QE Quick Explain, iPhone 5, Libya, U.S. Debt Crisis, Chicago Teachers Strike Bonus Material

1. Finance Presentation

2. Agenda
Introduction
• Who Am I?
• What’s the “Game Plan” this Fall?
Presentation
• Summer News in Review
– The European Debt Crisis
– A Greek Tragedy
– A Knight’s Tale
– LIBOR
• Market Update
• Founders Fund
Conclusion
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3. Introduction

4. Who Am I?
Shane Jarman
• 3rd Year Finance Major
– MAIB combined degree program
• SFG VP of Finance
• Founder’s Fund PM
• Trading in the stock market for 2+ Years
• I love news, politics, stocks, and talking
• Talk fast, get excited, give me feedback
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5. Weekly Game Plan
Weekly Staples
• Market Update
• Election Coverage
• Current Events
“SFG’s Choice” Topics
• Stock Market Basics
• “What is ______?”
• Random Topics “In-Depth”
• Keep things interesting, fast-paced, and educational
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6. Summer News in Review

7. The European Debt Crisis
What Is It?
• “The most serious financial
crisis since at least the 1930s,
if not ever.” – The Bank of England
• Europe is struggling to pay the
debts it has built up in recent decades
• The crisis has escalated the past 2 years with Greece
defaulting, unemployment in Spain hitting 25.1%, and bond
yields spiking to new highs.
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8. The European Debt Crisis
Who’s involved?
• All of Europe
– The stronger economies of
Germany and France had to
bail out the PIIGS
– EuroZone vs. EU
• The Euro Breakup?
– Tensions have been high
– Germans retiring at age 69 have to bail out Greeks retiring at 58
– Trading Austerity for Bailout Funds
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9. The European Debt Crisis
Why You Should Care
• The Euro Crisis could hit home
– Looking for jobs/internships soon?
• Contagion
– Greece is small so it was contained
– Spain’s economy is 2x as big as
Greece, Portugal, and Ireland
combined
– Too big to bail out?
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10. The European Debt Crisis
Germany vs. Greece
• Germany has been fiscally
responsible since WW II
• AAA-rated, balanced budget
expected by 2014
– This gives them huge influence
over “The Troika”
• The EU, ECB, and IMF
• Can set austerity rules
• Just how irresponsible has Greece been? Let’s take a look.
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11. A Greek Tragedy
Greece = VERY Irresponsible
• Debt to GDP = 178.9%
– Reduced to 132.4%
• 13 Billion Euro deficit Jan-Jul
• Revenue: 27 billion Euros
• Spending: 40 billion Euros
• The Greek gov’t depends on
bailout funds to pay workers
• How did it get so bad?
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12. How It Got So Bad
Greece Lived Large on the Euro Credit Card
• Statistics / Stories will show:
– The government in Greece
recklessly spent for a decade
– The people of Greece like their
benefits, but not working/paying
for them
– Most entitlements are laughably abused
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13. Reckless Spending: The Olympics
The Olympics cost Greece $11 billion to host in 2004
• They spent lavishly on the Games
– What’s This?
– More than a dozen venues are empty,
but guarded by security officers
– Government red-tape
responsible
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14. Reckless Spending: Hellenic Railways
• Hellenic Railways loses $3.8 million a day
– 5% of Greek Debt
• Train Operators in USA = $55 k
– Guess Greece?
– $130k w/ $110k pension
– 4 hours by train, or 2 by car?
– Average pay = $78,000
• More employees than passengers
– They also love to strike
– Workforce down 30% past decade, cost up 50% from 2001-2009
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15. We Love Benefits, But….
Greek salaries rose 50% from 2001-2009
• Retirement age = 61
– Pension 80% of salary
• More than 600 “dangerous”
professions retire at age 50
– Receive a state pension of 95%
of their last working year’s
earnings
• Expansive welfare network
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16. …. Not Paying For Them
Tax Evasion – “A Greek National Pastime”
• “Report your own taxes”
– 5,000 citizens report making over 90k BUT..
• 60,000 Greek Homes have investments
over $1,000,000?
– People reporting income under 10k have boats, second homes, and
millions?
• Official “Bribe Rate” is 2,000 Euros
– Greek shippers “exempt” from taxes
• “Greece is a poor country full of rich people”
“The gap between what Greek taxpayers owed last year and what they paid was
about a third of total tax revenue, roughly the size of the country’s budget deficit.”
- Greek Central Bank Report
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17. The Isle of the Blind
• Zakynthos
– 700 of 40,000 residents claimed
“blindness” disability benefits
• 1.8% while average rate is 0.2%
– Free $6,500 a year plus discounts
• Held “blindness” test on island
– 700 paid blindness claims
170 signed up for the test
100 showed up to take it
40 were actually blind
200 still getting paid!
• 200,000 welfare/pension claims
halted b/c dead, ineligible claimants
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18. A Greek Tragedy: Conlusion
Greece Right Now
• 23% unemployment
• 2 years of Austerity
– More austerity needed to secure
4.2 billion Euro bailout tranche
• 40% judge / police pay cut
– Golden Dawn = 5% of vote
• Watch Spain and Italy’s Bonds
– Drama update, ECB bond update
• EU in recession, but everything seems stable
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19. A Knight’s Tale
• “Knight Capital” – What’s that?
• What happened to them?
– Lost $445 million in 45 min
• BATS global IPO fiasco
• HFT Trading = 73% of volume
– Causes erratic behavior
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20. “Sawtooth” Trading in KO
• What happened to them?
– Lost $445 million in 45 min
• BATS global IPO fiasco
• HFT Trading = 73% of volume
– Causes erratic behavior, look at graphs
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21. 2010 “Flash Crash”
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22. LIBOR Scandal
• What is the LIBOR rate?
– The London Interbank Offering
Rate
– It’s the short-term interest rate
banks (supposedly) lend to
each other at
• Why does it matter?
– This rate underpins the $350
- $850 trillion derivative market
– $350 trillion is 96 years of US gov’t spending
• The rate was illegally manipulated by banks for profit
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23. LIBOR Scandal
• Trader Quotes
– "We have another big fixing tom[orrow] and with the market move I
was hoping we could set the … Libor as high as possible,”
-Anonymous Barclays Trader, May 2006
– "Always happy to help, leave it with me, Sir,”
-Anonymous Libor Rate Submitter, May 2006
– "Dude. I owe you big time! Come over one day after work and I'm
opening a bottle of Bollinger."
-Anonymous Barclays Trader
• Who was responsible?
– Barclays fined nearly $500 million
– JP Morgan and Citibank under investigation
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24. Market Update
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25. Founders Fund
• The SFG Mock Investment Fund
• Spring Performance
– S&P 500= +6.63%
– Founders Fund= +8.19%
• 14 analyst positions, 5 openings this semester
• Application will be e-mailed
– Also on SFG Website
– Due Sunday September 9th at Midnight
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