investment report, reviewing the City of Huntington Beach Investment Policy annually, prior to their presentation at a City Council meeting and reviewing the proposed merger of the Investment Advisory Board and Finance Board. After its review the Board approved a letter to be sent to the Council recommending against the merger as the safety of the City's investments might be jeopardized, that oversight was essential with respect to the City Treasurer and that the mission of the Board was important enough to maintain its independent function as originally agreed to in 1995. y Investment Advisory Board Page Two Annual Report to the City Council October 1, 2009 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 Based on the information reviewed by the Board for the period October 1, 2008 to September 30, 2009, it appears that the City Treasurer has maintained compliance with all requirements in the City's Investment Policy and reported to Council any non- compliance as per the Investment Policy. Resgectfull submitted, Christopher Palmer Chair—Investment Advisory Board cc: Shari L. Freidenrich, City Treasurer CADocuments and Settings\frakess\Local Settings\Temporary Internet Files\Content.Outlook\N832BFUH\tAB annual report fy 0809 draft.doc CITY OF HUNTINGTON BEACH INTERDEPARTMENTAL COMMUNICATION OFFICE OF THE CITY TREASURER TO: Joan L. Flynn, City Clerk VIA: Shari L. Freidenrich, City Trea� DATE: November 16, 2009 SUBJECT: LATE COMMUNICATION —STUDY SESSION 2 Please find the attached Power Point Presentation for Study Session 2. SLF/sf Attachment d-)OD 61 Joint Study Session i uncil Investment Advisory Board Members: Chris Palmer, Chair; Jerrold Clarke, Joe Foye, Bob Glass, David Hatch, Diann Shelton James Steinkirchner November 16, 2009 Study Session Topics * Overview of year - IAB report I nvestment outlook/Economic Update z Overview of 1AB Annual Report • Investment policy compliance • Legislation impacting investments/treasury operations • Cash management • Month ly/quarterly investment report 3 Investment Outlook • Market Overview/Economic Forecast • Interest Rate Yield Curve • Investmen# Strategies for the City 4 Market Overview 2009 • On October 2 , we raised our forecast for the unemployment rate and now show a peak of 10 . 3% in Q1 10 rather than 9 . 7% in Q409 . For 2010, we now show an average rate of 10.2% rather than 9. 6% in our prior forecast. • On October 14, we raised our forecast for Q3 real GDP growth to a 3 .5% annual rate from a 2 . 5% annual rate. Consumer spending and other elements of final demand appear to have been stronger than we originally projected . 5 Market Overview 2009 • The Fed funds rate forecast remains at between zero and 0.25% through mid-2010, reflecting the Fed being on hold until there are more signs of a sustained recovery • We forecast Fed funds at 0.50% Q2(10), 0.75% Q3(10) and 1 .0% in Q4(10). We continue to forecast no change in the fed funds rate until the June 2010 meeting (to .5%) • We forecast 2-year government notes at 1 .40% Q1 (10)7 1 .60% Q2(10)7 1 .80% Q3(10) and 2.00% Q4(10) 6 Impact on Capital Markets • Equity Markets Up (SAP 500 at 896 a year ago vs 1057 currently) • Dow Jones trying to maintain a 101000 level • Treasury Yields at historical lows • Overnight investments yielding close to 0% • field Curve Steepening (short-end much lower than a year ago) What are the Fed and Treasury Doing about It? • Monetary Policy: Fed Funds at 0%-.25% for all of 2009 and the September 23 FOMC statement repeated the line from the previous statements signaling no increase in the funds rate for "an extended period". • The Fed extended the mortgage-related purchases through Q1 10 (from Q4 09). Agency mortgage-backed purchases will total "$1 .25 trillion" instead of "up to $1 .25 trillion", although agenc debt purchases are still scheduled to be "up to �200 billion". • The Federal budget deficit soared to $ 1 .417 trillion (10% of GDP) in FY09 (highest level since 1945) from $459 billion (3.2%) in FV08. We forecast a $ 1 .29 trillion (8.8%) deficit in FV10. a What are the Fed and Treasury Doing About it? ,*Home prices have also partly been boosted by the first-time homebuyer tax credit, which is due to expire Nov. 30, 2009 now extended to April 30, 2010. We expect further declines in prices in early 2010. •The Federal government has offered extended and emergency benefits to fill in after claimants exhaust their eligibility for regular state claims. •On Oct. 19, Fed Chairman Bernanke stressed the importance of developing a fiscal exit strategy: "We need to develop a fiscal exit strategy which will involve moving towards sustainability. . . That's critically important to maintain confidence in our economy and confidence in our currency,�' In Dond Y1' e1d Forecast -'HELP', for explanation . ConidtyBYFC 01ENU> to Return [US 10-Year INUS 2-`(ear rM U-S 3-Mon6 Libor, ffiFed Funds Target Rate [6:G e rm a ny 10-'-,(e a r I(i e rm a ny 2-''(ear NEuro 3-Month Libor [S:ECB Main Refinancing Rate @UK 10-Year rW_UK 2-Year ro-UK 3-Month Libor [11:BOE Bank Rate [N—Japan I(,-',(ear [W:Japan 2-Year N Japan 3-Month Libor j B 0 J Target Rate [11:Canada I(j-Year §Canada 2-Year §Canada 3-Month Libor [5:80C Overnight Lending Rate Wrance 10-Year 0 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 2009 Bloomberg Finance L.P. SN 830883 G533-880-3 21-00-2009 13:25:38 10 'Y" ield Curve Now vs a year ago FL ,,,,, for explanation. Comfit CAS Y HTS-IFORTCAL- YTEI D CURVE PA,,.,;E 'I 13F- 2 F"M ...................... tl E jj Qr 0 J .. . ............. .... ............. ........................ 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 2009 Bloomberg Finance L.P. SN 830883 G533-880-3 21-Oot-2009 13122:29 Interest Rate Yiel 1 ConidtyYCF V (Menu> to return to current template . YJ4ald Graph 4' "•J;.�'?Mg^. I($4( I I ! I I t I ( j I 4,111 ------- 3.0 I i I J 1 i I -------_._1.....M i i 1 i I I I I I i I Yield Graph 0 j i •' I j I 125 IMN'03 US Treasury Actives 1[t,'20 M Tnea:Fu rx i I 1 M 3M— DA-1 Y-3Y—SY-7Y 10Y 30y----El 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 2009 Bloomberg Finance L.R. SN 830883 G533-880-3 21-Oct-2009 13:26:54 12 The Economy • Economic Recovery continues to gain traction • Consumer Confidence rising from 2/09 low • Unemployment at 9 . 8% up from 6 . 8% a year ago , however jobless claims are falling • Oil and other commodity prices up sharply Oil at $80+ and Gold at $ 1058+ • Core PCE inflation falling below 1 13 Investment Strategies for the City • Use LAIF and Short term Treasuries and Agencies for cash needing within lyr • Monitor any pooled investments for credit risk • Fine tune cash flow forecast to optimize investment risk/return • Longer term 1 -5yr Maturities — Invest in a Diversified Laddered Portfolio of Agency Bullets , Agency callable and FDIC insured Securities (Treasury equivalents) 14 Conclusion Overview of year - IAA report • Investment outlook/Economic update 15