Monday, February 25, 2008

the job market in finance (and equity markets): should have listened to the Harvard MBA indicator!!

In the mid of frantic interviewing for summer positions in investment banking a year ago, the president of our finance club posted this interesting article on our discussion board:

If 10 percent or less of a given year’s graduating class take jobs in investment banking, investment management, trading, venture capital, private equity or leveraged buyouts, that is a long-term “buy” signal. If 30 percent or more take such jobs, it’s a “sell.” This year, the indicator doesn’t look good, with 37 percent of H.B.S. grads taking jobs in the securities business.
(full version here)

The article had actually been published in November 2006, but we were discussing it in January 2007. The first sell-off in equity markets and then in credit markets started few weeks later, and really gained speed in August. So the indicator was a few months early, but it is very impressive.

I remember my thoughts when I read it: that probably it was true, but that hopefully the bubble would continue for another year or two and burst only then. Greed is what keep bubbles growing: you know it can't last, but if others had benefitted from the bubble, perhaps I could also have a little bit more before the party was over? Greed makes people grab for overpriced assets hoping they will appreciate further. But in the end it all ends the way it has to end. Probably this year the numbers will be down to below 30% (although for the class of MBA2008 at least at London Business School we will certainly be more than 30% going into finance I believe).

Talking of bubbles, the UK housing bubble is also bursting these weeks (finally!!). Today's FT has a very insightful commentary on the UK economy. I am quite happy about the bursting housing bubble (all else equal, obviously), as I am planning to move closer to the financial district, the City, in a few months, and the rental prices are just plummeting. Housing near the City is a big bubble, in recent years they are building housing like crazy for all the investment bankers supposed to move there, but this year most likely people will be moving out rather than in, and hundreds of new units will come onto the market.

I have watched the rental price of a 2 bedroom flat that I have my eye on in walking distance to my future job drop from $3,000 per month to $2,700 in the last 3 weeks, but I will wait another couple of months and am fairly sure things will go down - or DOWNTOWN!!!, as our fixed income professor likes to shout :-). The fixed income class is very heavy stuff by the way, first time I am doubting if interest rates are a good area to go in, it's complicated!! I'm a bit of a macro person I guess, I always think - what difference does it make if the interest rates are 4.17% or 4.21%? Really, it is so removed from reality. But the class is great, I am learning a lot, especially I am learning to be more humble about my intellectual abilities :-))). That's certainly a good thing.