August 2016                                                                                                                                                         Volume 12 - Number 8

Monthly Market Update

In This Issue
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 President's Perspective
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

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
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
Financial Markets Update
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.  
CalTRUST Portfolio Snapshot (as of July 31, 2016)
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.
CalTRUST Heritage Money Market Fund

Treasury Yield Curve 


2016 Calendar

September 5

Labor Day

Closed for Trading


October 10

Columbus Day

Closed for Trading


November 11

Veterans Day

Closed for Trading


November 24


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

The CalTRUST Monthly Market Update  is prepared monthly by the Investment Trust of California (CalTRUST) for participants in the CalTRUST Joint Powers Authority pooled investment program.  The Newsletter is prepared solely for informational purposes and is not to be construed as the solicitation of an offer to sell or of an offer to buy any security, nor is it intended to constitute a recommendation for the purchase or sale of any security.  The information contained herein is based upon data obtained from sources believed to be reliable, but is not guaranteed by us as being accurate and does not purport to be a complete summary of the available data.  Additional data will be provided upon request. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance.  Information, opinions and estimates contained in the Monthly Market Update reflect a judgment at its preparation date by CalTRUST and are subject to change without notice.  The price, value of, and income from any securities or financial instruments issued by the entities mentioned in this Monthly Market Update may fall as well as rise.