×

Esky council looks at city’s investments

ESCANABA — The Escanaba City Council heard a report on the city’s investments and a warning about looming inflation during Thursday’s city council meeting.

“If there’s one thing that I worry about on the investment front, it’s inflation,” Bob Valentine, vice president of institutional investment services for First Bank and former Escanaba city treasurer, told the council.

Primarily, Valentine blamed the policies created by the Federal Reserve during the height of the COVID-19 pandemic.

“Our federal reserve has, in a sense rewritten all of the traditional economic texts in a way that makes it convenient or excusable to significantly expand our money supply, and in doing so they have created an environment that at least I feel, and our investment group feels, is conducive to the runaway inflation we saw in the 1970s — late 1970s and early ’80s,” he said.

Valentine explained that, while many may look at investment returns, it is more important to look at “real returns,” the total gain or loss after the cost of inflation was factored in. However, it’s difficult to gauge the current inflationary climate because the calculations used to report the rate of inflation have been changed over the years and there has been a significant expansion of the monetary supply.

The primary goal of the city’s investment accounts it to create capital for city operations. Over the past 18 months, the city has withdrawn about $1.84 million from its investment accounts, dropping its starting balance from $28 million to a total value of about $27.2 million.

Market appreciation has played significantly into the portfolio’s total value, with a $357,465 drop in value just in the last six months. That drop in market appreciation, however, doesn’t show the full picture of the portfolio, which has appreciated $592,839 over the past 18 months. In the same 18-month period, the city earned $421,779.82 in income.

“Nobody’s crystal ball is very clear here and I think all of the markets are watching this and have some expectations, I think the one thing that’s a given is volatility moving forward. That’s the only place that you can really place a bet and know that you’re going to come out ahead is on volatility,” he said.

While much of the conversation between Valentine and the council revolved around the differences in Keynesian and Monetarist economic policy — as well as a disagreement between Blasier and Valentine about the Federal Reserve’s role in the creation of money — the council shared Valentine’s concerns about inflation.

Blasier suggested the city invest in physical assets, such as gold and silver, as a hedge against inflation. While Valentine agreed that holding such assets was smart for smaller investments, it simply wasn’t possible for the city.

“In other client portfolios the answer is absolutely yes, in the city’s portfolio, it’s unfortunately illegal to go into those,” Valentine explained.

Concerns were also raised that a number of assets held in the city’s portfolio would mature in 2022. When that happens, the city would most likely reinvest at least a portion of those funds into the market and yields are currently at historic lows.

“There’s always concerns when you have large amounts of money coming due. At the same time, we’re hopeful that there’ll be some improvement in the yield,” said Valentine.

Following the presentation, the council approved the city’s investment policy, which was unchanged, and the city’s list of institutions that were eligible depositories, which changed slightly due to a potential merger and a name change.

In other business, the council approved the purchase of new turbidity meters for the city’s water department for a cost not to exceed $31,350. The meters measure the amount of dirt in water.

The council also went into closed session to discuss the city attorney’s opinion on a settlement issue.

NEWSLETTER

Today's breaking news and more in your inbox

I'm interested in (please check all that apply)
Are you a paying subscriber to the newspaper? *
   

Starting at $4.62/week.

Subscribe Today