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DECEMBER 2016

VOLUME VI
ISSUE I

the wufc exchange

Stampede of Mega-Mergers: AT&T


and Time Warner at the Helm

03

Real Talk: Real GDP

05

Raising Rates: When Will the Fed


Follow Through?

06

President Trump & Fiscal Policy

07

Emerging Markets: Implications of


the Shenzhen-Hong Kong Stock
Connect Program

08

A Tough Pill to Swallow

09

On Everything Finance and Beyond

11

BY COLE OBANA
BY AILLEN YOU

BY ELIZABETH HOLMDAHL
BY JOE NOVAK

BY MICHAEL MINTSKOVSKY
BY JAKE GANS

BY JACOB BLOCH & AGNES PEI

Stampede of Mega-Mergers:

AT&T and Time Warner at the Helm


Cole Obana
Uncertainty continues to revolve
around Trumps antitrust environment, but recent stampedes of M&A
activity has shown that chief executives see a greater upside in M&A
with over 11,000 deals in North
America this year and a forecasted
13,000 by the end of 2016. Taking a
look at it, there have actually been
many reasons that support M&A during this time. One being the cheap
cost of borrowing due to the historically low FED benchmark interest
rate range of 0.25-0.50%. Also, given
over a 90% probability of a rate hike
by the end of the year, companies
have reason to take advantage of the
cheap cost of debt while it still lasts,
which often funds these acquisitions.
Another reason is that there has
been no major breakthrough driving
new forms of growth in companies.
Robert Salomon, a professor at the
New York University Stern School of
Business, said about our economy,
theres not a lot of organic growth
out there. On top of that, Salomon
mentioned that corporations are sitting on record levels of cash. Going
into 2016, chief executives were sitting on a total of $6 trillion in cash
reserves. This gave chief executives
ammunition to pursue earnings
growth through acquisitions. It also
presents itself as a defense strategy
since it involves buying out future
competition, which could be strong if
global growth spikes. Combine these
reasons with five years of stable economic growth and the nations relatively strong Q3 growth rate of 2.9%,
and it explains chief executives confidence in consolidation.

At the helm of the stampede of


mega-mergers is AT&Ts acquisition
of Time Warner for a final offer of
$85.4 billion half cash, half stock
deal. AT&T is a prominent distributor that leads in customer-direct distribution across TV, mobile devices,
and the internet. Time Warner is a
leader in premium content, including
video content like HBO, CNN, Warner Bros, and TBS. This vertical consolidation between a distributor and a
content provider, gives AT&T full
access to Time Warners content.
Both companies argue that this will
allow them to offer consumers a
broader range of content, innovative
product offerings, and a competitive
alternative to cable TV.
AT&T generously values Time
Warner. Time Warner is valued at 13
times this years estimated EBITDA,
which is a higher multiple than any
comparable, big entertainment company. The next biggest are Charter
Communications at 10.4 times
EBITDA and CBS at 9.4 times
EBITDA. This valuation also exceeds
valuations of similar past transactions, like when Comcast acquired
NBCUniversal. Comcast had NBCU
valued at only 9.5 times estimated

EBITDA.
AT&Ts generous valuation
helps justify its whopping 35% premium paid for Time Warner, which
comes to $107.5 a share. This premium stands out even more when you
consider the fact that close competitors like 21st Century Fox and Apple
are remaining on the sideline, despite
the fact that both of them have previously approached Time Warner about
potential strategic relationships.
AT&Ts willingness to pay such
a high premium also reflects that it
does not want to lose grip on the opportunity to acquire some of the best
content available. Especially during a
time when AT&T is having a shrinking video customer base in U-Verse
Broadbrand, even considering gains
from Direct TV, due to cheaper alternatives like Netflix and SlingTV. As
of the end of this years Q2, AT&T
gained 342,000 customers, but lost
391,000. Not to mention, AT&T is
facing rising competition from unlimited data offerings from rivals like TMobile and Sprint. Time Warner
most likely knew the dissatisfied financial position that AT&T is in, demanded a high price, and AT&T
gladly accepted it.

Looking at it from some regulators and rivals perspective, the high


premium reflects AT&Ts plan on
leveraging Time Warners content by
raising the price to competitors, while
creating all sorts of strategic product
offerings that are exclusive to AT&T
Whats stopping AT&T from creating the next generation HBO, which
is exclusively offered through
AT&T?
AT&T possibly leveraging Time
Warners content is one of many risks
that prevent the passing of this deal
by the antitrust enforcement. Trump
even stated during his presidential
candidacy that, Well look at breaking this deal up. However, by looking at similar past transactions, we
could get a better sense of whether
this deal will actually pass or not.
There have been four past transactions that fall into a similar universe as this deal. These consist of
Verizons acquisition of AOL,
AT&Ts acquisition of Direct TV,
AOLs merger with Time Warner,
and Comcasts acquisition of NBCU.
The first three were horizontal consolidations, and one could strongly
argue that on this basis alone is reason to not compare the deals. The last
deal of Comcasts acquisition of
NBCU was a vertical consolidation,
and proves to be the most similar past
transaction.
There are some important aspects of the Comcast and NBCU deal
that should be considered. The first is
the structure of the deal. Comcast
paid a much smaller premium for
NBCU, and the deal was broken
down into two smaller, more manageable, transactions. In 2009, Comcast
acquired a majority stake in NBCU in
a $13.75 billion deal. Then in 2013,
Comcast acquired the remaining ownership portion of NBCU in a $16.7
billion deal, giving an overall deal
size of $37.7 billion. In a conference
call, a banking analyst stated,

Comcast bought a distressed asset at


distressed prices. Meanwhile, AT&T
is paying a high premium for Time
Warners stable assets. Although
Comcast and NBCU is a smaller and
differently structured deal, the fact
that regulation allowed for a significantly sized vertical merger between
Comcast and NBCU gives ground for
the approval of the AT&T and Time
Warner deal.
Its also important to examine
the circumstances of the Comcast and
NBCU deal. At that time, there were
two main regulatory concerns about
the deal. The first being an issue with
net neutrality, which is defined as
the principle that Internet service
providers should enable access to all
content and applications regardless of
the source, and without favoring particular products or websites. Regulators were concerned that vertical consolidation of this kind would threaten
net neutrality due to the possibility of
AT&T excluding other distributors
from Time Warners content . But
recently, the Federal Communications
Commissions Open Internet order of
2015 has dissolved this problem, and
as AT&Ts CEO Randall Stephenson
said, net neutrality should no longer
be a concern for regulators.
The second regulatory concern
surrounding the Comcast and NBCU

deal was an issue with protecting over


-the-top (OTT) video providers. OTT
video providers refer to third party
content providers that directly deliver
content to a customer without involving an intermediary distributor. Popular examples of OTT video providers
are Netflix, Amazon, and Hulu. But
recently, these providers, like Netflix
and Amazon, have been continuing to
grow and gain clout. Therefore, they
dont necessarily need the amount of
regulatory protection as they did in
the past. Stephenson recently said,
Weve concluded Netflix is probably
going to be okay now. We dont think
its necessary to protect the OTT guy
that much anymore.
Taking into account the fact that
regulation approved the significantly
sized vertical consolidation between
Comcast and NBCU despite the regulatory concerns at the time, and given
these are not concerns anymore, there
seems to be solid grounds for the approval of the AT&T and Time Warner deal. Ultimately, whether or not the
deal passes relies heavily on the arguments from AT&T and Time Warner
about the benefits of the deal, which
mainly revolve around the increased
competition to cable TV and a delivery of broader, more innovative content.

REAL TALK: REAL GDP


Aillen You
Real Gross Domestic Product (GDP)
Real gross domestic product (real
GDP) is one of the most important
benchmarks for measuring economic
health. According to the Bureau of Economic Analysis (BEA) advance estimate, real GDP rose 2.9% in the third
quarter of 2016, exceeding the Bloomberg survey of 2.6%. This is the largest
increase in two years and follows an
increase of 1.4% in the second quarter.
The strong GDP number eased most
worries about an economic slowdown;
however, economists point to certain
indicators as signs of caution.
Real gross domestic product is the
sum of private consumption, private
investment, government spending, and
net exports, adjusted for inflation. Lets
take a closer look.
Consumption
Personal consumption expenditures
(PCE) contributed to the overall increase in real GDP but was not the main
driver of growth. PCE increased by just
2.1% in the third quarter as compared
with the 4.3% jump in the second quarter.
While spending on durable goods,
such as car sales, remained strong,
spending on nondurables, particularly
other nondurable, such as pharmaceuticals, tobacco, and household supplies,
declined steeply. Some economists,
such as Sung Wan Sohn, Professor of
Economics at California State University, take note of the weaker number. It is
too early to celebrate [the strong GDP

number] it is worrisome that consumer spending the backbone of economic growth [in the second quarter],
slowed markedly, he relates. Overall,
PCE contributed 1.47% to the 2.9% of
growth in real GDP.
Investment
Private inventory investment rebounded and contributed 0.61% to
growth in real GDP (after a decline in
the second quarter) due largely to an
upturn in durable goods manufacturing
and in wholesale trade. Strong inventory
investment reflects not only strong business and operations but also optimism
for sales in the coming months.
Nonresidential fixed investment
also increased, contributing 0.15% to
growth in real GDP. Increases in investment in plant and property (largest in
two years), also reflect business optimism.
Government Spending
Increases in federal government
spending reflected upturns in national
defense spending, which was slightly
offset by downturns in nondefense
spending. Meanwhile, smaller decreases
in state and local government spending
(as compared with previous quarters)
reflected decelerated decreases in
spending on structures. Overall, government consumption expenditures and
investment contributed 0.09% to growth
in real GDP.

Net Exports
An increase in exports, as driven
by exports of food and beverages
(notably soybean-related products), contributed substantially to real GDP. The
momentum, however, may not be here
to stay. As Ian Shepherdson of Pantheon Macroeconomics relates, the soybean export surge will reverse in [the
fourth quarter], deflating the currently
inflated exports number. A lower net
exports number will likely lead to some
headwind in the fourth quarter. All in
all, net exports contributed 0.83% the
most since 2013 to the growth in real
GDP in the third quarter.
Conclusion and Outlook
Third quarter GDP eased most
worries about an economic slowdown.
While some economists believe its too
early to celebrate, other financial experts, such as Chris Rupkey of MUFG
Union Bank, believe that the low unemployment rate of 4.9% will keep consumption and economic growth strong.
As we can already see, retail sales
(excluding strong car sales) rose 0.8%
in October, marking the best two-month
retail sales in the last two years. As related by sector leaders, Kohls and Macys, improving sales provides optimism for strong sales in the upcoming
season as well as economic growth in
the last months of the year.
With a strong third quarter GDP
and general optimism in the remaining
quarter, a rate hike in December is a
definite possibility.

RAISING RATES:

WHEN WILL THE FED FOLLOW THROUGH?

Elizabeth Holmdahl

Interest rates are at record lows


across the globe, and cheap money is on
every major banks mind. Currently, the
Fed is considering responding to these
low rates with an interest rate hike of
roughly 25 to 50 basis points (.25-.5%),
which would increase the price of money. Revolving around the Feds decision are numerous factors, the most
prevalent of which is the state of the
national economy. Strong growth has
been coupled with incredibly low inflation as the economy rumbles along in its
current transitory state. Ultimately, the
Fed must analyze each of the complex
and ever-changing pieces in the national
economy to decide what the best course
of action is best for the nation.
Sometimes the right course of action can be to do nothing. For example,
the Fed chose to avoid raising rates due
to the instability resulting from Brexit.
As the event unraveled, The Fed stated
that yields on US Treasury securities
fell sharply, US equity prices declined,
and the foreign exchange value of the
dollar increased. Ultimately, as with
the response to wait for the dust to settle
with Brexit, the Fed passed up increasing rates in both September and October, citing global instability and market
volatility.
However, this doesnt necessarily
mean a decision to do nothing is correct.
The Fed is currently targeting 2% annual inflation, and the September inflation
rate sat below target at 1.5% while October sat at 1.6%. The minutes from the
October Fed Open-Market Committee
also provided a colorful case for a rate
hike. In the October meeting, three major players dissented on the decision to
not increase rates. San Francisco Federal
Reserve Bank President John Williams
stated that it is getting harder and harder to justify interest rates being so in-

credibly low given where the U.S. economy is and where it is going. Janet
Yellen has also become increasingly
concerned of overheating in the US
economy. With November serving as a
placeholder, most heads are turned towards the December Fed meeting to
finally see the hike.
Another reason to raise interest
rates is the so-called liquidity trap.
Many point to Japan as a case where
interest rates became so low that it rendered the Bank of Japan useless. This is
because policy changes to increase the
money supply no longer effectively promoted private spending. Although interest rates went negative in the Eurozone,
many believe that if interest rates reach
0% domestically, it could spell disaster
for the United States. Should the US
economy turn towards a recession without the ability to lower interest rates,
there may be nothing that the Fed can do
to smooth out a rapid economic decline.
However, it is important to note
that the Fed never actually touches individual interest rates. The Fed targets
desired values for macroeconomic variables, because the complexity of the
economy allows the Fed a degree of
influence, but not complete control. In a
statement released by the Fed, the board
explained that in determining whether
it will be appropriate to raise the target
range at its next meeting, the Committee
will assess progressboth realized and
expectedtoward its objectives of maximum employment and 2 percent inflation. Indeed, the Fed reaches this
target through many means. One primary action is to alter the Federal Funds
Rate, the rate that banks charge each
other for overnight loans. The Fed targets this rate through Open Market Operations (OMO), or more commonly, the
buying and selling of US government

securities. This interest rate is passed


down onto the average consumer as individual banks change their short-term
rates to account for this new level. For
example, prime-rates which affect variable-rate mortgages and car loan rates,
are very sensitive to changes in the federal funds rate.
With the December hike looking
probable, (Bloomberg benchmarks a
60% probability), many people are beginning to consider the potential effects
of interest rate increase. In assessing the
broad-reaching effect of Fed policy on
international economic interaction,
Daniil Manaenkov, a Research Scientist
at the University of Michigan, states that
lower prices of imported consumer
goods [are] due to a higher likely exchange value of the dollar if US domestic rates increase are not matched by
policy tightening in other major economies. If you plan on traveling outside
the U.S. in the near future, the strength
of your dollar will still depend on the
policy initiatives set forth by other countrys central banks in conjunction with
the Fed.
For investors, one can expect to see
bond yields increase as the rate increase.
This is because previously issued bonds
become relatively less profitable when
interest rate expectations are elevated.
This may also work to shift investor
behavior as well. As interest rates increase along with inflation, investors
must earn a higher rate of return on their
invested capital in order to preserve value. This means that investors holding
value stocks, such as customer staples
and utilities, may look towards increased exposure in domestic growth
stocks and foreign emerging markets. At
the same time, investors may also look
to gold to hedge against inflation and
provide a store of value during times of
uncertainty.
As major events evolve, from
high-profile political shakeups to lowprofile commodity swings, there is still
a chance that the Fed may continue to
avoid raising rates. At the end of the
day, the Fed works with incomplete information about future trends, and even
the existing state of the economy. Well
just have to wait and see what happens.

PRESIDENT TRUMP & FISCAL POLICY


Joe Novak

There has been much debate this


past year over the presidency and each
candidates policy plans. The presidency
plays an extensive role in how the country
shapes our economy through the use of
fiscal policy. Now that Donald Trump has
won the presidency, it is important to remember the role of fiscal policy.
Expansionary fiscal policy is designed to raise demand and output in the
economy through greater government
outlays or indirectly through tax reductions that stimulate private consumption and investment spending. Contractionary fiscal policy reduces government
spending in hopes of lowering the inflation rate and lowering unsustainable levels of production to ensure smoother business cycles.
The problem with government intervention through fiscal policy decisions is
the lag effect. Most recessions (not including the Great Recession of 2008) are
relatively short, with the economy reviving back to prior levels within 11 months.
By the time policymakers have recognized an economic slowdown, proposed a
fiscal package, debated and passed it, the
economy has revived itself. This indicates
it may be better to leave monetary policy
for dealing with short term recessions.
However, since interest rates hit zero,
many economists argue that monetary
policy can only go so far and that fiscal
policy is the only option left to promote
organic growth through stimulating the
economy.
Donald Trump has now won the
presidency. He has proposed massive expansionary fiscal policy through deep
federal investment in infrastructure and
tax cuts to all. These moves would create
a pro-growth economic stimulus. They
would also increase the budget deficit
heavily. This economic stimulus would
spur inflation, thus likely lead to the fed
increasing interest rates, diminishing the

effects of the stimulus in the first place.


Donald Trump will reduce taxes for
all, particularly helping the upper class.
He will reduce the number of tax brackets
from seven to three (12%, 25%, and
33%.) He will lower the corporate tax rate
from 35% to 15%. He will include a onetime tax rate repatriation of businesses off
shore of 10% in order to drive tax revenue
as well as incentivize companies to direct
investment into the United States. He proposes to reduce tax rates marginally on
the middle class, saving on average $40
per week. The wealthy will face a huge
tax reduction from 39.6% to 33%. He also
pledges to repeal the estate tax, and all
Obamacare taxes, as well as the punitive
cost for not having insurance under
Obamacare. Moreover, President-elect
Trump will close tax loopholes for the
wealthy; no tax reform law is ever passed
exactly as it is set, however with Republican control of the House and the Senate it
is likely similar versions will be enacted
during his presidency.
These tax reforms must create huge
economic growth in order to pay for President-elect Trumps spending plan. President-elect Trump has promised huge
spending on infrastructure throughout his
campaign. He has even proposed to outspend what Hillary was promising in her
campaign. This will increase jobs, but
also increase the deficit substantially.
Other expansionary policies Presidentelect Trump is supporting include: reducing regulation, lifting restrictions on energy sourcing, as well as bettering trade
deals with foreign countries. With Republicans in power, these issues will likely be
passed without much delay. Pharmaceuticals, infrastructure companies, mining
groups, steel companies, technology businesses, and retailers and restaurants come
off as the biggest winners from the election. Renewable energy, healthcare providers, global freight companies, and carmakers are the elections biggest losers.
President-elect Trump believes that
the stimulus will increase average wages
and create new jobs, which will increase
tax revenue to pay for the cuts and increased expenditures. However, the Tax
Foundation estimates that President-elect
Trumps plan would reduce federal revenue by about $12 trillion over the next
decade, while the stimulus would only
offset about $2 trillion of this. This does
not include the increased expenditures
proposed. Mark Zandi, chief economist at
Moodys Analytics, is doubtful of the
plan. In his well-known paper assessing
President-elect Trumps fiscal policy ide-

as, he assumes, that if President-elect


Trumps policies were taken at face value,
it would increase the deficit from 3.5% of
G.D.P. this year to more than 10% by the
end of his term. Zandi claims this would
cause the Federal Reserve to raise interest
rates above 6% in 2018 to prevent inflation. Generally, the goal of fiscal policy is
to keep inflation around 2-3%, unemployment at 4-5%, and GDP growth at 2-4%.
However, regardless of belief, the
government also has automatic stabilizers
to regulate the economy. As economic
activity fluctuates, regardless of the president or politicians in control, fiscal expenditures and taxes respond automatically to stabilize the economy without policy
action required. For example, after the
onset of the 2008 global financial crisis,
government spending on unemployment
benefits rose automatically as the unemployment rate increased. Moreover, tax
revenues to the government dropped as
the economy experienced a recession and
people took home less in wages.
While things change fast, for now,
the market seems to think of a Trump
presidency largely as inflationary, quoted
Roberto Perli, an economist with Cornerstone Macro after Trumps election
Wednesday morning. President-elect
Trumps equivocal fiscal policy plan will
likely spur growth. This growth may be
inhibited by monetary policys increase in
interest rates in order to curb inflation.
How much of President-elect Trumps
plans should be taken literally and how
much were they campaign rhetoric is difficult to discern. Only time will tell.

EMERGING MARKETS: IMPLICATIONS OF THE SHENZHEN-HONG KONG STOCK CONNECT PROGRAM


Michael Mintskovsky

The launch of the Shenzhen-Hong


Kong Stock Connect program, Beijings
latest reform initiative, represents a crucial milestone in Chinas economic liberalization and globalization. The joint
stock exchange will largely serve as the
first opportunity for foreign investors to
tap some of Chinas hottest sectors and
bodes well for Chinas case for inclusion in emerging markets indices.
In a move eagerly anticipated by
both foreign and domestic investors, the
stock-trading link between Hong Kong
and Shenzhen was State-approved this
past August in an effort to open up Chinas equity market. The program bridges Chinas three main equity exchanges
Hong Kong, Shanghai, and Shenzhen
making it the second largest equity
market in the world with a market capitalization of about $10 trillion.
Foreign fund managers believe this
should help spur investment in Shenzhens robust tech stocks, in turn fostering competition and differentiation
within the growing Chinese tech sector.
As it stands, many tech companies traded on the Shenzhen exchange remain
undiscovered, and about three-fourths
of all Shenzhen-traded companies are
privately owned. Shenzhen represents a
new economy exchange, especially in
comparison to Shanghai, the other party
in a prior stock exchange program with

Hong Kong. Shenzhen-unique stocks


inaccessible in the Shanghai-Hong
Kong Connect are of particular interest
to investors. This will be the first opportunity for offshore managers to reach
Chinas private emerging tech sector.
In the past, foreign investors have
had very limited involvement in China,
due to quotas and other restrictions.
Those managers who have chosen to
invest in China primarily have done so
through the Hong Kong exchange, but
quotas have put a lid on investment. The
quota for the Shanghai-Hong Kong link
has been a combined 550 billion yuan. Prior to the announcement, foreign
institutional investor licenses have had
limited exposure to mainland equities.
Similarly, Hong Kong investors have
had restricted access to mainland markets, and vice versa. Now, offshore and
mainland markets will be brought closer
together. The expectation is that the
new exchange will help Chinas shift
from an exclusively export-driven to a
domestically-focused economy while
allowing investors everywhere to participate in Chinas economic growth. The
program will abolish the aggregate trading quota, although daily quotas will
still exist for the two individual exchanges. Additionally, the connect program will, at the least, work to solidify
Hong Kongs status as an international

financial hub.
The Shenzhen-Hong Kong connect
also strengthens Chinas bid for inclusion into one of MSCIs key emerging
markets indices. Listing in MSCI, a
globally-followed index provider to
which roughly USD 1.5 trillion is
benchmarked, would bolster confidence
in Chinas equity market. It would serve
as another milestone in Chinas economic reform and as a symbol of credibility as the second largest world economy. This past June, China was denied
inclusion for the third year in a row on
the basis of a lack of market accessibility, a common complaint among
MSCIs institutional client base. Although index inclusion provides an incentive for new reform, China is seemingly committed to liberalization regardless of what MSCI decides when
they reevaluate Chinas mainland equities.
The new Shenzhen-Hong Kong
market is not without its challenges for
investors. Tech valuations are already
sky-high in Shenzhen, with P/E ratios
trading at twice the level reached during the apex of the U.S. tech bubble,
which presents the daunting task of
striking gold in an expensive market.
Trading on the new exchange is expected to commence on December 5th;
stocks are at an 11-month high in China,
but many investors believe the Hong
Kong-Shenzhen news is already priced
in and therefore are cautious on the upside. It will likely take another four
months for the exchange to fully launch,
and significantly longer to observe the
full effects on the Chinese and global
markets. Though the jury is still out on
the announcement, the stock exchange
program certainly represents a momentous step in the right direction toward
full Chinese participation in the global
economy.

A TOUGH PILL TO SWALLOW


Jake Gans

The pharmaceutical industry


discovers, develops, produces, and
markets drugs for use as medications. These medications include
anything from the Tylenol you
take when you have a headache to
life-saving cancer treatment drugs.
This excruciatingly important industry has had a very tough past
two years. Drug companies have
been mired in scandal, being indicted on everything from price
gouging to lying about R&D developments. However, it is important to note that a lot of the negative news is being brought about
by a few bad apples that are spoiling the bunch. This promising industry has the potential to save
lives being taken by the worlds
deadliest diseases but has been riddled with negative connotations
around price hikes, a sprinkling of
scandals, and overall poor performance.
One way to measure relative
performance is by taking a look at
the sectors associated exchange
traded funds. Exchange Traded

funds (ETFs) are a collection of


securities that trade close to its net
asset of interests value over the
course of the trading. The SPDR
S&P Pharmaceuticals ETF is based
on the S&P 500s pharmaceutical
stocks and is a very reliable measure of the attitude towards this sector. That being said, the SPDR
S&P ETF (XPH) is down about
22% this year as of market close
on November 1.
Martin Shkreli is a name that
has become intertwined with the
pharmaceutical industry. His history in the hedge fund space is filled
with corruption and he brought
that with him as he transitioned
into the pharmaceutical industry.
The former hedge fund manager
turned pharmaceutical executive
was indicted by the FBI at the end
of last December on federal charges of securities fraud due to his
Ponzi-scheme hedge fund operation. He created false reports and
fake trades to look like his fund
was performing well, although it
took on many losses. During his

tenure in the pharmaceutical industry as CEO of Turing Pharmaceuticals, he was directly responsible
for a 5600% increase in Daraprim,
an AIDS treatment drug. After
gaining executive control of Turing, Shkreli promptly raised the
price of Daraprim from $13.50 to
$750 per pill. This brought about
incredible negative attention to the
pharmaceutical industry. Since the
conviction, his pompous twitter
rants have only amplified the public profile of Turing Pharmaceuticals in the wake of the Daraprim
price gouge, deepening the distrust
and negative sentiment towards
biotechnology and pharmaceutical
firms as a whole.
Mylan has been all over the
news recently regarding a pricehike with their EpiPen product.
CEO Heather Bresch was grilled in
front of Congress this past September for increasing the price of an
EpiPen pack to $600. Senator
Warren was insistent on sending a
message to large pharmaceutical
companies to stop the unnecessary

greed. Mylan has tried to mitigate


the price hike media with the announcement of a generic version of
EpiPen, but even that did not help
earnings, as the price of an EpiPen
would still be $300, a price many
still see as overly-predatory. The
Netherlands-based drugmaker took
a $119.8 million loss for the third
quarter of 2016. Also, completely
unrelated to EpiPen, there is currently an ongoing two-year investigation that is claiming that more
than a dozen companies including
Mylan, Teva, Lannett, and Actavis
are involved in illegal price fixing.
If a conviction were to take place,
this would probably cost the industry billions of dollars and further
tarnish its reputation.
Theranos was one of the most
innovative bio-tech startups in Silicon Valley. They were valued at
$9 billion dollars for being able to
quickly and cheaply conduct different tests on blood vials that tested for over 240 illnesses. Their
CEO, Elizabeth Holmes, was being
compared to a young Steve Jobs
for her ideas. A testament to the
magnitude of her early success is
that Forbes named her the young-

est self-made female billionaire.


However, this past June, Elizabeth
Holmes was banned from the
blood testing business for two
years for unsafe practices. The
company's sole product, the Edison
blood device, has failed to meet
quality control standards by both
the Center for Medicare and the
Center for Medicaid Services. This
failure has prompted investigations
by the FDA and other regulatory
agencies into the accuracy of previously reported R&D advancements. Theranos also lost its main
retail partner, the Walgreens drugstore chain, last month. This bad
apple added, even more, unpredictability in pharma and has people
increasing their skepticism.
Even Pfizer, arguably the
worlds most well-known and respected pharmaceutical company,
came under heavy fire recently
when it announced that it was
moving its corporate headquarters to Ireland last November
when it acquired Allergan in a legal deal. Even though the deal
failed, an Obama statement condemning corporate inversion gave
negative public opinion towards

the entire process. Corporate inversion describes a company relocating its headquarters on paper to a
lower-tax nation while retaining its
material operations in the United
States, a high-tax nation. Corporate
tax inversion in the healthcare
space is being brought to light.
Corporate tax rates in America are
among the highest in the world
(3rd highest in fact) at 35%. Pfizer
is not the only company to do this
either. As companies follow Pfizers precedent, they are enjoying
US patent protection, while avoiding US corporate taxes. There is a
growing lack of confidence in the
industry to provide returns to the
American system.
The constant price hikes on
life-saving drugs, avoidance of US
corporate tax policies, and corruption has the potential to stunt future earnings and innovation in this
sector. Moreover, relevant macroeconomic events should serve to
further impact the future of the
Pharmaceutical industry. Only
time will tell if the pharmaceutical
industry gets back to saving lives.

Jacob Block & Agnes

Q: What is investment banking?


A: Investment banker s r aise capital for companies, pr ovide advice to clients, assist in mer ger s
and acquisitions, and underwrite deals. Investment bankers adding value in that the deal may require
specialized skills, longstanding relationships, and an overall presence in the market. Investment
banking is separated into industry groups (consumer products, telecom, media, and technology,
banks and financial services, health care, industrials, energy, etc.) or product groups (mergers and
acquisitions, leveraged finance, etc.). Examples: If a company wants to build a factory, it may raise
money by issuing a bond. An investment bank would help arrange this. When an IPO occurs, investment banks are typically involved in creating the offering and analyzing pricing for the company.
Q: What is sales and trading?
A: Sales and tr ading facilitates the tr ading of secur ities (stocks, bonds, options). Sales is r esponsible for explaining information about securities to institutions. Trading is responsible for buying and selling the securities for the clients or firm. They are typically faster paced than investment
banking, deal with individual securities, and make a commission on the trade.
Q: What is a private equity fund?
A: Pr ivate equity funds invest capital on behalf of wealthy individuals and institutions into
equity ownership of companies. They typically work with management to improve earnings, and
they may acquire other companies for consolidation. Private equity funds exit by growing the company, which generates returns, as well as selling the company to a larger corporation for a profit.
Common types of funds include leveraged buyout funds (acquire controlling stake via debt and equity by using the cash flow of the company as capital), growth equity funds (focus on scaling operations), certain sectors (technology, energy, manufacturing, healthcare, etc.), and different sizes
(small market, middle market, etc.).
Q: What are hedge funds?
A: A hedge fund is an investment par tner ship between a gener al par tner (fund manager ) and
the limited partners (investors). Investors contribute money and the general partner manages the
strategy of the fund. The purpose of a hedge fund is to generate returns and decrease risk. Hedge
funds primarily invest in liquid markets, while private equity funds invest in private transactions
with private companies with less liquidity. Common strategies that hedge funds employ are long/
short (balanced approach of long portfolio and short portfolio) and distressed (companies facing
trouble or restructuring).

Q: How do you prepare for an interview?


A: Penn/Whar ton offer s inter view wor kshops and mock inter views. Sear ch for Penn students who
have worked at the firm or the role via PennLink, LinkedIn, or clubs (WUFC, WITG, etc.). Research relevant
information about the firm and role.
Q: How do you build a resume?
A: Penn/Whar ton offer s r esume r esour ces, samples, and advisor s. In gener al, keep r esumes ver y simple and clean, max one page. Use action words and make sure it is parallel across the whole resume. During
internships and club activities, keep a notebook and write down your contributions so nothing is forgotten.
Emphasize accomplishments on resume.
Q: What are the different ways of finding an internship for freshmen and sophomores?
A: As a fr eshmen, it is not as impor tant to have exper ience fr om pr estigious finance company, as they
rarely offer internships and it is very hard for a student to have a meaningful impact at them. You can think
about contacts you may have via family and friends. Cold-email small companies (can even be private equity
or hedge fund) asking for a conversation. More individuals at certain firms with Penn affiliation can be found
via Quakernet/Spike. Search for internships, even by a startup, where it is clear that you will walk away with
legitimate bullet points for your resume and a meaningful experience. There are diversity programs offered
by (including, but not limited to): Morgan Stanley, Deutsche Bank, J.P. Morgan, and more.
Q: How do you learn finance at Penn?
A: Ther e ar e var ious clubs both in Whar ton and in Penn that cater to the field of finance. One of
which is Wharton Undergraduate Finance Club, and others include Private Equity & Venture Capital Club,
Ivy Capital Management, Undergraduate Fintech Club, Wharton Investment & Trading Group, etc. You
should attend their events as most clubs have GBMS, panels or workshops, etc. You can network with older
Penn students by reaching out to them for a coffee chat. Enroll in core courses, specifically FNCE 100
(Corporate Finance), ACCT101 (Introduction to Accounting), and FNCE 203 (Corporation Valuation) to
gauge whether or not you actually hold an interest in finance.

Financial Analysts Copy Editors


Jake Gans
Elizabeth Holmdahl
Michael Mintskovsky
Joe Novak
Cole Obana
Aillen You

Pattrick Dunne
Mohammed Lawal
Jameson Mah
Colby Shofield

Vice President Managing Editor


Julien Whitter

William Sauser

Graphic Designers
Andrew Cui
Emily Zhao

Vice President

Erin-Marie Deytiquez

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