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  1. 1. Stock Market Recap <ul><li>The Year In Review </li></ul><ul><li>A FREE Presentation </li></ul><ul><ul><li>Brought to you by The Net Fool dot com </li></ul></ul><ul><ul><li>Come by and subscribe for more! </li></ul></ul>
  2. 2. Where We Are Now? <ul><li>Major Indices: </li></ul><ul><ul><li>Dow Jones Industrial Average: Down 33.8% </li></ul></ul><ul><ul><li>S&P 500: Down 38.5% </li></ul></ul><ul><ul><li>NASDAQ: Down 40.5% </li></ul></ul><ul><li>Federal Funds Interest Rate Target: </li></ul><ul><ul><li>2007: 4.25% 2008: 0.00-0.25% </li></ul></ul><ul><li>Crude Oil Futures (per barrel): </li></ul><ul><ul><li>2007: $95.98 2008: $44.60 </li></ul></ul><ul><li>Unemployment Rate: </li></ul><ul><ul><li>2007: 4.7% 2008: 6.7% </li></ul></ul><ul><li>U.S. Treasury Yield (Six Month Note) </li></ul><ul><ul><li>2007: 3.49% 2008: 0.27% </li></ul></ul>
  3. 4. What Happened!?
  4. 5. The Origin <ul><li>Following the Dot Com bubble and the 9/11 stock market crash… </li></ul><ul><li>Alan Greenspan cuts Fed Funds rate to 1% </li></ul>
  5. 6. The Credit Bubble Begins <ul><li>From 2003 to 2007: </li></ul><ul><ul><li>Credit growth exceeded economic growth </li></ul></ul><ul><ul><li>So-called “sub-prime” mortgages became readily available… and encouraged! </li></ul></ul><ul><ul><li>Real Estate = The Ever-Appreciating Asset? </li></ul></ul>
  6. 7. Borrowing in Excess <ul><li>Poor Mortgage Practices: </li></ul><ul><ul><li>“ Alt-A” loans available without paperwork </li></ul></ul><ul><ul><li>People selling mortgages got commissions from sales volume… not the actual value of the mortgage </li></ul></ul><ul><li>“ Securitization” (Think Bundling & Selling) </li></ul><ul><ul><li>Bad mortgages were put into basket securities such as CDOs and Mortgage Backed Securities </li></ul></ul><ul><ul><li>What was sold actually got a HIGH credit rating! </li></ul></ul>
  7. 9. Buyers Vanish from Market <ul><li>Eventually, people stop buying homes… and with no buyers, housing prices start to correct! </li></ul><ul><li>Once home values are collapsed, the collateral holding up loans vanishes, and people suddenly cannot afford their own homes! </li></ul><ul><li>What’s more, the value of all of the securities that were sold is gone…. So HUGE firms are forced to post losses! </li></ul>
  8. 10. The Mighty Have Fallen
  9. 11. Bear Stearns <ul><li>“ Off Balance Sheet” items, like CDOs and Mortgage-Backed Securities, cause write-downs of $500+ Billion from major banks </li></ul><ul><li>Run on the Bank </li></ul><ul><ul><li>Bear Stearns collapses as buyers vanished, leaving liquidity issues in the company </li></ul></ul><ul><ul><li>Capital fell from $12 billion to $2 billion in less than a day… causing a complete collapse </li></ul></ul><ul><li>Bought out by JP Morgan for $10 a share, with a $30 billion loan from the Federal Reserve </li></ul>
  10. 12. Fannie Mae & Freddie Mac <ul><li>Fannie Mae and Freddie Mac were set up in the 1930s as Government Sponsored Entities (GSEs) in order to promote home ownership </li></ul><ul><li>Liquidity was completely erased once credit dried up in the housing market </li></ul><ul><li>BAILED OUT </li></ul><ul><ul><li>Too big to fail? </li></ul></ul><ul><ul><li>Responsible for nearly half of the $11 trillion dollars of mortgages on the market </li></ul></ul>
  11. 13. Shorters Take Control… <ul><li>By now, we are waking up every morning to 10%+ declines in the financial stocks </li></ul><ul><li>No Uptick Rule In Place by the SEC </li></ul><ul><li>Shorters are destroying every stock on the market, causing the rest of the market to fall alongside it </li></ul><ul><li>NO confidence in the system at all </li></ul>
  12. 14. Merrill Lynch <ul><li>Agrees over the weekend to be sold to Bank of America for $50 billion </li></ul><ul><li>Bank of America went for safety in the face of investment banks that were succeeding off of extreme amounts of leverage </li></ul><ul><ul><li>Criticized over purchase, as the market tanked Monday and BOA could have bought MER much cheaper! </li></ul></ul>
  13. 15. Lehman Brothers <ul><li>Lehman Brothers had similar liquidity problems to Bear Stearns… and the stock was being shorted to smithereens! </li></ul><ul><li>The Question was: Will The Government Bail Them Out? </li></ul><ul><li>Government DOESN’T step in, LEH declares Chapter 11 Bankruptcy on September 15 th </li></ul>
  14. 16. AIG Bailout <ul><li>AIG received $85 billion from the government back in September… effectively letting the government seize control of the company </li></ul><ul><li>The problem? Credit Default Swaps </li></ul><ul><ul><li>CDSs are insurance against defaults on assets tied to corporate debt and mortgage securities </li></ul></ul><ul><ul><li>Weakness in AIG would have a MAJOR impact on financial institutions that bought swaps to protect themselves against loss and take writedowns </li></ul></ul>
  15. 17. Enough is Enough <ul><li>Morgan Stanley and Goldman Sachs step in to put an end to the constant shorting </li></ul><ul><li>The SEC agrees, and bans shorting on a select list of stocks for a while to ease the market pain </li></ul><ul><ul><li>This also happened in the U.K., Australia, the Netherlands and Taiwan </li></ul></ul><ul><li>MS and GS are converted from investment banks to “bank-holding companies.” </li></ul>
  16. 18. Main Street Jumps In
  17. 19. Capital Injections! <ul><li>Warren Buffet invests $5 billion in Goldman Sachs, and $3 billion in General Electric </li></ul><ul><li>The Netherlands buys Fortis for $23 billion </li></ul><ul><li>Citigroup agrees to acquire Wachovia for $2 billion, but Wells Fargo outbids with an $11.8 billion offer that doesn’t need federal support! </li></ul>
  18. 20. Bailout Madness <ul><li>President Bush signs on a $700 billion bailout plan to rescue the U.S. financial system </li></ul><ul><ul><li>One of the largest government interventions in history </li></ul></ul><ul><li>The world’s Central Bank’s launch a coordinated effort by lowering short-term borrowing rates in unison by a half-percentage point </li></ul>
  19. 21. Barack Obama Wins <ul><li>Senator Barack Obama wins election into the U.S. Presidency over John McCain </li></ul><ul><li>Stocks endure worst post-election sell-off in history, and the market tumbles 5.1% </li></ul>
  20. 22. AIG Bailout Revisited <ul><li>Government scraps the existing bailout package… and increases the giveaway to $150 billion!!! </li></ul>
  21. 23. China Announces Stimulus Plan <ul><li>China announces that they are progressing with a bailout of their own, a sizable $586 billion to restore domestic demand and maintain double-digit GDP growth </li></ul>
  22. 24. Who’s To Blame!?
  23. 26. … Just Kidding
  24. 27. Detroit In Trouble <ul><li>The CEOs of Detroit auto-makers fly into Washington to appeal for taxpayer money </li></ul><ul><li>First obvious sign of trouble outside of the financial sector </li></ul>
  25. 28. More Bailouts! <ul><li>The government agrees to step in to stabilize conditions at Citigroup </li></ul><ul><ul><li>Guarantee more than $300 billion in troubled assets, and injecting $20 billion of additional capital </li></ul></ul><ul><li>The central U.S. bank plans to buy up to $600 billion of debt issued or backed by mortgage-finance firms </li></ul>
  26. 29. Recession <ul><li>The National Bureau of Economic Research stated on December 2 nd that the recession officially began in December of 2007 </li></ul><ul><li>Bernard Madoff is arrested from multibillion-dollar fraud… the effects of which we still cannot fully know for sure </li></ul>
  27. 30. The End of 2008 <ul><li>The Federal Reserve cuts its target on the Federal Funds Rate to 0%-0.25% </li></ul><ul><li>Goldman Sachs posts its first quarterly loss since going public </li></ul><ul><li>The White House agrees to lend GM and Chrysler $17.4 billion to avoid bankruptcy </li></ul><ul><li>The government commits $6 billion to stabilize GMAC… a financing company vital to the future of GM </li></ul><ul><li>… and we rally into 2009! </li></ul>
  28. 31. Stock Market Recap <ul><li>The Year In Review </li></ul><ul><li>A FREE Presentation </li></ul><ul><ul><li>Brought to you by The Net Fool dot com </li></ul></ul><ul><ul><li>Come by and subscribe for more! </li></ul></ul>