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					                            Economic Briefing
                                      Hosted by the
                         Valparaiso Chamber of Commerce
                        and Purdue University North Central
                                        AGENDA

12:00 P.M.   Registration and Lunch

12:15 P.M.   Program
             Welcome and Introductions

             Focal Point: Addressing Business Conditions in Northwest Indiana
             Presented by Dr. Daniel Rutledge, Associate Professor of Business
             Purdue University North Central

             Anatomy of a Deal
             Presented by Anthony Sindone, Visiting Assistant Professor of Business
             Purdue University North Central

             Short Term Economic Outlook for the National and Regional Economy
             Presented by Dr. Derek Bjonback, Associate Professor of Business
             Purdue University North Central

             Global Issues
             Presented by Dr. Alan G. Krabbenhoft, Dean, College of Business; Professor of Business
             Purdue University North Central

1:00 P.M.    Program Adjourns
                       FOCAL POINT
________________________________________________________________________


Business Conditions in Northwest Indiana
                   Presented by: Dr. Daniel Rutledge

                    Associate Professor of Business

                    Purdue University North Central

                          November 13, 2008
                Focal Point




Analysis Based On…
  Opinions of Local Business People…
        Challenges and Outlook
         Valparaiso Chamber
                                    Focal Point

Responses.... n = 91 ( 8.1% Response Rate)
Profile....
            • Orientation.... Profit = 80%       Non-Profit = 20%
            • Size (employees).... Average = 50
            • Longevity.... Years in Business = 27

         Business Sector....
                    Goods Producing                      = 9%
                      (manufacturing, construction)


                      For-Profit Services                = 53%
                      (retailing, services, health care, transportation)


                      Non-Profit/Other                   = 37%
                      (education, government,
                       non-profits and other)
                                 Focal Point


Q.1 How Has Your Company Been Impacted Over Past 12 Months?

         Getting Worse             Holding      Getting Better

              1-- 2 -- 3 -- 4 -- 5-- 6-- 7-- 8-- 9

                                    Nov. 2007     Nov. 2008
       Marketing =                    5.59          4.41*
       (Q2+Q7)
       Operations =                   3.89           3.90
       (Q3+Q6+Q10)
       Finance =                      5.47          4.62*
       (Q4+Q5+Q8)
       Human Resources =              5.42          4.85*
       (Q1+Q9)
       *Significant Difference
                                Focal Point


Q.2 Two Important Factors Anticipated Over Next 12 Months?

                                          Nov. 2007     Nov. 2008
Reaching Sales/Revenue Targets                = 51%      = 60%
Finding New Business Opportunities            = 32%      = 44%
Controlling Costs of Business                 = 40%      = 37%
Finding/Keeping Competent Employees           = 45%      = 28%
Health Insurance Costs                        = 14%      = 10%
Financial Health and Obtaining Capital        = 11%          = 9%
Other Concerns Not Listed                     = 4%           = 6%
                                     Focal Point


Q.3 Business Optimism Score - Prospects Over Next 12 Months

                            Pessimistic                Optimistic
                             1 - 2 - 3 - 4 - 5 - 6 - 7 - 8 - 9

Fall 2007 =                                            6.66
Fall 2008 =                                        6.02*

By Sector....               Nov. 2007    Nov. 2
   Goods Producing =          7.00        5.63*

   For-Profit Services =      6.55        6.33

   Non-Profits =              6.53        5.65*


 * Significant Difference
                            Focal Point

Summary…Valparaiso Chamber

       1. Impact over past 12 months…

               Downward Pressures

       2. Outlook next 12 months…

               Sales Targets = 60%
               Finding New Opportunities = 44%

       3. “BOS” = Decline Optimism = 6.02 vs. 6.66

       4. Overall = Concerns Evident
   Anatomy of a Deal


    Presented by: Anthony Sindone

Visiting Assistant Professor of Business

   Purdue University North Central

         November 13, 2008
                Anatomy of a Deal




From Business Week Oct. 16th issue…1998!

Securitization is a money machine. How
does a household's loan payments end
up as the interest on a bond received by
a big insurance company--with lots of
people getting a cut along the way?
              Anatomy of a Deal



             Key Players:

1. Loan Originator/Mortgage Broker.
2. Finance Company
3. Investment Banker
4. Institutional Investor
           Anatomy of a Deal




       All deals, in theory,
      have insurance and
         extra collateral
to protect investors from losses.
            Anatomy of a Deal




     Banker slices deal into
       numerous tranches
with varying risk characteristics,
      from high-grade AAA
        to low-grade BBB.
          Anatomy of a Deal




ASSET-BACKED GAMBLING?
 The sector is more hazardous
  than many investors realize.
     Anatomy of a Deal




   In a downturn,
that could be trouble.
     Anatomy of a Deal




 Securitizations are
all about guesswork.
          Anatomy of a Deal




First, companies guess how much
   revenue they can expect at a
          particular time.
            Anatomy of a Deal




Then they guess how much of that
money they will need to back their
          bonds safely.
           Anatomy of a Deal




 Finally, they guess how much
cash will be left over--and book
           that as profit.
         Anatomy of a Deal




     And guess what?

Sometimes they guess wrong.
             Anatomy of a Deal




''Securitization creates the illusion
     of unlimited liquidity and
    marketability,'' says Henry
   Kaufman, the former Salomon
     Brothers Inc. economist     .
           Anatomy of a Deal




This securitization is then priced
 and sold into the marketplace.
         Anatomy of a Deal




Anatomy of a Bailout…Rescue.
         Anatomy of a Deal




I’m from the government and
     I’m here to help you.
             Anatomy of a Deal




March 2008: Bear Sterns…$29B loan.

JPMorgan has to repay the Fed loan
 with interest at the "discount rate,"
     which was at 2.5 percent.
          Anatomy of a Deal




  September 2008: American
International Group Inc (AIG)…
           $85B loan
             Anatomy of a Deal




 Fed will lend up to $85 billion to
AIG, and the U.S. government will
  effectively get a 79.9% equity
stake in the insurer in the form of
      warrants called equity
        participation notes.
                Anatomy of a Deal

September, 2008 (Treasury Department)
Federal National Mortgage Association
(Fannie Mae)
Federal Home Loan Mortgage Corp
(Freddie Mac)

The Treasury may purchase up to $200
billion of stock in the firms to keep them
solvent.
         Anatomy of a Deal


    Treasury Department
Emergency Economic Recovery
        Act of 2008

         $700B
              +
     $100B in incentives
              Anatomy of a Deal




        Total Explicit
   Bailout…Rescue cost:
        $1.114T so far
                       or
Approximately $3713.33 per man, woman and child
               Anatomy of a Deal




Federal Budget (annualized quarterly)
             $1.056T
  Does not include monies allotted to the
             rescue package.
            Anatomy of a Deal




We can lead the banks to liquidity,
 but can we make them lend?
             Anatomy of a Deal




PNC Financial Services Group Inc.
was approved to receive $7.7 billion
in return for company stock. At the
same time, PNC said it was
acquiring National City Corp. for
$5.58 billion.
         Anatomy of a Deal




  Current Fed Interest Rates
   Fed Funds Target 1.00%
Discount Rate 1.25% (Primary)
               Anatomy of a Deal


            Economic Impact?
   Treasury & Fed must borrow to fund the
                 rescue plan.
    This activity will inevitably put upward
pressure on a wide variety of interest rates.
  The Fed will thus monetize this increasing
debt by adding even more liquidity into the
                   system.
          Inflationary pressures?
                 Recession?
SHORT TERM ECONOMIC OUTLOOK FOR
THE NATIONAL AND REGIONAL ECONOMY

         Presented by: Dr. Derek Bjonback

         Associate Professor of Business

          Purdue University North Central

               November 13, 2008
 Short Term Economic Outlook for The National and Regional Economy

    Emergency Economic Stabilization Act of 2008 (October 3, 2008)


Troubled Assets Relief Program (TARP)

                a $700 billion program



 Purchase of Preferred Stock is underway - recapitalize the financial sector

                $250 billion



Purchase of "troubled assets" has not yet been announced
   Short Term Economic Outlook for The National and Regional Economy

                           Spread in Return, Commercial Paper minus Treasury Bills (3 month)

                                                        Source: Calculated from Federal Reserve Bank of St. Louis, FRED data base
          4



    3.5



          3



    2.5
Percent




          2



    1.5



          1



    0.5



          0                                                                                          Oct. 31, 08
              July 1, 08                                   Sept 4    Sept 18 Oct 6      Oct 15
          Short Term Economic Outlook for The National and Regional Economy

                               Prime Rate, July 2008 to Present

      6.00




      5.00




      4.00
Percent




      3.00




      2.00




      1.00




      0.00July 2008                                               October 8   Oct 29   Nov 5
  Short Term Economic Outlook for The National and Regional Economy
Third Quarter GDP displays the start of a
recession:
        Output declined by 0.3% on an annual basis, first sign of negative performance since 2001


        Factors for decline are: personal consumption expenditures down by 3.1%
                          deceleration in export growth
                          smaller decrease in imports
                          reduction in business investment, aerospace & fabricated metals
                          reduction in durable goods expenditure -furniture
                          reduction in residential housing, retail expend.


        Factors for growth are: federal spending
                           inventory investment
                           health care


A Surprising Counter indicator: The Dollar is appreciating against the Euro, Canadian dollar,
        and other major trading partners except Japan


But, …..Real Disposable Personal Income fell by 8.7%


But, ….Mortgage foreclosures up 71% from the third quarter a year ago


But,… Consumer bankruptcies up in October 2008 40% from a year ago, and up 20% from September 2008
Short Term Economic Outlook for The National and Regional Economy


       Likely Fiscal Response from an Obama Administration



     Middle Class Tax Cuts



     Help Homeowners in Trouble



     Fiscal Stimulus - Infrastructure?



     Fiscal Stimulus - the Automotive Industry?



     Fiscal Stimulus - Energy Conservation, Independence, Technology?
 Short Term Economic Outlook for The National and Regional Economy

                Economic Forecasts for 2008 and 2009
                      Source: Blue Chip Economic Indicators



Real GDP              After a 0.3% reduction in the third quarter,
                      output will decline by about 1.0% during the
                      fourth quarter of 2008

                      The recession will end after the first quarter
                      of 2009. GDP will decline about 0.2% from
                      January to March 2009.

                      The remaining quarters of 2009 quarters
                      will experience slow growth, accelerating to
                      2.5% by the fourth quarter.

Unemployment          The rate should gradually increase during
Rate                  2009 to reach 7%.

Federal Funds Rate    Should remain at 1% and gradually rise to
                      2% by the end of 2009.
Short Term Economic Outlook for The National and Regional Economy
250


                                      Residential
                                      Building
200
                                      Permits



                                                                    United
                                                                    States
150




                           Porter County

100




 50

                                                        La Porte County




  0 Jan. 2000   Dec 2000                    June 2005                        Feb.08 Sept. 08
                     Short Term Economic Outlook for The National and Regional Economy
                                       Unemployment Rates, January 1990 to September 2008
                                                              Source: US Department of Labor, Bureau of Labor Statistics
                     9


                     8

                                                                                                                 La Porte County
                     7


                                                            United States
                     6
Percent Unemployed




                     5


                     4


                                                                                                       Porter County
                     3


                                                                                                           Start of Recession
                     2
                                                                                                           July 2008?

                     1
                            Recession                                                    Recession
                            July 1990 to                                                 March 2001 to
                            March 1991                                                   November 2001
  0                                                                                                                        Sept. 2008
Jan 1990
   Short Term Economic Outlook for The National and Regional Economy
                                  EMPLOYMENT CHANGE BY INDUSTRY SECTOR, 2003 to 2007
                                  LA PORTE COUNTY, with comparisons to the UNITED STATES

                                                                                                                     La Porte      US
                                                                                                                     Percent     Percent
                                                                                                                   Avg.Ann. Avg.Ann.
                                                                                                                   Change Change
                                                       2003          2004         2005         2006           2007 Percent   Percent
Total Employment                                     48,074        47,322       47,775       47,474         48,097      0.02     1.44
Natural Resources and Mining                             401           345         288          258            250      -11.00       6.05
Construction                                           2,257         2,161       2,215        2,128          2,463        2.52       3.14
Manufacturing                                          8,980         9,196       9,341        9,478          9,234        0.72      -1.09
Wholesale Trade                                        1,195         1,207       1,236        1,232          1,267        1.48       1.82
Retail Trade                                           5,645         5,617       5,609        5,676          5,713        0.30       0.95
Transportation & Warehousing                           1,290         1,238       1,329        1,304          1,604        6.11       2.04
Information                                              690           675         668          655            728        1.50      -1.27
Finance & Insurance                                      873           882         924          917            903        0.88       0.95
Real Estate, Rental & Leasing                           751           336          366          355           361       -11.91       1.25
Professional&Technical Services                         718           750          774          757           762         1.53       3.79
Management of Companies                                  81            84           99           89            91         3.43       2.28
Adminstrative & Waste Services                         1,833         1,866       1,903        1,912          1,769       -0.81       2.37
Educational Services                                   3,241         3,220       3,244        3,199          3,339        0.77       2.28
Health Care & Social Assistance                        6,180         5,943       5,898        5,829          5,878       -1.23       2.57
Arts, Entertainment & Recreation                       1,556         1,532       1,620        1,662          1,587        0.57       2.20
Accommodation & Food Services                          3,599         3,561       3,609        3,645          3,660        0.43       2.64
Other Services (Private)                               1,307         1,336       1,345        1,307          1,364        1.11       0.42
Government                                             7,477         7,373       7,307        7,071          7,124       -1.19       0.71


Sources: US Bureau of Labor Statistics, "Employment, Hours & Earnings" from the Current Employment Survey
and, Labor Market Information Unit, Indiana Dept. of Workforce Development
  Short Term Economic Outlook for The National and Regional Economy
                                 EMPLOYMENT CHANGE BY INDUSTRY SECTOR, 2003 to 2007
                                  PORTER COUNTY, with comparisons to the UNITED STATES

                                                                                                                       Porter        US
                                                                                                                      Percent      Percent
                                                                                                                     Avg.Ann.     Avg.Ann.
                                                                                                                     Change       Change
                                                       2003          2004        2005         2006            2007    Percent      Percent
Total Employment                                     57,914        58,516      59,862       61,217          62,533         1.94         1.44
Natural Resources and Mining                            258           243         227          240             237        -1.98         6.05
Construction                                          3,601         3,856       4,019        4,508           4,773         7.34         3.14
Manufacturing                                         9,853         9,002       8,983        8,897           9,163        -1.70        -1.09
Wholesale Trade                                       2,400         2,444       2,668        2,711           2,681         2.88         1.82
Retail Trade                                          6,410         6,427       6,677        6,573           7,093         2.63         0.95
Transportation & Warehousing                          1,591         1,664       1,783        1,838           2,134         7.73         2.04
Information                                             477           528         495          490             632         8.10        -1.27
Finance & Insurance                                   1,209         1,265       1,270        1,311           1,253         0.96         0.95
Real Estate, Rental & Leasing                           590           572         586          581             611         0.93         1.25
Professional&Technical Services                       1,585         1,664       1,705        1,699           1,731         2.24         3.79
Management of Companies                                  94            98         111          131             153        13.08         2.28
Adminstrative & Waste Services                        1,753         2,073       2,074        2,292           2,833        13.10         2.37
Educational Services                                  5,748         5,748       5,865        5,995           6,110         1.54         2.28
Health Care & Social Assistance                       6,250         6,496       6,564        6,855           6,858         2.36         2.57
Arts, Entertainment & Recreation                        700           706         720          622             734         1.81         2.20
Accommodation & Food Services                         4,860         5,010       5,150        5,316           5,605         3.64         2.64
Other Services (Private)                              1,872         1,918       2,024        2,129           2,306         5.37         0.42
Government                                            8,663         8,802       8,941        9,029           7,626        -2.84         0.71

Sources: US Bureau of Labor Statistics, "Employment, Hours & Earnings" from the Current Employment Survey
and, Labor Market Information Unit, Indiana Dept. of Workforce Development
 Short Term Economic Outlook for The National and Regional Economy

                 RECENT TRENDS IN EMPLOYMENT: LA PORTE AND PORTER COUNTIES
                                     RELATIVE TO NATIONAL TRENDS

                           La Porte                            Porter          (millions)      US
              La Porte     Percent              Porter        Percent             US         Percent
             Employm.      Change             Employm.        Change           Employm.      Change

Sept.2007         50,091                            79,196                         146.448
Oct.2007          50,245         0.31               79,395              0.25       146.743          0.20
Nov.2007          50,159        -0.17               79,418              0.03       147.118          0.26
Dec.2007          49,667        -0.98               78,778           -0.81         146.334          -0.53
Jan.2008          49,455        -0.43               78,053           -0.92         144.607          -1.18
Feb.2008          49,163        -0.59               77,879           -0.22         144.550          -0.04
Mar.2008          49,368         0.42               78,409              0.68       145.108          0.39
Apr.2008          49,783         0.84               79,507              1.40       145.921          0.56
Ma.2008           50,297         1.03               80,054              0.69       145.927          0.00
Jun.2008          50,560         0.52               80,408              0.44       146.649          0.49
Jul.2008          50,897         0.67               80,439              0.04       146.867          0.15
Aug.2008          50,263        -1.25               79,599           -1.04         145.909          -0.65
Sept.2008         50,269         0.01               79,870              0.34       145.310          -0.41


Source: Resource Analysis Unit, Indiana Department of Workforce Development
GLOBAL ISSUES


  Alan G. Krabbenhoft, Ph.D.

  Dean, College of Business

Purdue University North Central

     November 13, 2008
                           Global Issues


          U.S. and Indiana Trade
                                   • The Good News
    Recent Trade Data
                                      – Imports fall
                U.S.       U.S.
                                      – Trade balance improves
               Exports   Imports   • The Bad News
                                      – U.S. exports fall
                                      – Previously strong exports
     Aug-08    164.7B    223.9B
                                        had been key to
                                        lifting/supporting U.S. GDP
      Jul-08   168.1B    229.4B       – Key export losses are key
                                        industries for Indiana
Percent                               – Continuing strengthening of
Change          -2.0%     -2.4%         USD does not bode well
     Global Issues

Value of the Dollar
  Global Issues

Japanese Yen
                           Global Issues

  PNC and the College of Business
• Clearly a key role of PNC and the College of Business is to educate
  the students of our region.

      However, we are a resource for you as well!!!

• Student Internships
   – Many hard working, highly qualified, and enthusiastic students
     eager to work and learn
• Consultancies
   – Student participate allowing them to get their hands dirty
   – Classes/teams dealing with a variety of issues
   – Entre to Entrepreneurship
                  Global Issues


             Thank You!!!!
• Don’t hesitate to contact me:
          Alan G. Krabbenhoft, Ph.D.
          Dean, College of Business
          Purdue North Central
          1401. S. U.S. 421
          Westville, IN 46391
          (219) 785-5378
          akrabbenhoft@pnc.edu
Any Questions?

				
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