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Home My WebLink AboutTC Digest 2008-10-31 TOWN COUNCIL WEEKLY DIGEST Week of October 27 - 31,2008 Tiburon 1. Letter - Wm. Osher - Town Investments, LA IF Market Review and Outlook 2. Letter - Roger & Nancy Freed - Thanks to Public Works for Bench Placement Agendas & Minutes 3. Agenda - Design Review Board - November 6,2008 Regional a) None Agendas & Minutes b) None * Council Only ~.,."'..:,:'''.'':''.:,.:,.,:'@c.''.: ,!MV;'j1W; Tamalpais ": DIGEST To: Margaret Curran, Town Manager Town of Tiburon From: William Osher, CF A Town Treasurer Director, Fixed Income Investments, Tamalpais Wealth Advisors Subject: Town Investments, LAIF Market Review and Outlook Date: October 27,2008 Background/ Review of LAIF The Town of Tiburon maintains reserves and restricted funds as part of its ongoing management of its fiscal resources. As of the beginning of the Town's current fiscal year, the balance of these funds included $9.28 million allocated for General Fund use, $9.17 million allocated for specific projects and $1.79 allocated for the Town's Redevelopment Agency. The Town annually approves a Statement of Investment Policy to set forth the guidelines for the prudent management of its general and reserve funds. The Town's primary objective is to safeguard the principal of the funds. The second objective is to meet the liquidity needs of the Town. The third objective is to achieve a return on its invested funds. To meet these objectives the Town has chosen to invest its funds in the State of California's Lo cal Agency Investment Fund. The Local Agency Investment Fund (LAIF) was created in 1977 as a voluntary investment alternative for California's local governments and special districts. The program offers local agencies the opportunity to participate in a major portfolio, which invests hundreds of millions of dollars, using the investment expertise of the Treasurer's Office investment staff at no additional cost to the taxpayer. This in-house management team is comprised of civil servants who have each worked for the State Treasurer's Office for an average of 20 years. The LAIF is part of the Pooled Money Investment Account (PMIA). The PMIA began in 1955 and oversight is provided by the Pooled Money Investment Board (PMIB) and ~1~{l*lW~ 1'\ ': i...,.! ~L, i\..L 'T'ama palS \\!(-\'1;:i r l i"'\! '1 'I II ':" ':{ ".:w..' ..,....~.>..<:. "':...=:. ~.l ''):'::;''''-':'' .} an in-house Investment Committee. The PMIB members are the State Treasurer, Director of Finance, and State Controller. LAIF represent a direct investment in a stable net asset value fund that primarily utilize money market assets or assets that mature in less than a year. These funds generally have average maturities between three and nine months. At the end of each quarter LAIF presents investors with a quarterly report detailing its holdings, how much money it has earned for its participants and any other relevant disclosures. LAIF is routinely monitored by the Town's Treasurer. As of 9/30/08 the LAIF/PMIA had investments totaling $64.375 billion. The average maturity of these investments was 214 days. This is slightly longer than is typical. The fund was broadly diversified across several types of short term investments including U.S. Treasury securities, Federal Agency debentures, Certificates of Deposits, AB55 Loans and Commercial Paper. They did not have any exposure to Lehman, Merrill, AIG, and Washington Mutual. In general the fund has done a very good job of steering clear of problem credits. The Town Treasurer has reviewed the statement of investment holdings as of 9/30/08 and did not see any undue credit exposure. Certain investments such as AB55 loans are beyond the Treasure's abili ty to analyze. During the quarter, LA IF was able to provide a 2.77 % annualized yield. This compares to a typical money market return of 2.19%, and an annualized T-Bill return of 2.13%. At present LAIF yields 2.73%, a typical money market fund 2.63% and 3 month T- Bills 0.75 %. LAIF's structure and the way it apportions earnings causes it to lag as interest rates both rise and fall. As a consequence, LAIF has been able to maintain a higher yield than a T-Bill or short-term Government debenture as rates have fallen. Should rates start to rise, however, LAIF's yield may fall behind a comparable invest in a Government security. Based on LAIF's well run portfolio, limited credit exposure, consistency with the objectives of the Town's Statement of Investment Policy and higher returns, the Town Treasurer continues to recommend its use as the Town's primary invest ment vehicle. ~.'['."Y':"H\:;"\': :,.",'i ,.... '\',k 'T' l' ". ; lama palS' '. Fixed Income Review and Outlook September 2008 Yield 'Yo u.s. Treasury Yield Curves 4.25 3.75 --'-~ 1= -- :::~::>-_.--; --- ~:::=-~~~.~:::::-"// -~ - - -~------- - - - /./ - ",.-' .. - ~... .--,///..--4>.// //)I1t........_..".r..--........... ,..--_-.4f{ //" //"" - - .f.I//'-" //A ../,,/ // /" ""./"'" /// . ..;?~u_.JIY J.''''''''''' /// // ___..Ar ......--- fr...........,~~........ [----------1 -+- 12/31/2007 I ......... 6/30/2008 i .....$-..... 9/30/2008 I .. ________~____ __ J 3.25 2.75 1 2.25 1.75 1.25 6 months I year 2 year 5 year 10 year Maturity A Crisis of Confidence The third quarter of 2008 will undoubtedly be remembered as one of the most trying periods in the history of finance, and the bond market is no exception. As the quarter came to an end, banks became fearful to lend to one another, credit markets essentially ceased to function, and U.S. Treasury bill rates fell to near zero. Meanwhile, our nation's po licy makers scrambled to pass an unpopular piece of legislation designed to bring the market back to normalcy. There has been a fair amount of discussion in the popular press as to the hows and whys of our current predicament and who is to blame; much of it has been misinformed. We were brought to this place by a combination of misguided regulation, excessive amounts of financial leverage, a lack of strong leadership and ineffective policy responses. It began with the saga of sub-prime mortgages backing overly inflated homes that were sold to individuals with only a questionable ability to repay them. A lack of regulation, a triumph of greed over responsibility, and an undying belief that the market will R T 1 O\A/{\;:lllll/\rl\/icnc<:; ~ lama palS """"""'~" """j.,J., continue to grow allowed this market to expand to an unimaginable size. As the housing bubble burst, a more realistic value of these mortgages began to emerge and resulted in a synchronized desire to SELL! There was, however, a slight problem. From the outset, the population of investors willing to purchase and hold these questionable securities was quite small. Undaunted, what they lacked in numbers they made up for in leverage by buying ever more of these securities with borrowed funds. When the time came to sell, unfortunately, there really wasn't anyone around to buy. When there are more sellers than buyers of a security, its price will fall. If something is selling for far less than it is wo~th, a buyer would normally emerge. When markets are functioning normally, this process is kept in check by the guiding principle that in efficient markets a security's price, or market value, and its underlying or intrinsic value will remain in close proximity. In the case of the sub-prime mortgage, however, the sheer size of the problem was so large, and in many cases the actual securities were so complex that the buyers never emerged. At least they never emerged at a price that was anywhere near the underlying value of the securities and the market values fell to nonsensically low levels. At that time a much more dangerous problem, one that involved our commercial banking system, took hold. Large commercial banks - lenders to themasses, provider of liquidity, members of the FDIC and, wouldn't you know it, holders in siz e of sub-prime mortgages are heavily regulated. Among the more well-thought-out regulations banks were required to follow were a set of risk based capital requirements that effectively limited leverage to roughly 1 O-to-l, i. e. for every $1 of capital you have, you may lend or invest in $10 of a loan or investment. Meanwhile the Financial Accounting Standards Board (F ASB) added additional regulation with a recently added pronouncement known as F ASB 157. F ASB 157 set a market value-based standard for how an institution must recognize losses on a security that has fallen in value. The upshot of all this was that globally, banks have been forced to recognize close to $680 billion in losses on securities that would have fallen in value by substantially less had the market values of sub-prime securities been closer to their intrinsic or underlying value. The problem with recognizing such a loss is that it directly reduces a bank's capital. When a bank is forced to take a $1 loss, not only does its capital fall by $1, but the amount of investments or loans it can hold falls by $10 as well. So the banks found themselves in the unenviable position of having to recognize large losses (FASB 157) due to dysfunctional markets (no buyers) which led them to sell even more assets (risk ~ Tamalpais based capital regulations) which led to even more depressed prices which led to ever more losses which continued in a vicious downward spiral. The banks needed to break this downward spiral. Without intervention, banks would soon find themselves without either the liquidity (money to make loans) or capital (room to add loans) to keep the credit markets functioning. The downfall of Lehman Brothers and American International Group (AIG) only exacerbated the situation. Something needed to be done and done quickly, or the whole system was in danger of freezing up. Recognizing how perilous the credit markets had become, Treasury Secretary Paulson, with help from Federal ReserveChairman Bernanke, crafted a daring $700 million plan to break the downward spiral the banks found themselves in. The Paulson plan, in its original form, would have gone a long way to help free up the credit markets. Unlike its portrayal in the popular press, it was not a bailout. What the government proposed was the purchase of investments at discounts to their intrinsic value. What's more, most of these investments provide for monthly cash flow that far exceeds the cost the Government would have to pay on any borrowed funds used to fund the plan. From day one this plan was structured to be a moneymaker for taxpayers. Unfortunately, the Paulson plan was voted down in its original form after being hailed as a make-it or break-it piece of legislation. The record-setting drop in the market broke whatever fragile sense of stability that may have been building and precipitated a global flight to safety that lowered the value of virtually every financial instrument except U.S. Treasury securities and gold. As the Wall Street problem quickly became a Main Street problem, legislators were able to finally pass an expanded bill that kept as its core the original Paulson plan. By the time the bill passed, a substantial amount of damage had already been done. Too much had been made of the fragility of the markets in order to get the bill passed. Too many investors now wanted some skin out of the game. Too many hedge funds, reeling from depressed quarter end marks, needed to raise cash. Too many mutual funds, fearful of panicked redemptions, also needed to raise cash. Too many traders, cognizant of the depressed economic numbers and reduced earnings expectations to come, wanted to be short. The groundwork for a full-fledged market rout had been set. Little noticed in all the turmoil, however, were a few spots of positive news. LIBOR, the market's barometer of the health of the financial system, was beginning to show signs of improvement. Additionally, the Securities and Exchange Commission provided some regulatory relief to financial companies giving them more leeway in how they had to recognize losses as a result of F ASB 157. Lastly, well-regarded market sages such as Warren Buffet were showing a willingness to commit a substantial amount of capital. ~""""""">"""""",Ci..""""""",,,,:,,::,' ~WW!!*~:~ Tamalpais\.1/( .cti~ 1J L; \!(.I\:/l:::~~(-}r.'~~;:: Going forward, there is likely to be meaningful changes in the structure of our financial system. Re-regulation of financial companies requiring less leverage, greater transparency and more accountability will certainly be on the top of the list for any new administration. Recognizing how interconnected markets have become, there are also expectations for a more globally coordinated level of oversight and intervention. Investors, damaged by almost a decade without any positive returns in the equity markets will seek less risky places to invest their assets, including securities designed specifically to provide some level of protection in declining markets. The dollar may begin to lose some of its reserve status as investors look to diversify their currency exposure, posing a risk to our ability to easily fund our current account deficits. The securitization markets, which helped lower financing costs on a myriad of vehicles, will diminish in both size and scope. Finally, no longer will savings take a back seat to the reckless spending of the American consumer. While certainly not an exhaustive list, the items listed above are likely to have important implications for the bond market. U. S. Treasuries may take a more prominent role in institutional portfolios, leaving spreads in other sectors of the market permanently wider. Given issuers' desires to len gthen out maturities as investors simultaneously seek the safety of shorter-term investments the yield curve is likely to steepen. In the meantime, the capitulation phase of the markets will continue until the de- leveraging of the financial markets has run its own course. Continued volatility is likely along with continued coordinated rounds of global central bank rate cuts. As the markets regain their footing and the $700 billion dollar resource gets up and running, the first place investors are likely to look to place cash will be securities offering high yields and relative safety. Ironically, this will most likely mean investing in Government Agency backed mortgages. Adding irony on top of irony, this will help lower 30 year fixed-rate mortgage rates, which in turn will help stabilize the economy and markets. Interest rates on U. S. Treasuries have now fallen to levels consistent with a 1 percent Federal Funds rate and continued stress in the financial system. Interest rates on the credit sectors of the credit markets are at highs not seen for over a decade. Interest rates on U.S. Government Agency securities have fallen to about a percent above U.S. Treasury yields, offering perhaps the best combination of both safety and yield. While it may ultimately be more profitable to invest in more risky securities, with markets having fallen so low, the prudent course at this juncture is to stick to securities which offer both capital preservation and liquidity such as LAIF. Roger and Nancy Freed 7 Windward Road Belvedere, CA. 94920 415.435.9519 . J :), 2008 c, Pttb~l~ \JOI ~6 ~i.l:nV.d\t --rDlOi'\ of Ii 1).Jf 0''\ 10 . 2c1 lC~(J~ bw ~I~L dnt! -hr J PI1iL:-t... ltLllpt V~ IVUfTr h.wiif~* -it'lltitt'J toy iDLLl' 1\LL{) II') fill.- D [au w-"- ,yt &t'" Jk bLmj') Url ~'~ J..l,t:w'V-b-i-n. J o-W,-- 'Jw 4 {hI i'hL ~1P~ :Y,-t),,~ '~4 ~V ll~kY .{1r\.L' - Irtll'\~ ~. i'iu. 1~11jJl..- [1;\ Dj)U~ ~DA1.t.. I iUltL tl.11 A i1lvl ~ t1-ppru 'j (jtIJe- of 4()ui ~~./" 0.\ LL lxf ~ ))J~ (u'\ Ll -1Llt {;ltuJ LOI{ ILL. '.J fl)l tLiL Lf;1l1 (\ w.t in r~:r~i\Je. 1tLc 1~:JtU., ~l ' , .'. ' / tWY\ t [:Jl!tl {\ -tv (U./jdll'L 1LJ LDrV{Ult- ~~ h:.tl[h V\i.L;"j ~\ I Jtfl fb -tUL, {zu;4 vf ~. . ~ty ~ 7JcU)\. ) bu...( Liti..A'. ~,i J.0.Ly, ~j\t \ ~ (J . ML11VS 1\'itl)LLJ. A~') j II\idlt~ 'WIt\. q6'~'V-{l.'V\ M6W\1'l\.Ul \.IJk0 ~~ /1- nV~I(ll.L~(ui -{i;{ llL\vlL / ht- ltfJ(YJlJ:t16 '~~LLtl. .{ifL4tL~~1 ~ ~. ~\'ltLU,1?Llil L.l.nlt Iw\ \'\MULLY C hi A \'\oc>t\ {Q LID ef\nw ~'~ -fLye... tD fLU\ lOiV.( '1L~~ ill I LiLt ' A Ifkw~t\... lUL (ill ~\l~)') Mcu lL -1[ tlJ.,\)UY LOt- +~t.r c:- IJrt ~ lot}:." -fu ,iu.W\. ;/j~(\'1 : Dr\ .~ tx1l4~ OD~ v IbO /tu 1) i\,v~ fw?:1l1i 1t1./flW.tfJL') ~tuJl~)1 IJJLl tf yo-wi t~Lr.-' ~tI1u. hiLL b/Q ~8)"- DESIGN REVIEW BOARD AGENDA TO'VN OF TIBURON 1505 TIBURON BOULEVARD TIBURON, CA 94920 DATE: 11/6/08 MEETING TIME 7:00 P.M. AGENDA NO.: #16 PLEASE NOTE: In order to give all interested persons an opportunity to be heard, and to ensure the presentation of all points of view, Inembers of the audience should: (1) Always address the Chair; (2) State name for the record; (3) State views/concerns succinctly; (4) Limit presentation to three minutes; (5) Speak directly into microphone and (6) All documents submitted at the meeting must first be submitted at the Staff table, to be entered into the record and retained by the Town. If an item is continued, it is the responsibility of interested parties to note the new Ineeting date. Notices will not be sent out for items continued to a specific date. Any documents produced by the Town and distributed to a Inajority of the Design Review Board regarding any item on this agenda, including agenda-related docunlents produced by the Town after distribution of the agenda packet 72 hours in advance of the Board Ineeting, will be available for public inspection at Tiburon Town Hall, 1505 Tiburon Boulevard, Tiburon, CA 94920. A. ROLL CALL: Chair Doyle, Boardmelnbers Chong, Glassner, Tollini and Wilson , B. PUBLIC COMMENTS (FOR ITEMS NOT ON THE AGENDA) C. STAFF BRIEFING D. OLD BUSINESS BEFORE THE BOARD 1. 2 McCart Court Kaiser Additions/Floor Area Exception CONTINUED TO 11/20/08 E. NEW BUSINESS BEFORE THE BOARD 2. 3. 4. 5. 4 Heathcliff Drive Bates 325 Taylor Road Gause/Kuhn 741 Tiburon Boulevard Maddox 1865 Mountain View Drive Pearce/Grant Additions Additions AdditionsN ariance New Dwelling/Variance/Floor Area Exception CONTINUED TO 12/4/08 F. APPROVAL OF MINUTES #15 OF THE 10/16/08 DESIGN REVIEW BOARD MEETINGS G. ADJOURNMENT **PLEASE NOTE THAT AGENDA ITEMS MAY BE TAKEN OUT OF ORDER**