Steamboat Springs Routt County government's investments aren't performing as well as officials budgeted for this year, and financial adviser Scott Prickett said the slump could be a prolonged one.
County officials were briefed Tuesday by Prickett, who is a registered investment adviser with Davidson Fixed Income Management and manages the county's portfolio of managed assets. Prickett spoke not only to the county's specific holdings but also the state of the broader national economy. Prickett said while economists disagree about whether the nation is in a recession, there is no denying the economy is weak.
"To me, it's splitting hairs," Prickett said. "We're in the worst crisis with housing since the Great Depression."
In its 2008 budget, the county assumed a 4.75 percent rate of return on its investments. As of April 30, the county's average annual yield on $47.5 million was 3.43 percent. That includes a 4.16 percent rate on the assets Prickett manages and a 2.89 percent rate on the county's more conservative, unmanaged assets, such as CDs. The 28 percent rate decrease from what was budgeted represents about $500,000.
Prickett said he believes the economic downturn will be prolonged. Places such as Steamboat have been relatively insulated from the nationwide crisis in the housing market, but other regions have seen home prices plummet 20 percent. Prickett said it will take the economy some time to rebound.
"There's about an 80 percent correlation between consumer spending and home prices," Prickett said. "I think its going to take the average consumer a long time to dig out of the leveraged position they're in. : I think we're just barely seeing the tip of it."
Prickett said that while corporate balance sheets, in general, are strong and the wealthy have not changed their spending habits, nearly every single other economic indicator is negative. He said oil could hit $150 a barrel. Crude oil was trading at $128.50 a barrel at closing Tuesday, and Routt County communities such as Oak Creek have seen the price of a gallon of regular unleaded gasoline rise above $4.
Prickett said this and other inflationary concerns mean the Federal Reserve will probably put an end to its recent rate cuts at its next meeting in June. The Fed's core interest rate is 2 percent.
"We don't see the Fed going to 1.75 due to global inflation," said Prickett, who added later that there is a 41 percent chance the rate will actually be raised to 2.25 percent by year's end.
With the current economic climate, Prickett sounded a cautionary tone and suggested the county invest in shorter-term investments so it doesn't get locked in at low rates should the Fed reverse course.
"We believe the course of action for the Routt County portfolio is to err on the side of caution," Prickett said.