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Financial Management Report: Impact of Economic Review on Investments

This report summarizes the 2Q07 economic review, impact on investments, and future strategies amid subprime challenges. It covers GDP growth, consumer spending trends, interest rate changes, and investment performance.

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Financial Management Report: Impact of Economic Review on Investments

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  1. MANAGEMENT COMMITTEE REPORT ON INVESTMENTS 2Q07 September 12, 2007

  2. ECONOMIC REVIEW • 2Q07: GDP 4.0%. Consumer Spending dropped to 1.3% at end of 2Q07. PCE rose 1.9% well within the Fed’s comfort zone 1-2%. August unemploy. @ 4.6%. • Present: Financial markets volatile and credit markets tightened due to subprime mortgage deterioration. • Future: Slow economic growth due to subprime problems spreading to both the national & global economies. • Interest Rates: Fed lowered the discount rate to 5.75%. High likelihood the Fed will cut Fed funds target rate by September 18th or sooner. • Council Impact: Compared to 1Q07, interest rates have fallen, Expect our L-T portfolio to incur some unrealized gains in 3Q07.

  3. PRICE of HEATING OIL

  4. PRICE of NATURAL GAS

  5. 2Q07 TOTAL RETURN • Short-Term Port: +5 bps above index. • Long-Term Port: -59 bps below index. • OPEB: +6.04% total return for quarter. • Realized hedging losses offset $26,075 of fuel price decreases to balance budget risk. • $437,388 of unrealized hedging gains.

  6. ACTION / SUMMARY • Moved money market funds out of MSILF Prime institutional account to our collateralized bank account, earns 5.20% • Adjust duration up/down relative to interest rate movements. • OPEB July balance at +$64M versus +$58M at end of 1Q07. Cum. unreal $4.0M at 7-31-07. Slight increase in allocation to equities since stocks fell.

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