County Treasurer Warns Investors of Worsening Economy

**Editor’s Note: This story was modified on Jan. 22 to clarify some information from the county treasurer.

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The reeling stock market is a sign of deeper problems in the worldwide economy, and investors should be prepared for ongoing volatility, Riverside County Treasurer-Tax Collector Don Kent said today.

Kent told City News Service that the downward trend for equities is not likely nearing an end, even though all the benchmark indexes have suffered substantial corrections since the start of the year.

“Currently worrisome is ... slowing growth in China and here at home, massive declines in oil and energy prices, diminished worldwide raw materials shipments across our oceans, strong dollar effects on the U.S. economy, multinational earnings, and geopolitical unrest in Europe and the Middle East,” the treasurer said.

“Loss of jobs and income has occurred and will continue as a result,” he said. “Bank loans and bond defaults, bankruptcies and corporate mergers will also follow.”

Kent stopped short of using the word “recession,” though some financial analysts are leaning toward the belief that the markets are serving as a leading indicator of just that scenario. Among them are Royal Bank of Scotland economist Andrew Roberts, who recommended last week that investors pull out of stocks generally.

According to financial charts, the Standard & Poor’s 500 -- among Wall Street’s broader performance measures -- is down 13 percent over the last six months. The Dow Jones Industrial Average has suffered a similar six-month loss in value, while the NASDAQ Composite Index, representing mostly tech-based companies, is off by 14 percent.

Commodity charts show oil prices are at a 13-year low, falling to just under $27 per barrel -- about the same price as when the U.S. invaded Iraq.

Kent acknowledged that plummeting energy prices point to slack in the economy, but he was “optimistic about the savings we as consumers will realize across a broad spectrum from cheaper energy.”

The treasurer said the county’s $7.3 billion investment pool will earn less in interest income from the Wall Street sell-off as more investors retreat from stocks and park their funds in relatively safe money market accounts and bonds.

The county’s investment pool is almost 100 percent comprised of fixed- instruments, including treasuries and other federally backed bonds.

As more people pile into bonds, prices go up and interest rates slide, leaving current bondholders with more valuable holdings.

Kent said that in the near term, the county may realize less in interest income, but because the investment pool is always acquiring new issues as part of a long- term “buy-and-hold” strategy, growth is certain.

“No matter what the current interest rates are ... we never have to sell into an adverse market to generate cash,” the treasurer told CNS.

The pool, which is a repository of monies invested to meet the county’s needs, as well as those of school districts and special districts, reached a record-high last month of $7.35 billion in assets, according to Kent. Credit rating agencies Fitch and Moody’s have graded the portfolio AAA for investment quality and reliability.

Kent said he doubted the Federal Open Market Committee would follow its Dec. 16 decision and hike the federal funds rate again any time soon.

“They’re probably one and done, unless economic indicators do a quick reverse course,” Kent said.

The last Fed rate hike before December was in June 2006 -- more than a year before the start of the Great Recession.

Kent could not predict when the financial markets might “rebalance,” but he suspected that “the volatility we’re experiencing will be around for quite a while.”

“For long-term equity investors, the markets are on sale, and at some point will capitulate,” he said.

--City News Service