1. Economics 434 Financial Markets Professor Burton University of Virginia Fall 2011

2. Examinations: Two Mid-Terms One Final Exam: Tuesday, Dec 13 th,2PM Grading: Everyone hates this! August 23 2011

3. What kind of material is covered? Fixed Income Markets Modern Portfolio Theory Leverage and High Yield Derivatives August 23 2011

4. Malkiel – “Random Walk Down Wall Street” Burton – “Theory of Financial Markets” -$ 30 when vailable -Pickup at VNB Office -Maybe in 3 weeks Reinhart & Rogoff – “This Time Is Different: Eight Centuries of Financial Folly” August 23 2011

5. Industrial Average Began on May 26 th 1896 at: 40.94 For Today: A brief history of financial markets… August 23 2011

6. The Early Years August 23 2011

7. The Great Crash of 1929 August 23 2011

8. The Thirties in Review August 23 2011

9. Trends 1939-1960 August 23 2011

10. 1966-1981 Trend August 23 2011

11. 1987 – The “Rip Van Winkle” Year August 23 2011

12. 1981-2000 Peak in March 2000 August 23 2011

13. Since 2000 August 23 2011

14. Current Financial Market Backdrop European Debt Crisis Stagnant Economic Growth in the US The Rise of Asia August 23 2011

15. European Debt Crisis The PIIGS – Portugal, Italy, Ireland, Greece and Spain – Massive sovereign (national) debt relative to GDP Bailouts – European Union bailouts – Future of the Euro August 23 2011

16. Stagnant US Economic Growth GDP under 2% real economic growth – Historically weak economic recovery – Unemployment lingers in the 9% range Inflation beginning to creep up: > 2.5 % National Debt Soaring out of Control State and local government finances in disarray August 23 2011

17. Other than Japan (3 rd largest economy in the world). Japan more like the West (stagflation, high debt load). China growing at 8 to 9 percent. India and Russia and Brazil nearly 10% per year growth. August 23 2011

18. Since July 21:

19. August 23 2011