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Lafayette College Investment Club

Lafayette College Investment Club. April 18th. AGENDA. 1. Market Update 2. Portfolio Overview 3. Educational- Fed Policy 4. Internship Panel. Recovery? Still a Bear Market?. Last Friday DJIA down 2.4% for week Nasdaq down 3.1% (down 8.8% since 14 year high in March) Weather vs Cool down

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Lafayette College Investment Club

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  1. Lafayette College Investment Club April 18th

  2. AGENDA • 1. Market Update • 2. Portfolio Overview • 3. Educational- Fed Policy • 4. Internship Panel

  3. Recovery? Still a Bear Market? • Last Friday DJIA down 2.4% for week • Nasdaq down 3.1% (down 8.8% since 14 year high in March) • Weather vs Cool down • Fed committed to calming markets: overnight rates, inflation, unemployment Mon

  4. Euro-zone • IMF worried about low inflation • Weak prices could be a drag on global recovery • Just below 0.5% (target 2%) • Not too high but also not too low Mon

  5. Recovery? Still a Bear Market? • By Tuesday, DJIA up based on strong sales, US retailers • Sales gained 1.1% from last month • 3.4% auto sales increase, building 1.8% • Continue at this level (>0.4% avg monthly gain, past four years) Tue

  6. Watch: Interesting Tech Battle • Google • Acquired Titan Aerospace • Developing jet-sized drones to fly nonstop • Collect higher quality images & provide internet access to remote areas • Facebook • Was out-muscled by Google • Found replacement buy in UK • 60-55-60 • 551-531-558 Tue

  7. Back to Markets: China’s Bubble? • Overbuilding (43%) • Slashing prices and offering freebies • Homeowners and investors in uproar over reduced property values • Mostly empty compounds in approx. 100 cities (1/2) • Don’t borrow as heavily • Market doesn’t have convoluted mortgages • No home-equity loans • No mortgage backed securities Tue

  8. House, out of business? • Slow start for spring home-buying season • Open-house visits low, price cuts high • Consumer-price index is at 1.5% (March) Feb was 1.1% • Largely due to uptick in food and housing cost. Gas prices fell 1.7% Wed

  9. Midweek Update • Dow closed up 0.6% as upbeat earnings offset weal manufacturing data • Roller coaster Mon-Tues-Wed for stocks • Disappointing economic data: manufacturing activity fell sharply, home-builder confidence Wed

  10. Latest • Dow closed up 162.29 (3-day high) • BofA netted 276M loss (legal, mortgage) • Banks increasing business lending • Driven by looser lending standards • Companies seeking $ to spend on expansion, employees • Earnings from top 6 banks show 8.3+ in commercial lending Thur

  11. Today • Market Update • Portfolio Update • Federal Reserve • Monetary Policy • QE

  12. Portfolio Update Kyle Lievre and Michael Kelly

  13. We Beat the Market (ytd) S&P 500: 89 basis points Our portfolio: 97.6 basis points

  14. Earnings Report • This week: GS, UNH, GE • Next Week: CAT, JAH, BK, AMGN, GILD, BA, BIDU, MSFT, SCCO, T, CHL

  15. For next week • Come to the board meeting • We will be deciding how to split up the sectors • Email rakicd@lafayette.edu

  16. Federal Reserve Monetary Policy / QE

  17. Conventional Policy • Lower and raise short-term interest rates • Achieves this with Fed toolkit • Discount Rate • Federal Funds Rate • Open Market Operations (most effective)

  18. Purpose • Lowers the opportunity cost for borrowers • Incentivizes lending and investment • “Reach for yield” – Supports financial markets • Lowers value of $ - increase exports

  19. Quantitative Easing • Much different from conventional policy • Targets long-term rates / specific markets • Fed purchased MBS and LT Treasury Securities • Crude but effective tool • Unprecedented policy – run risk of inflation

  20. Forward Guidance • Tie future policy to economic data • Guides markets through policy • Helps keep rates low in the long-run

  21. Inflation Risks • QE has put unprecedented reserves in banks • As economy improves, lending will improve • Could cause rampant inflation in economy • No one knows exactly how economy will respond • Erode value of our portfolio

  22. Relevance to Club • Lower rates have supported stock market • As Fed pulls back on QE, rates will rise • Investors are more likely to “flock to safety” • Hedge portfolio going into summer

  23. Internship Panel

  24. Internship Panel

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