Lafayette College Investment ClubApril 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• Fed committed to

calming markets: overnight rates, inflation, unemployment

Mon

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

• 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)

Recovery? Still a Bear Market?

Tue

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

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

House, out of business?

• 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

•Slow start for spring home-buying season

•Open-house visits low, price cuts high

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

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

Today

•Market Update•Portfolio Update•Federal Reserve

▫Monetary Policy▫QE

Portfolio Update

Kyle Lievre and Michael Kelly

Sector NameDollar amount Weight Benchmark

Information Technology $84321.4 19% 18.70%

Financials $46037.28 10% 16.40%

Health Care $71033.25 16% 13.40%

Consumer Discretionary $77687.25 17% 12.20%

Industrials $38741.85 9% 10.70%

Energy $46568.2 10% 10.10%

Consumer Staples $35842.12 8% 9.60%

Materials $15850.35 4% 3.50%

Utilities $10051.8 2% 3.00%

Telecommunication Services $19652.5 4% 2.40%

Total Invested: $445,786.00 92.47%Cash: $36,319.66 7.53%

Total: $482,105.66 100%

We Beat the Market (ytd)

S&P 500:89 basis points

Our portfolio:97.6 basis points

Earnings Report

•This week: GS, UNH, GE

•Next Week: CAT, JAH, BK, AMGN, GILD, BA, BIDU, MSFT, SCCO, T, CHL

For next week

•Come to the board meeting

•We will be deciding how to split up the sectors

•Email rakicd@lafayette.edu

Federal Reserve Monetary Policy / QE

Conventional Policy

•Lower and raise short-term interest rates

•Achieves this with Fed toolkit ▫Discount Rate▫Federal Funds Rate▫Open Market Operations (most effective)

Purpose

•Lowers the opportunity cost for borrowers

•Incentivizes lending and investment

•“Reach for yield” – Supports financial markets

•Lowers value of $ - increase exports

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

Forward Guidance

•Tie future policy to economic data

•Guides markets through policy

•Helps keep rates low in the long-run

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

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

Internship Panel

Internship Panel