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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

2

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

4

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

5

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.

7

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

8

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?

9

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.

10

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?

11

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

12

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

13

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

14

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

15

…. 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

16

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

17

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

18

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

19

“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

20

2010 “Flash Crash”

21

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

22

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

23

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

25

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SFG Finance Presentation 9/6/12

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