The finance presentation covered market updates, current events, a special presentation on the US debt crisis, and announcements. It discussed falling unemployment, the FOMC meeting, the upcoming iPhone 5 release, QE3, and Middle East attacks. The special presentation analyzed the multi-layered US debt problem including the national $16 trillion debt and state issues like California's $117 billion debt and Illinois' underfunded pensions. It discussed municipal bankruptcies in Stockton and Vallejo, CA due to excessive pensions and the ongoing Chicago teachers' strike seeking large pay increases.

1. Finance Presentation

2. Agenda
Weekly Staples
• Market Update
• Current Events
• Election Coverage
Special Presentation
• The U.S. Debt Fiasco
Conclusion
• Announcements

3. Weekly Staples

4. Market Update
Unemployment:
• 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?

5. Market Update
• Stock Market Graph

6. Current Events
iPhone 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

7. iPhone 5 Release
Mega-Sales could move GDP
• JP Morgan estimates that
the iPhone release could
add 0.33% to GDP
• GDP estimate at 2% for Q4

8. iPhone 5 Release

9. Current Events
QE 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

10. QE III For Dummies
Libyan Embassy Attack
• SAd

11. Current Events
Middle 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 Egypt's Military
• Terry Jones promoted video

12. 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

14. Special Presentation

15. The U.S. Debt Fiasco
Multi-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

16. 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

17. $1,000,000,000,000
So 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

18. $1,000,000,000,000

19. 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

20. The California Disaster
• $117 billion –Debt
• $325 billion in pension
liabilities
o $22,000 every working adult
• $6 billion in taxes increases
OR $6 billion in cuts from education
• Let’s look at the cities…

21. Stockton, CA
Declared 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

22. “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 $172,917
Average public safety employee
• Retires age 50, pension of $84,708
– Worked only 25 years
– National Average $22,600, where $$ from?

23. Bankruptcy Consequences
Vallejo, 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

24. Tackling Pension Reform – The Illinois Way
Illinois 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.”

25. POP QUIZ
The Illinois government, realizing the seriousness of
the pension shortfalls, held a special meeting before
their recess. What was the result?
A. They decided to renegotiate with the unions to protect
the solvency of the state
A. They decided to raise taxes to fund the shortfall
B. They decided that the issue was too difficult, and
passed a bill about “Miniature Horses” instead

27. The Chicago Teacher Strike
Outrageous
• 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

28. The Chicago Teacher Strike
Outrageous
• 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

29. Conclusion

30. 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 Stocks
SFG Stock Competition
• Starting on Monday, great prizes (TBA)