Economics 434 Financial Markets Professor Burton University of Virginia Fall 2011

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

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

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

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

The Early Years August

The Great Crash of 1929 August

The Thirties in Review August

Trends August

Trend August

1987 – The “Rip Van Winkle” Year August

Peak in March 2000 August

Since 2000 August

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

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

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

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

Since July 21:

August