General Meeting 5
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Transcript of General Meeting 5
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General Meeting 5
10.7.2014
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USIT General Meeting 510.7.2014
• Announcements
• Portfolio Update
• Market Update
• Lecture: History of 2008 Financial Crisis
• Pitch: AAL
Agenda
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USIT General Meeting 510.7.2014
First USIT Social
• When: October 9th 8 PM after SCG Workshop
• Where: Union
• Cost: $5
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USIT General Meeting 510.7.2014
IM Volleyball
• Kick Some Assets
• UNDEFEATED
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USIT General Meeting 510.7.2014
Second USIT Social
• When: October 19th
• Where: Lady Bird Lake
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USIT General Meeting 510.7.2014
• Focused individual attention
• Multiple directors scheduled at various times throughout the week
• Will cater to whatever you want to talk about
• If you show up and say ummmmmm• I just want to learn stuff
SCG Director Office Hours
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USIT General Meeting 510.7.2014$5 entry fee
Fall Portfolio Challenge
•Build and manage your own portfolio•Compete with other McCombs students•Top three winners receive prizes in May
Register at usiteam.org/events
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USIT General Meeting 510.7.2014
Workshop
Technical WorkshopsEvery Thursday 7-8
CBA4.328
This Week:How to pitch a stock
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USIT General Meeting 510.7.2014
Announcements
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Portfolio Update
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USIT General Meeting 510.7.2014
• S&P(1.87%)
• NASDAQ (1.88%)
• Russell 2000 (4.05%)
General Markets
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USIT General Meeting 510.7.2014
• FNMA (13.5%) – Continued litigation concerns
• ADNC (11%) – No major news; market movement; focus in smartphone industry still on Apple
• URPTF (8.57%) – Based on uranium, stock tends to trade between $4.50-$5 band. Long run supply decreases/demand increase will drive price up
Portfolio Update
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USIT General Meeting 510.7.2014
• Fannie Mae is a GSE • Government sponsored enterprise • Primary function is as a mortgage lender • Received major bailout from the federal government in 08 • Now in litigation over the terms of that bailout
• During the bailout the federal government claimed all corporate profits; shareholders arguing that’s illegal
• Courts
• Stock being driven down by a major court loss
• Presently being appealed
• If court battles go poorly then value of stock will continue to fall
• If court battles go well then the stock will skyrocket
FNMA Investment Thesis
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Market Update
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USIT General Meeting 510.7.2014
Jobs Report
Unemployment Rate fell below 6%
Inflation very exment pectations driven What will happen to ABS/MBS?
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USIT General Meeting 510.7.2014
Afghanistan Power Sharing
Who are those people?? Where are they?? Why are they important?
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USIT General Meeting 510.7.2014
Afghanistan Power Sharing
Ghani President Won run off Large allegations of corruption
Abdullah Chief Executive Won first election
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USIT General Meeting 510.7.2014
Afghanistan Power Sharing
Security agreement signed Will allow coalition troops to stay in Afghanistan Stabilizing force Karzai departure
Would not sign the security agreement Became increasingly hostile toward the U.S. over time
Abdullah and Ghani have indicated much greater amicability to the United States
Serious allegations of corruption
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USIT General Meeting 510.7.2014
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USIT General Meeting 510.7.2014
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USIT General Meeting 510.7.2014
Hong Kong Protests
Took over from the United Kingdom in 1998 Mass protests Demands for resignations Chinese authorities are standing firm Government suppressing the flow of information to the
mainland
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USIT General Meeting 510.7.2014
Limits on election
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ReviewExit Multiple Valuation
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USIT General Meeting 49.30.2014
• FCF projects out until 2018 • By 2037 projecting cash flows gets very difficult
• Therefore methods of valuing the company beyond 2018 are necessary
• One method is via establishing an exit multiple • Method used prominently in LBOs• Idea is buy company • Get some cash flows • Sell company
Exit Multiple Valuation
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USIT General Meeting 49.30.2014
Types of growth
A B
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USIT General Meeting 49.30.2014
• FCF provides less than $200MM
• Whereas the Terminal Value provides a huge amount
• 2018 EBITDA X EV/EBITDA multiple • $255MM x 23.2=$5,916MM ($5.916B)
• Result is that a substantial piece of the valuation comes in down to two inputs
• 2018 EBITDA• EV/EBITDA multiple
Terminal v Cash Flows
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History of 2008 Financial Crisis Part 1
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USIT General Meeting 49.30.2014
S&P
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USIT General Meeting 49.30.2014
• MBS=Mortgage backed security
• Mortgage thought of as an asset
• CDOs= Collateralized debt obligation
• Bundled debt based assets
• These assets are rated by rating agencies to determine how stable they are
• MBS’s were consistently given relatively high credit ratings
• S&P• Moody’s • Fitch
MBS/CDOs
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USIT General Meeting 49.30.2014
• Simple concept • Start lending to people who you are very confident
can pay back • This over time devolves into lending to people with
worse credit• Charge higher interest to compensate for higher
default rates • Lower down payments • Balloon mortgage payments • Refinancing
Subprime Lending
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USIT General Meeting 49.30.2014
• Refinancing allows for a new loan
• New interest, new balance of debt, chance to get money
• Cash Out refinancing • Terms of loan can change
• Interest may rise • Adjustable rates • Balloon payments
• Reliant on equity portion • Many loans became dependent on the
Refinancing
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USIT General Meeting 49.30.2014
US Mortgage Delinquencies & Foreclosures
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USIT General Meeting 49.30.2014
• Banks are run on credit
• The more loans they give out the more they can leverage their own gains
• Also increases risk
• If major losses occur then problems emerge and a domino effect begins
• Confidence in financial institutions is also key
• Reduced confidence can exacerbate problems
Capital Ratios