Despite economic upheavals in China, the American economy is growing enough to keep Benicia’s investments portfolio in good order, Carlos Oblites, director of PFM Asset Management, San Francisco, told the Finance Committee on Thursday morning.

Oblites and senior analyst Charlie Cook had been scheduled to give a review of the 2015 second quarter review of the portfolio. But Oblites recognized the committee wanted to hear about Wall Street’s $2.1 trillion value loss that turned around into the third-biggest gain in the history of the Dow.

“It’s been a bit of a wild ride,” Cook said.

The two said their firm already had been keeping an eye on the global economy, particularly since the Greek economy has contributed to market volatility.

The 30-percent market drop, blamed mostly on volatility in the Chinese stock market, wasn’t the biggest-ever drop in terms of percentages, Cook said. But it was the largest points drop the American stock market has seen, he said.

Nor was it a quick occurrence this past week, he said. The “massive bubble” in Chinese investments began bursting in July, he explained, and the Chinese government took the unusual step of devaluing its currency, which made American exporters unhappy.

The Chinese stock market doesn’t operate like the American stock market, Oblites said.

About 80 percent of that country’s stock market is made up of individual investors, and they move their money, he said. Companies either are state-owned or connected to governmental functionaries — civil servants and other bureaucrats. They listen to government advice about handling their investments, he said.

Chinese officials may tell investors stocks may improve simply because government leaders are having birthdays, Oblites said. In addition, the Chinese economy is export-driven, something the government is trying to change, he said.

City Treasurer Kenneth Paulk, noting that war and oil affect the American economy, asked about the impact of low oil prices. He said since crude had dropped, gasoline should sell for $1.79 instead of the $3 and higher per gallon price most Californians are paying.

“Wars, from an economic standing, are good for the U.S. economy,” Oblites said. “Cheap oil helps the economy — cheap oil is like a tax break.” But the impact would be greater, he said, if the U.S. economy had remained focused on manufacturing, as it was prior to the 1980s, when the economy became service-oriented.

However, oil hasn’t been priced at $39 a barrel as it was Thursday morning, Oblites said, which in the short term should boost the economy. In the long term, he said, it could start to drag the economy down, especially in areas that are dependent on energy industries. Alaska counts on oil royalties and can be hurt, whereas North and South Dakota, sources of Bakken crude, continue to have large agricultural interests.

Cook and Oblites agreed that “everyone is trying to figure what the Federal Reserve is thinking.” Oblites said he keeps predicting a change in the next nine months, and like some of his colleagues he predicts the Fed will raise interest rates some time between December of this year and March 2016.

As representatives of the firm that monitors Benicia’s investments, Cook said he and colleagues are monitoring these changes for Benicia because the city’s short-term investment yields are driven by the Federal Reserve, while longer-term yields are market-driven.

The two also watch unemployment, which has dropped to 5.3 percent. However, not everyone is counted in that calculation. As others start looking for work again, unemployment statistics may rise. Another factor is a stagnant wage growth, Cook and Oblites said.

Second-quarter numbers aren’t strong, Oblites said. “Values fell — it was a lackluster quarter.” Treasury yields fluctuated, improving on strong American economic news and dropping when the Federal Open Market Committee said it wasn’t ready to raise rates.
Interest rates increased for securities in the two- to five-year range, and were mostly unchanged for those with maturities of a year or less.

During the past year, Benicia’s total interest and realized mix of gains and losses was $267,517, with $72,348 of that coming in the second quarter of 2015, the PFM report said. Market value of the portfolio had its ups and downs, going as low as negative $64,689 in the third quarter of 2014 to as high as $135,082 in the first quarter of 2015. It dropped to a negative $60,616 by June 30.

Oblites reminded the panel that the losses and gains are “on paper,” and sometimes investments are sold at a loss to make better purchases that end up with a gain.

Another point in Benicia’s favor is that the city is well diversified in its investments, he said, even though state law severely restricts where it can put its money. Benicia’s portfolio includes U.S. Treasuries, federal agencies, agency collateralized mortgage obligations, negotiable certificates of deposits, corporate notes and money market funds.

In other matters before the committee, while the city’s most recent fiscal year ended June 30, not all revenues are in and Finance Director Karin Schnaider said she can’t close the books until they are.

Sales tax receipts for the third month of the fourth quarter are still outstanding and won’t arrive until September, she said; nor has Benicia received all its property taxes and other revenue.

The numbers should be available by October, she said. Once the committee sees that report, she will ask the panel to forward the information to the City Council.

The committee also asked Schnaider to describe a proposal to treat the city’s effluent and pipe it to Valero Benicia Refinery for use in the refinery’s cooling towers. She explained that the project wouldn’t involve the water and wastewater enterprise funds the panel discussed with the Council Tuesday.

Instead, any city money used would come from a specific fund made up of development fees and intended only for expansion of the wastewater system’s capacity, she said. While the city will seek state funding for the project, that money is being awarded on a first-come, first-served basis, and the city has preparatory work to complete before the project is “shovel-ready,” Schnaider said.

Meanwhile, the city is proceeding with an effort to upgrade its finance computer software. A project manager may be hired Tuesday to oversee the project that is expected to be complete in two years, though his contract will allow for a one-year extension, Schnaider said.

The citywide computer software conversion will involve all city departments, not just finance and human relations services, and is expected to cost $800,000.

“This is a long-term lease of software, with professionals on the site,” Schnaider said.