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McCombs Knowledge To Go February 9, 2010
Hot Topics from the Financial Markets by Professor Sanford J. Leeds, Esq., CFA [email_address] www.leedsonfinance.com
<ul><li>Please note: </li></ul><ul><li>All slides that list a source were either pulled from The Wall Street Journal, The ...
Federal Debt
Federal Government Debt
<ul><li>Over the last decade, the outlook for U.S. government finances has deteriorated sharply. Projections for the U.S. ...
Tidal Wave Total amount of gross issuance for Treasury notes and bonds, in trillions
State Deficits <ul><li>Fiscal Years 2009-2011:  </li></ul><ul><ul><li>$256 billion gap </li></ul></ul><ul><li>California h...
<ul><li>Fitch affirmed the AAA rating of the U.S. </li></ul><ul><ul><li>Their argument was that “the near term risk to the...
Sovereign Debt Issues <ul><li>Greece </li></ul><ul><li>Portugal </li></ul><ul><li>Spain </li></ul><ul><li>Japan </li></ul>
Rising Risk <ul><li>The annual premium of insuring Greek government debt against default for five years: </li></ul>
Downgrade Drama <ul><li>Greece’s stock market rose Tuesday after Moody’s lowered the country’s debt rating by only one not...
<ul><li>In 2004, Alan Greenspan, then the chairman, said the rise in home values was “not enough in our judgment to raise ...
Adjusted Monetary Base <ul><li>Percent change from a year ago </li></ul>
How They Stack Up <ul><li>China’s GDP has more than quadrupled in the past decade, leaving it poised to surpass Japan as t...
Trade’s Horse Race <ul><li>The global economic crisis, which has hurt China’s low-end exports less that it has high-tech G...
 
A Lender Steps Back <ul><li>Percentage of net new U.S. debt brought by China: </li></ul><ul><li>Net new U.S. government bo...
Percentage of Outstanding U.S.  Treasury Securities Owned by China
Country Indicators for Foreign Policy <ul><li>Human Rights Rankings </li></ul><ul><ul><li>Afghanistan: 173 </li></ul></ul>...
China <ul><li>China is ranked 185 </li></ul><ul><li>The only countries below China are: </li></ul><ul><ul><li>Burma </li><...
Top Currencies by Foreign Exchange Turnover <ul><li>April 2007 </li></ul><ul><li>Renminbi is not among the most traded cur...
Up, Up and Away: A Look at  China’s Property Indicators <ul><li>New construction is booming at an unprecedented rate… </li...
Housing in Big Cities <ul><li>Housing is increasingly unaffordable in big cities </li></ul><ul><li>Years of income require...
Compensation <ul><li>GS: $16.2 billion </li></ul><ul><li>JPM: $26.9 billion </li></ul><ul><li>C: $25 billion </li></ul>
Why is Banker Compensation So High? <ul><li>They take inordinate risks which are not fully reflected in the calculation of...
Daily Trading Net Revenues <ul><li>GS – Fiscal 3q08 </li></ul>
Daily Trading Net Revenues <ul><li>GS – Fiscal 3q09 </li></ul>
Do You Trust This Home Price? <ul><li>Other neighbors are waiting to sell – that the supply is small.  </li></ul><ul><li>T...
Public Assistance <ul><li>Share of FHA-backed loans in total mortgage market: </li></ul>
Looming Trouble <ul><li>Mortgages insured by the FHA during the financial crisis are souring more quickly, eating into the...
 
Home Sweet Home
Unemployment Rate
Household Data
Unemployment, Labor Force Participation  & Employment Rates
Duration of Unemployment
Duration of Unemployment
Household Data
Consumer Sentiment <ul><li>Source: University of Michigan </li></ul>
Industrial Production & Institute for Supply Management (ISM) Indexes
Real Durables Consumption  & Vehicle Sales
 
Total Loans & Leases in Bank Credit at Commercial Banks
Contributions to Real GDP Growth Rate
Real Final Sales & GDP
Slower Pace <ul><li>U.S. health spending grew slower in 2008 than it has in decades, but spending continued to outpace GDP...
Growing Role <ul><li>Public programs are expected to account for more than half of all health spending by next year. </li>...
Unit Labor Costs
A Look Ahead <ul><li>What will the future look like without: </li></ul><ul><ul><li>Cash-for-Clunkers </li></ul></ul><ul><u...
Please Give Back to McCombs! <ul><li>This webinar has been brought to you by the  </li></ul><ul><li>McCombs MBA Alumni Adv...
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KTG w/ Sandy Leeds 2.9.10- "Hot Topics From the Financial Markets"

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KTG w/ Sandy Leeds 2.9.10- "Hot Topics From the Financial Markets"

  1. 1. McCombs Knowledge To Go February 9, 2010
  2. 2. Hot Topics from the Financial Markets by Professor Sanford J. Leeds, Esq., CFA [email_address] www.leedsonfinance.com
  3. 3. <ul><li>Please note: </li></ul><ul><li>All slides that list a source were either pulled from The Wall Street Journal, The New York Times or the The Financial Times </li></ul>
  4. 4. Federal Debt
  5. 5. Federal Government Debt
  6. 6. <ul><li>Over the last decade, the outlook for U.S. government finances has deteriorated sharply. Projections for the U.S. public debt as a share of an annual economic output from March 2001, June 2008, and now. </li></ul>
  7. 7. Tidal Wave Total amount of gross issuance for Treasury notes and bonds, in trillions
  8. 8. State Deficits <ul><li>Fiscal Years 2009-2011: </li></ul><ul><ul><li>$256 billion gap </li></ul></ul><ul><li>California has the worst problems: </li></ul><ul><ul><li>$20 billion </li></ul></ul>
  9. 9. <ul><li>Fitch affirmed the AAA rating of the U.S. </li></ul><ul><ul><li>Their argument was that “the near term risk to the…AAA status is minimal given its exceptional financing and economic flexibility and the U.S. dollar’s fole as the world’s predominant reserve currency.” </li></ul></ul><ul><ul><li>Moody’s comments on the U.S. debt </li></ul></ul><ul><ul><li>“ Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the AAA government bond rating.” </li></ul></ul>
  10. 10. Sovereign Debt Issues <ul><li>Greece </li></ul><ul><li>Portugal </li></ul><ul><li>Spain </li></ul><ul><li>Japan </li></ul>
  11. 11. Rising Risk <ul><li>The annual premium of insuring Greek government debt against default for five years: </li></ul>
  12. 12. Downgrade Drama <ul><li>Greece’s stock market rose Tuesday after Moody’s lowered the country’s debt rating by only one notch rather than two. Since October, downgrades have sent the Athens stock market on a tumultuous course. </li></ul>
  13. 13. <ul><li>In 2004, Alan Greenspan, then the chairman, said the rise in home values was “not enough in our judgment to raise major concerns.” </li></ul><ul><li>In 2005, Mr. Bernanke – then a Bush administration official – said a housing bubble was “a pretty unlikely possibility.” </li></ul><ul><li>As late as May 2007, Mr. Bernanke said that Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.” </li></ul><ul><ul><li>Source: NY Times (January 5, 2010) </li></ul></ul>
  14. 14. Adjusted Monetary Base <ul><li>Percent change from a year ago </li></ul>
  15. 15. How They Stack Up <ul><li>China’s GDP has more than quadrupled in the past decade, leaving it poised to surpass Japan as the world’s second largest economy. </li></ul>
  16. 16. Trade’s Horse Race <ul><li>The global economic crisis, which has hurt China’s low-end exports less that it has high-tech German goods, allowed China to pass Germany as the world’s largest exporter in 2009. </li></ul><ul><li>Exports in trillions of dollars: </li></ul>
  17. 18. A Lender Steps Back <ul><li>Percentage of net new U.S. debt brought by China: </li></ul><ul><li>Net new U.S. government borrowing: </li></ul>
  18. 19. Percentage of Outstanding U.S. Treasury Securities Owned by China
  19. 20. Country Indicators for Foreign Policy <ul><li>Human Rights Rankings </li></ul><ul><ul><li>Afghanistan: 173 </li></ul></ul><ul><ul><li>Iran: 177 </li></ul></ul><ul><ul><li>Cuba: 180 </li></ul></ul><ul><ul><li>Iraq: 183 </li></ul></ul><ul><ul><li>Source: Tarleton University, 2007 </li></ul></ul>
  20. 21. China <ul><li>China is ranked 185 </li></ul><ul><li>The only countries below China are: </li></ul><ul><ul><li>Burma </li></ul></ul><ul><ul><li>Sudan </li></ul></ul><ul><ul><li>North Korea </li></ul></ul>
  21. 22. Top Currencies by Foreign Exchange Turnover <ul><li>April 2007 </li></ul><ul><li>Renminbi is not among the most traded currencies </li></ul>
  22. 23. Up, Up and Away: A Look at China’s Property Indicators <ul><li>New construction is booming at an unprecedented rate… </li></ul><ul><ul><li>New floor space started, year-to-year percent change: </li></ul></ul><ul><li>As prices surge at their fastest pace in two years… </li></ul><ul><ul><li>National average property prices, annualized percentage change: </li></ul></ul>
  23. 24. Housing in Big Cities <ul><li>Housing is increasingly unaffordable in big cities </li></ul><ul><li>Years of income required to buy a 100 square-meter apartment: </li></ul>
  24. 25. Compensation <ul><li>GS: $16.2 billion </li></ul><ul><li>JPM: $26.9 billion </li></ul><ul><li>C: $25 billion </li></ul>
  25. 26. Why is Banker Compensation So High? <ul><li>They take inordinate risks which are not fully reflected in the calculation of profitability </li></ul><ul><li>Because what they do is not properly competitive </li></ul><ul><li>Because they take advantage of inside knowledge, stemming from their involvement in umpteen related financial activities </li></ul><ul><li>What about shareholders? </li></ul>
  26. 27. Daily Trading Net Revenues <ul><li>GS – Fiscal 3q08 </li></ul>
  27. 28. Daily Trading Net Revenues <ul><li>GS – Fiscal 3q09 </li></ul>
  28. 29. Do You Trust This Home Price? <ul><li>Other neighbors are waiting to sell – that the supply is small. </li></ul><ul><li>The home sold for $180K, but the buyer’s uncle told the buyer that he would give him $8K under one condition – that he buys a house. </li></ul><ul><li>The buyer’s other uncle runs a bank and gave the buyer a below-market-rate mortgage. </li></ul>
  29. 30. Public Assistance <ul><li>Share of FHA-backed loans in total mortgage market: </li></ul>
  30. 31. Looming Trouble <ul><li>Mortgages insured by the FHA during the financial crisis are souring more quickly, eating into the agency’s loan-loss reserves. </li></ul><ul><li>Percentage of mortgages 60 days or more past due, by year of origination: </li></ul><ul><li>Loan-loss reserves, as percentage of loans outstanding: </li></ul>
  31. 33. Home Sweet Home
  32. 34. Unemployment Rate
  33. 35. Household Data
  34. 36. Unemployment, Labor Force Participation & Employment Rates
  35. 37. Duration of Unemployment
  36. 38. Duration of Unemployment
  37. 39. Household Data
  38. 40. Consumer Sentiment <ul><li>Source: University of Michigan </li></ul>
  39. 41. Industrial Production & Institute for Supply Management (ISM) Indexes
  40. 42. Real Durables Consumption & Vehicle Sales
  41. 44. Total Loans & Leases in Bank Credit at Commercial Banks
  42. 45. Contributions to Real GDP Growth Rate
  43. 46. Real Final Sales & GDP
  44. 47. Slower Pace <ul><li>U.S. health spending grew slower in 2008 than it has in decades, but spending continued to outpace GDP growth. </li></ul><ul><ul><li>National health expenditures, change: from previous year: </li></ul></ul><ul><ul><li>National health expenditures, as share: of GDP: </li></ul></ul>
  45. 48. Growing Role <ul><li>Public programs are expected to account for more than half of all health spending by next year. </li></ul>
  46. 49. Unit Labor Costs
  47. 50. A Look Ahead <ul><li>What will the future look like without: </li></ul><ul><ul><li>Cash-for-Clunkers </li></ul></ul><ul><ul><li>Home Tax Credit </li></ul></ul><ul><ul><li>Fed Purchase of $1.25 Trillion of MBA </li></ul></ul><ul><ul><li>China’s High Growth </li></ul></ul>
  48. 51. Please Give Back to McCombs! <ul><li>This webinar has been brought to you by the </li></ul><ul><li>McCombs MBA Alumni Advisory Board, coordinated by </li></ul><ul><li>alumni for the benefit of the Alumni Network. </li></ul><ul><li>Please get involved with the Alumni Network! </li></ul><ul><li>All alumni benefit when we work together to build the quality </li></ul><ul><li>and value of the Alumni Network and the McCombs brand. </li></ul><ul><li>Time: Get involved in your local club </li></ul><ul><li>Talent: Mentor another alumni or speak at a future webinar </li></ul><ul><li>Treasure: Make a donation to McCombs </li></ul><ul><li>www.mccombs.utexas.edu/alumni </li></ul><ul><li>Suggested fund: MBA Alumni Excellence Fund </li></ul><ul><li>Please use response code KTG </li></ul><ul><li>Send me your feedback -- [email_address] </li></ul>

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