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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
• 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
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
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?
• Slow start for spring homebuying 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
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, homebuilder 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 Name
Information Technology
Dollar amount Weight
Benchmark
$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%
$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%
Energy
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 [email protected]
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