By:
Joanna Alexander
Courtney Potter
Will Prout
Kathy Ratajczak
What practices do money market funds currently
employ?
• Provide investors with a relatively safe alternative to savings accounts by
investing in only low risk commodities
• Funds encourage investors to believe they can never lose money
What does the SEC propose to regulate?
• Require money market funds to hold capital on the off chance that there
are losses
• Require money market funds to use a floating measure of their net asset
value, making it more difficult for investors to withdraw cash
Is what the SEC proposing beneficial?
Do you think a Republican or Democratic
victory effects the stock market differently?
• Stocks have rallied after every mid-term since 1942!
• Stocks surge on average 18.3% in the 200 trading days after
mid-term elections
• The S&P 500 chalked up its biggest 200 day gain, 30.5% in
1942, as the tide began to turn in WWII
• The smallest gain 3.9% came in 1946 as investors fretted that
the economy would sink into another depression
• The market has been essentially neutral about party changes in
one or both houses of Congress
• Historically it has been a good predictor of stock performance.
• Since 1940 the S&P has returned a cumulative 9.3% on
average in the first two years of presidential terms—slightly
more than a third of the 25% cumulative return in the second
two years!
• Recently though, the presidential-cycle indicator has fallen flat
• Bottom Line: Markets often find a way to upset our
preconceived notions!
Yields on Italy’s 10-year government bonds rose to over 7%
on Wednesday. What happened? And who is this man?
• The Situation:
• Tumultuous European economic climate
• Demands for Burlusconi’s resignation and
his insistence on holding elections instead
of an interim govt adding uncertainty
Former Italian Prime Minister Silvio Burlusconi
• Italy’s debt around €1.9 trillion which ≈
$2.613 trillion
• €1.9 trillion ≈ 120% of Italy’s GDP
• €400 billion coming due in 2012
• Italy’s “high wage costs, low productivity,
fat government payrolls, excessive taxes,
choking bureaucracy…”
• As 3rd largest economy in the euro zone
Italy is too big for EU to bail out
Source Yahoo! Finance and the Associated Press
• The Effects:
• Demand for Italian debt plunged
• Yields on Italian debt soared
• 10-year govt bonds rose to over 7%
• Italian govt bond yield curve flattens and inverts
momentarily as 2-yr yields rose over that of the
10-yr bonds
• ECB had to step in and buy Italian bonds to help
prop up prices
Source: http://www.webbooks.com/eLibrary/NC/B0/B62/054MB62.ht
ml
• Talks of a potential split in the euro zone by
keeping “core” members and pushing out the
laggards
• Dow  389.2 points or 3.2%
• S&P  46.8 points or 3.7%
Sources: Reuters & Yahoo! Finance
• NASDAQ composite  105.8 points or 3.9%
• The Implications:
• Italian government’s borrowing costs extremely
high and unsustainable
• Europe on the verge of slipping into a recession
• As the debt crisis spreads in Europe, aggregate
demand could be drastically reduced
• American corporations with markets in Europe
will likely feel the pain, especially those that
generate large percentages of their revenue
from Europe
• i.e. GM, GE, McDonald’s, Phillip Morris, CocaCola
• Perhaps the most serious implication is the effect
on currency value and exchange rates…
Sources: Reuters & Yahoo! Finance
9.000%
8.000%
7.000%
6.000%
5.000%
Italian Yields
4.000%
US Yields
3.000%
2.000%
1.000%
0.000%
2
3
5
7
10
20
Data from Bloomberg.com and USTreasury.gov
30
Federal gov't runs $98.5B deficit in October
• October starts the fiscal year for 2012
• In October last year the gov’t had a deficit of 140.4B
• New accounting practices took 31B off of this years
books
• Federal benefits are usually paid on the 1st of each
month but Oct. 1st was a Saturday and the benefits were
put on last years deficit
• The gov’t had a deficit of 1.41T in 2009, 1.29T in 2010,
and 1.3T in 2011
• The deficit for 2012 is predicted to be 973B
Unemployment Aid Hits 7-Month Low
•The number of people who applied for unemployment benefits
last week dropped to 390,000
•DOL said this is the lowest it has been since April
•The data suggest layoffs are easing and the economy grew
slightly better over the summer than the government had estimated
a month ago
•The downward trend in applications suggests businesses are laying
off fewer workers
•Still, applications need to consistently drop below 375,000 to
signal sustained job gains
•The have not been at the level since February
France lashes out at S&P's “shocking” error
• France reacted with outrage after the Standard & Poor's
ratings agency accidentally sent out a message saying it was
downgrading France's prized "AAA" credit rating
• The interest rate France pays to borrow money closed up
3.37% on Friday
• That is the highest rate since early July
• France and Germany's "AAA" credit ratings are the bedrock of
Europe's bailout fund
• The accident came just as Greece and Italy seemed to be
getting on the right track by establishing new interim
governments
SEC disciplines employees over Madoff
•The SEC said they had disciplined eight employees for their failure
to detect the infamous Madoff Ponzi scheme
•punishments ranged from pay reductions and suspensions to simple
"counseling memos"
•A 2009 report from the SEC inspector general called into question
the performance of 21 agency staffers in their handling of the
Madoff case
•10 are no longer with the agency and not subject to discipline
•Of the remaining employees, 9 were ultimately singled out for
punishment, though 1 elected to resign
•Among the rest, one received a 6% pay reduction
•Others received suspensions w/o pay for between 3 and 30 days
•Two received counseling memos
Do you think the
punishments were
appropriate?
Dow: up 1.42% for the week
S&P 500: up .85%
NASDAQ: down .28%
• http://static5.businessinsider.com/image/4defa60c4bd7c8ba241a0000-400-300/maryschapiro.jpg
• http://www.ehow.com/about_4700550_characteristics-money-market-funds.html
• http://www.ft.com/intl/cms/s/0/bee8b3f4-0973-11e1-a2bb00144feabdc0.html#axzz1dQwEWnli
• http://finance.yahoo.com/news/federal-govt-runs-98-5b-190255977.html
• http://abcnews.go.com/US/wireStory/unemployment-aid-hits-month-low-trade-gap-falls1492324 5#.TsAAgfQUqsq
• http://finance.yahoo.com/news/france-lashes-ps-shocking-error-114913274.html
• http://finance.yahoo.com/news/sec-disciplines-employees-over-madoff-230100954.html
• http://finance.yahoo.com/q/bc?s=%5EDJI&t=5d&l=on&z=l&q=l&c=
• http://www.kiplinger.com/columns/value/archive/how-elections-affect-the-stock-market.html
• http://beta.finance.yahoo.com/news/analysis-europes-debt-crisis-shake-233231749.html
• http://finance.yahoo.com/news/berlusconis-party-backs-monti-pm-154150850.html
• http://beta.finance.yahoo.com/news/italian-borrowing-costs-reach-breaking-113500631.html
• http://beta.finance.yahoo.com/news/stock-futures-signal-lower-open-092359386.html