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					Alpha Realized
Today’s Financial Market Dynamics
& Consequences for MBAs

            - Confidential Document, Property of Graduate Leverage, LLC, rev 033110

•   Perspective on Today’s Market Conditions

•   Potential Changes in MBA Career Pathing

•   Implications for Management of Your Personal Finances
Perspective on Today’s Market Conditions
Coming Off A Credit Crisis . . .
                     Reasons for Great Contraction (Credit Crisis)

1. Subprime Mortgage Market: Poor underwriting standards
2. Lax Federal Reserve Interest Rate Policy: i.e. the “Greenspan Put”
3. SEC 2004 Rule Change: allowed budge bracket broker-dealers to increase
   leverage from 12-1 to 35-1 (three of five firms failed)
4. Unregulated Credit Default Swap Market
5. Rating Agencies: conflicting interests resulting in mispriced risk
6. Liquidity Issues: too many players borrowing short and lending long
7. Mark to Market Accounting
8. Fannie Mae & Freddie Mac
9. Political Issues: lobbyists wield too much influence

10.Too Much Leverage
                                               Leverage Measures

                                               Federal Debt

                         $ Trillion


                                               2001            2010
                         Source: US Treasury

All Debt Markets Experienced Unprecedented Growth
                    Fed Re-Liquefied

Fed Monetary Base
Equity Rebound
                                Commodity Rebound

Jan, 2010                                  Jan, 2011

            Silver Increased 88% in 2010
Surprised Stocks Still In Favor
            Stock Potential Returns (Shiller)

Prediction of Future Stock Returns

Stock Potential Returns (Tobin’s Q)
Consumer Leverage
Corporate Leverage
Government Debt
Government Debt
                          Average Duration of Unemployment

Source: Haver Analytics

       Structural Unemployment Poses Greatest Risk
 At Current Pace Of Hiring Full Employment Reached In 2017
                                                 Economic Prospects

•   Lack of Deleveraging could cause another crisis (of greater proportions)
•   Structural unemployment headwinds
•   Impact of change in fiscal and monetary polices
•   Housing market supply overhang and transition from federal support

What’s Required To Restore Balance:
•   Structural issues in labor and capital must be addressed
•   Deleveraging of corporate, consumer and government
•   Shift to current account surplus
•   Restoration of market-based housing industry

      Risks Have Shifted From Alpha To Beta

Perspective on Today’s Market Conditions

1. US in need of potentially painful rebalancing
2. Macro issues will continue to dominate risk management
3. Valuations indicate potential for future volatility if not factored properly
Potential Changes in MBA
     Career Pathing
                                                MBA Career Prospects

                                 GDP Growth
             140                                            Economies



                        2005     06   07   08     09   10
S ource: The Conference B oard
                                  MBA Career Prospects

                      Pre-Credit Crisis
                     Post-Credit Crisis


       Fortune 500

      Tech / Media


Financial Services
                                 Financial Services Sector

Source: Macroeconomic Advisors
                               World Economic Forum Report

  US Still Showing Leadership:
  • Innovation

  • Access to Capital for Private Companies

Source: World Economic Forum

            Changes in MBA Career Pathing

1. Shift to International Corporations and EM-Focused Businesses
2. Entrepreneurship Will Still Thrive and Display Favorable Risk/Reward
3. Innovative and High Growth Companies
4. Financing of Emerging Markets and Other High Growth Sectors
Implications for Management of Your
          Personal Finances
                                                Primary Theme

• Increased in Public and Private Leverage
   -Government will need to increase taxes
   -Slower growth in industrialized countries
   -Greater macro volatility
   -Need to manage debt with financial allocation framework
                                                     Looming Tax Increases

It Is Already Happening:
•   Jan 12, 2011: Illinois Lawmakers Pass 67% Income Tax Increase, Largest In History
•   30 States Have Raised Taxes By more than 4% (Includes fees, excise taxes, etc.)
                                                            Changes in Student Debt Levels



                                     1996                       2003       2010

                                         Rapid Increase In Debt Levels
* Based on data collected by GL internal student database
                                                      Debt Considerations

                              Salaries and Debt Levels
$150,000                                                            Student Debt

                      $84k                   $84k                  $84k


            Large Corporation         Small Firm or         Non-Profit
           or Financial Markets         Start-up

      Career Path Determines Debt Management Strategy
                                           Current MBA Career Path Breakdown

Non-Profit Sector ~ 10%
                                                                Large Corporation or
 Non-Profit Private Sector                                      Financial Markets ~ 55%
 Federal Sector                                                   Banking
 State or Local Municipality                                      Consulting
 NGO                                                              General Management
                                                                  Private Equity
                                                                  Hedge Fund
                                                                  Wealth Management
                                                                  Corporate Treasury
                                                                  Sales or Marketing

               Small Firm or Start-up ~ 45%
                  Small or Medium Enterprise
                  Venture-backed Business
                  Sole Proprietorship

S ource: US News, S elect School Reports
                                             Debt Implications

 Corporation or              Small Firm or         Non-Profit
Financial Markets              Start-up             Sector

                    • Liquidity Management
                    • Subsidy & Loan Forgiveness
                    • Financial Allocation
                                          New Program Details

                          Small Firm or           Non-Profit
                            Start-up               Sector

        New Federal Programs (March, 2010)

Income Based Repayment:
 • Limits monthly payment to 15% of discretionary income
Loan Forgiveness:
 • Outstanding debt forgiven after 10 years for public service
 • Outstanding debt forgiven after ~20 years for private sector
                                                  Liquidity & Loan Forgiveness
Payment                Loan Repayment

                                Total Debt Payments          Total Debt Payments        = Standard
                $988                of $118,601                   of $54,234
                                                                                        = IBR


          1st             5th                  10th
                       Repayments Years

                  Total Debt Burden Reduced By More Than 50%
                                                   Liquidity & Loan Subsidies
                                            Small Firm or


                       Loan Repayment
                                                                                = Standard
                                                                                = IBR

                                                             Lower Loan Payment
                                                            & Subsidies Over 4 Year

          1st               5th             10th
                         Repayments Years

                       Liquidity Relief & $5,000 In Loan Subsidies
                                    Liquidity & Financial Allocation
          Corporation or           Small Firm or
         Financial Markets           Start-up

$1,000               Utilize Deferment or Forbearance
                      Increase in Liquidity of $24,000


           1st          5th          10th            15th   20th
                                  Repayments Years

 Excess Liquidity For Start-up Equity Or Home Down Payment
                                                                                             Financial Allocation
      Corporation or
     Financial Markets
                                                                                                       A/T Returns
15%                                                                                                       PLUS Loan
                                                8.1% Average
                                                PLUS Return                                               S&P 500


           7.4% Average
          S&P Return (A/T)


     1940                                          1960                                   1987         2001
       Sources: Yale Econ/Robert Shiller, Standard & Poor’s, Federal Reserve, Bloomberg

Today’s PLUS Loan Has Outperformed S&P Over Past 70 Years
                                                                                             Financial Allocation
      Corporation or
     Financial Markets
                                                                                                      Pre-Tax Returns
20%                                                                                                       PLUS Loan
                                               12.2% Pre-Tax
                                                PLUS Return                                               S&P 500


          11.1% Pre-Tax
           S&P Return                                                                    AAA M unis


     1940                                         1960                                    1987         2001
      Sources: Yale Econ/Robert Shiller, Standard & Poor’s, Federal Reserve, Bloomberg

       PLUS Loan Has Sharpe Ratio Greater Than Any
      Potential Investment On Efficient Market Frontier
                         Financial Allocation
Where would PLUS Loan plot?
                          In Good Company

 Now Legendary Hedge Fund Investor
John Paulson’s Favorite “Asset” Class?
       Fixed Income Liabilities
                                                                                                    Required Action Items
             Corporation or                                                       Small Firm or                           Non-Profit
            Financial Markets                                                       Start-up                               Sector

                                                Today                                         Graduation              Grace End Date

                                                                                                                       3a) Consol Low Rate
                                                                                                                           Loans 10/15/2011
                                                                                                           Large Firm
                                                                                                                             4a) Enter Targeted

                                                         1) Complete High Rate                              3b) Consol Low Rate
                                                              Consol 2/15/2011                                   Loans 8/15/2011
                                                                                                           Small Firm Enter IBR
                                                                            2) File Taxes
                                                                           Minimizing AGI
                                                                                                  3c) Consol Low Rate
                                                                                                       Loans 5/1/2011
                                                                                                            4b) Enter PSLF

* To maximize IBR Subsidy borrow er should establish credit or deductions prior to year end
                                                                   New Financial Issues
      Corporation or                      Small Firm or                       Non-Profit
     Financial Markets                      Start-up                           Sector

              Professional Development Period                                              $2.2m

Positive                                                                                   $1.2m
Net worth                                                  Retain
                   Finish MBA                         Financial Advisor                    $600k
 Start Undergrad    Program

Net worth
                                                          Asset Accumulation Period        $100k

                            Intermediary Period

     Historical Approach To Financial Management
  Neglects Liquidity, Debt & Proper Financial Allocation
                                                                                           Support Process
 Fill out             Review                                            Execute Debt
  Card             Personalized
                     Overview                                            Management
                     •                                                     Objectives
                         We have compiled and analyzed your personal debt portfolio in order to determine
                             the optimal debt management strategy. The tasks outlined below include each step
                             required to minimize your cost of debt.
                       •     Below your task list you will also find a detailing of the savings as well as your loan
                             portfolio for your records.

                       Required Tasks To Achieve Plan Objective:
                       1.    Novemb er 15, 2010: Consolidate all low rate loans as initial in-school application

      Contact Info:    2.

                                                                                      Complete Process
                             Feb ruary 15, 2011: Complete Add-on Consolidation application form to include all
                             low rate loans occurred in spring disbursement
                             March 1, 2011: Verify in-school deferment status on all consolidated loans to prevent
                             payment and ensure subsidy
 Personal within 1
                       4.    March 20, 2010: Complete tax filing process according to specific filing status: i)
                             Non-Exempt: File using deductions for AGI to maximize subsidy and minimize

Info Card   week

    Cell: 949.943.9954                                                              Retain GL Advisor to
                                                                                     Carry Out Process

  Please Initiate Process By Feb 15th To Ensure Completion

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