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President's Perspective
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State Revenues In July Well Short Of Budget Projections - Bear Watching
The State Controller's Office reports that revenues in July came in $591 million, or 9.8 percent, below the projections included in the recently-adopted 2016-17 State budget. Moreover, as the Controller reported, this revenue weakness was across all three of the state's main revenue sources:
- Retail sales and use taxes were $213 million (23.5%) below projections;
- Personal income taxes missed projections by $323 million (6.9% below estimates); and
- Corporation taxes were $49.5 million below estimates (17.9%).
The Controller rightly points out that "a one-month snapshot is not indicative of an economic trend", she also makes clear that a miss of this magnitude cannot be ignored, and that the budget situation bears watching.
CalTRUST Updates
CalTRUST hosted its Mid-year Economic Outlook webinar, in July; and it was the most heavily attended CalTRUST webinar to date. Over 75 registrants listened to WellsCap Senior Economist Gary Schlossberg discuss:
- The US economic growth outlook into 2017;
- How California fits into the overall US outlook; Prospects for a Federal Reserve interest-rate hikes this year;
- Which way for longer-term yields; and
- The election outlook and its likely effect on Federal tax, spending and regulatory policy.
A recording of the webinar can be found HERE.
The CalTRUST Board of Trustees will hold their Fall Meeting in Santa Barbara County on September 14, 2016. If you have any items you would like the Board to consider or if you would like to attend the meeting please contact Laura Labanieh at (916) 650-8186 or laura@caltrust.org.
As a reminder, in April the CalTRUST Board of Trustees added a Government Money Market Fund as response to upcoming Money Market Fund reforms which will take effect October 14, 2016. The CalTRUST Government MMF gives local agency investors:
- A stable $1.00 NAV, with no redemption gates or fees;
- Same-day liquidity for purchases and redemptions until 1 pm PST; "AAAm" and "Aaa-m" ratings from S&P and Moody's, respectively;
- Highly competitive money market rates;
- Best available expense ration in Select Class shares; and
- Full compliance with all provisions of Rule 2a-(7) governing SEC-registered money market funds.
For
more information on the CalTRUST funds, please contact me by email at the address listed below, or contact:
Lyle Defenbaugh
Wells Fargo Asset Management |
(916) 440-4890 |
Laura Labanieh
CSAC Finance Corporation |
(916) 650-8186
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Norman Coppinger
League of CA Cities |
(916) 658-8277 |
Neil McCormick
CA Special Districts Association |
(916) 442-7887 |
Chuck Lomeli is CalTRUST President
and Solano County Treasurer
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Financial Markets Update
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Flat Yield Curve Has Preceded Each of Past Five Recessions -- But Correlation Is Not Causation
In his recent
AdvantageVoice
blog post Wells Fargo Investment Strategist James Kochan, debunks the myth that the US is bound to dip into recession in the next year, since the yield curve has flattened significantly from it's very steep 2014 configuration.
In past cycles, Jim notes, a flat yield curve emerged after short-term rates moved sharply higher; often pushing up bond yields and mortgage rates. In looking at how yield curves behaved prior to the past five recessions, Jim finds that:
- In three of those cycles -- 1972-74, 1975-1980 and 2003-07 -- short-term rates rose significantly, as did the 2-year Treasury yield, and the recession was preceded by a housing market downturn;
- In 1990-91 cycle the yield curve actually steepened, and yield increases were relatively small; and
- In the 1998-2000 cycle, the curve was already flat.
The situation today paints quite a contrast, as Jim notes that:
- Short-term rates have risen only slightly and still are at historically low levels; and
- Rates on 30-year and adjustable rate mortgages are lower than at the start of the expansion, and have declined as the curve has flattened - contributing to a gradual strengthening of the housing market rather than a decline.
In short, Jim finds that today's flat yield curve does not have the same implications for the economic outlook as in previous cycles.
Jim's complete
blog post
can be accessed
here.
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CalTRUST Portfolio Snapshot (as of July 31, 2016)
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1. CalTRUST Short-Term and Medium-Term and LAIF yields are net of fees. Merrill 1-5 Year Indexes are unmanaged; and do not reflect any deduction for administrative fees or expenses.
2. CalTRUST and LAIF returns are net of all investment advisor, administrative and program fees.
3. Annualized.
4. The CalTRUST Short-Term and Medium-Term portfolios commenced operations on February 13, 2005.
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CalTRUST Heritage Money Market Fund
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Treasury Yield Curve
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2016 Calendar
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September 5 Labor Day Closed for Trading October 10 Columbus Day Closed for Trading November 11 Veterans Day Closed for Trading November 24 Thanksgiving Closed for Trading November 25 Thanksgiving Holiday Early Closure - 10:00 am PST December 23 Observed Christmas Eve Early Closure - 10:00 am PST December 26 Christmas Observed Closed for Trading December 30 New Year's Eve Observed Early Closure - 10:00 am PST January 2, 2016 New Year's Day Observed Closed for Trading |
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