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SFG Finance Presentation 9/13/12
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SFG Finance Presentation 9/13/12

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iPhone 5, QE III, Libya, U.S. Debt Fiasco, Chicago Teachers Strike,

iPhone 5, QE III, Libya, U.S. Debt Fiasco, Chicago Teachers Strike,

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  • More than DoE, DoT, DHS, DoL, DoADebt per CapitaGreece = $38,159USA = $46,208
  • City of 300,000
  • City of 300,000“Someone wasn’t looking out for the tax payers
  • Recommendation should be a pretty brief, but attention grabbing pitch why your company is the best investment. Try to use your most interesting or strong ideas in this section. Keep it under 5 minutes.
  • It’s not just California...The combined pension liability for all 50 U.S. states is $5.17 trillion, but they only have $1.94 trillion set aside in state pension funds. That is a difference of$3.2 trillion dollars. The first wave of state defaults comes in 2018…. A Northwestern University study, co-authored by Joshua Rauh, a professor specializing in pensions at Northwestern University, projects Illinois’ pension fund will run dry by 2018, the earliest of all 50 states.#1 Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management have calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars. So where in the world is all of that extra money going to come from?PBGC

SFG Finance Presentation 9/13/12 SFG Finance Presentation 9/13/12 Presentation Transcript

  • Finance Presentation
  • AgendaWeekly Staples• Market Update• Current Events• Election CoverageSpecial Presentation• The U.S. Debt FiascoConclusion• Announcements
  • Weekly Staples
  • Market UpdateUnemployment:• Dropped to 8.1% – Added 96,000 jobs in Aug. – Labor Force dropped 368,000• U-6 unemployment rate is currently at 14.7%FOMC Meeting:• Who is this?
  • Market Update• Stock Market Graph
  • Current EventsiPhone 5• Preorders begin Friday• Why relevant to finance?• Apple is expected to sell 6-10 million phones this weekend ($6 billion in sales!) – 26 million phones in the quarter
  • iPhone 5 ReleaseMega-Sales could move GDP• JP Morgan estimates that the iPhone release could add 0.33% to GDP• GDP estimate at 2% for Q4
  • iPhone 5 Release
  • Current EventsQE III For Dummies• Federal Reserve prints money• They use money to lower long-term interest rates• This encourages investment and creates inflation in stocks, gold, and other commodities
  • QE III For DummiesLibyan Embassy Attack• SAd
  • Current EventsMiddle East Attacks• U.S. Consulate - Benghazi, Libya – U.S. Ambassador and 13 others died in the attack• U.S. Embassy - Cairo, Egypt – Protestors scaled wall, burned American Flag – Security forces clash with protestors• U.S. gives $1.3 billion a year to Egypts Military• Terry Jones promoted video
  • Election Update• President Obama is getting a post-convention bounce• Latest Gallup Polls – 50% Obama – 43% Romney• Still plenty of time to go, debates begin Oct. 3
  • Special Presentation
  • The U.S. Debt FiascoMulti-Layered Debt• National Level – Huge U.S. National Debt o Important, but boring o Quick review• State Level – California o Stockton and Vallejo – Illinois o Chicago
  • The U.S. National Debt• How much exactly? $16,060,223,355,942• Why is it a big deal? – Besides downgrade…• $20 Trillion in Federal Debt by 2020 - $800 Billion in Annual Interest Costs
  • $1,000,000,000,000So How Much Is $1 Trillion?• Say you are…• You make $45 million a year…• You love America so you want to help pay down the debt• How many years would it take to pay down $1 trillion? – 22,222 years
  • $1,000,000,000,000
  • Introducing “The States”Two States in Particular• California – Known for budget “showdowns” – Economy larger than Greece• Illinois – Pension obligations 45% funded• All 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion in funds. – -University of Chicago Researchers
  • The California Disaster• $117 billion –Debt• $325 billion in pensionliabilities o $22,000 every working adult• $6 billion in taxes increases OR $6 billion in cuts from education• Let’s look at the cities…
  • Stockton, CADeclared Bankruptcy in June 28th• “The Story” told all over California – $245 million annual retirement cost – City of 300,000• Fire and Police Unions – Retire at age 50 – Free Healthcare – Cash for sick days
  • “Protect and Serve?”The California Police Chief Rotation• Stockton’s chief retired at age 52 (lasted 8 months on the job) – Perspective: Atlanta Police Chief Pension = $190,000• What’s a reasonable pension? – $204,000 -Stockton – $216,581- San Bernardino• “City managers” in Compton paid $172,917Average public safety employee• Retires age 50, pension of $84,708 – Worked only 25 years – National Average $22,600, where $$ from?
  • Bankruptcy ConsequencesVallejo, California• A city of 120,000 close to San Francisco• Declared bankruptcy in 2008 • 80% of its budget was committed to pensions and city worker salaries • They owed $500 million; had $6 million.• They now have 2 employees at City Hall• They have ZERO public services (libraries, parks, etc.)• Their police force and fire department have 50% staffing • Citizens no longer feel safe and crime has surged 23
  • Tackling Pension Reform – The Illinois WayIllinois Services Threatened As Pension Hole Grows• Pension Fund is 45% funded• State would need to have TOTAL SHUT-DOWN for2.5 years to pay off liabilities• “A Northwestern University study, co-authored by Joshua Rauh, a professor specializing in pensions at Northwestern University, projects Illinois’ pension fund will run dry by 2018, the earliest of all 50 states.”
  • POP QUIZThe Illinois government, realizing the seriousness ofthe pension shortfalls, held a special meeting beforetheir recess. What was the result?A. They decided to renegotiate with the unions to protect the solvency of the stateA. They decided to raise taxes to fund the shortfallB. They decided that the issue was too difficult, and passed a bill about “Miniature Horses” instead
  • The Chicago Teacher StrikeOutrageous• STRIKE Day 4 – Teachers: o Make $76,000 before benefits o Highest Paid in Country (FL?) o Average family earns $47,000 – Original demand was 19% raise• Chicago school district faces $700 million deficit – Had to lay off teachers and switch to charter schools to pay – Teachers oppose charter school switches (non-unionized) o Charter schools are still open
  • The Chicago Teacher StrikeOutrageous• Teacher Demands: – They refuse to add $20 to their healthcare contributions – Asking for 19% salary increase (Offered 2% raise for 4 years, now 16%) – More experience-based raises – Hire back laid-off teachers• Reasonable Objections? – 90 minute longer school day – Teacher Evaluations? – 44% Drop-Out Rate
  • Conclusion
  • Announcements“SFG’s Choice” – Next Weeks Presentation?• Amazing Technologies (and the stocks behind them)• The Natural Gas Revolution• Is College Worth It?• The 2008 Housing Crisis in Review• The Coming Student Loan Crisis• How I Research StocksSFG Stock Competition• Starting on Monday, great prizes (TBA)