MBA Interest Surges In Slowing Economy

What are more and more people thinking about as the economy continues to slow? You guessed it, school. The MBA is, of course, at the top of the list for many professionals who are looking to take advantage of the declining opportunities in the marketplace to prepare themselves with a business education - readying themselves for when the rebound come-around.

The MBA Tour, a worldwide tour that brings together between 20 and 25 business schools in one place, at one time, has grown in popularity; attendance was up 30% last year and Peter Von Loesecke, the founder of the Tour and MBA graduate from Cornell's Johnson School, believes that it will continue to grow even more rapidly as the economy worsens. It makes a lot of sense.

A graduate business education, like any other post-grad degree, requires that you take time away from your career and suffer the opportunity cost of that lost income in addition to the, sometimes, staggering tuition costs and related expenses. Clearly, then, the best time at which to take that on is when the opportunity costs are minimized. Whether they realize it yet or not, prospective MBAs are behaving like trained business people already; once they graduate, they'll understand the economics behind their prior motivations.

The Companies MBAs Love

It's not much of a surprise really; you could probably guess many of the companies that made the list, but there's a great little article, here, that outlines the top-25 companies for whom new MBA graduates would love to work. What I would not have guessed, however, was that Google made the top spot - it's the #1 most desirable employer according to Universum, a research firm that publishes the list for Fortune.com.

Of course, I would have listed Google on the list as well, but maybe not as #1 - ranking McKinsey, or another big consulting firm, instead. Maybe this is a sign of things to come - a greater focus on business innovation rather that resume-prestige? On the other hand, maybe it's just a normal reaction to desiring the most talked-about names - Google certainly does qualify for that.

Disconnect Between Wall Street & Main Street

I don't know about the rest of you, but I find it funny when I see two headlines, one after the other, that contradict themselves in evaluating the state of the economy. One will say something like "The stock market rallied today after news of..." and the other will read "Consumer confidence reaches all-time low." How can both be true?

Here's something to ask yourself: if unemployment is rising, people are losing their jobs. If housing prices are falling, home equity is likewise falling. Consumer debt, as everyone knows, is rising like at no other time in history. All these things point to far lower incomes, so where is the money coming from to support the stock market rallies? Wouldn't it make sense that the declining wealth of the masses would result in a withdrawal from the financial markets to help prop-up their other expenses - like food and shelter?

There's no doubt that the world, as a whole, is not suffering the same economic declines that the US has seen of late, but many indicators point to this only being a delayed. These economic woes are not exclusive to the US; in today's global marketplace, no one economy, especially one the size of the US market, stands alone in either a rally or decline. We grow and shrink together - like it or not. It could be, then, that investors in markets that have not yet seen declines in their own markets are pouring more of their money into the US as a bet on its ultimate recovery. There dollar is certainly undervalued compared to its historical average so that could be one reason, but it all just doesn't seem very clear. Any thoughts?

Bonuses & the U-Shaped Recovery - What to Expect

On the bright side, the job losses on wall street are far less than they were following the dot-com bubble burst earlier this decade. While financial institutions shed about 17% of their forces, those same institutions have only cut about 3% during this latest downturn. Unfortunately, there's a downside to this story.

The downside is that many, if not all, are expecting many more cuts to come. You may have heard people referring to a U-shaped recovery; well, were only still on the left-side, the downward side, of that 'U'. It will essentially be a very slow downward slide that will see an increasing number of jobs lost before we hit the trough of this business cycle. Worst yet, it will be an equally slow climb back up. So, who among us are the most at-risk?

You guessed it; the higher your salary and/or bonus, the more likely you are to get a pink slip. It's no secrete that wages are the #1 expense for financial institutions and they're losing money like a leaky rowboat. To hedge those losses, their first act is to cut their expenses proportionally and the story seems to be that there are many more write-downs to come - more paper losses at these firms necessarily mean more job losses for those working there.

The best thing to do is to stay focused on your long-term career goals. Your career is not your job; it's the union of your experience and education. Losing your job does not represent a loss of your career; it provides you with the opportunity to explore areas that you haven't had the time to review in the past. Use every opportunity to enhance your experience and education and your career will continue to excel.

B-School Students Anticipating Hurt After Graduation

With the up-coming graduation season, the pressure is mounting on graduates from business schools around the country (and the world, for that matter) to find the high-paying jobs that will help pay for those hefty school loans. Unfortunately, the economic turmoil of the past few months paints a hazy picture and after reading this article, it looks as though graduates are going to get an introduction to what they can expect as part of their graduation ceremonies.

I remember when I was graduating from business school and it's hard not to have lofty expectations. You've just spent a small fortune on an education that you sought purely for its ability to help boost your earnings expectations; all that, after leaving the workforce and suffering the opportunity cost of that lost income. A MBA is an expensive education, like most post-grad degrees, actually, and it's difficult to blame graduates for desiring the six-figure salaries that they've been trained to seek. The reality, however, may be a shocker and in listening to keynote speakers at their graduation ceremonies, graduates will have a window on what they can actually expect to face when they return to the real world.

The economy is hurting. Wall Street is laying-off thousands. Foreign markets are mounting pressure on almost every domestic sector. While getting a speaker who will motivate and inspire graduates may leave them with a warm and fuzzy feeling, it's unlikely to set proper expectations. Having graduated during the last economic slowdown, I personally feel that getting a realistic picture is far more valuable. These are highly educated and ambitious people; they don't need people to motivate them - they need people who will share their honest insights and it sounds as though that is exactly what they will get.

Of course it's an Oil Price Bubble!

It's almost funny how the discussion over whether oil prices are spurred by speculation or market demand forces; of course it's a speculative bubble. Those arguing against this view are quick to point to China's growing economy and similar demands from India; there's no doubt that that is the case, but it's ridiculous to think that anything changed so drastically in either of those markets within the past year to justify the rising prices we see around the world.

Need some proof, no problem. How about the total notional value of over-the-counter commodities derivatives that have risen from $1.02 trillion in 2004 to a value of approximately $8.4 trillion by the end of 2007. Yes, there no doubt that some fundamental demand must be credited for part of this rise, but numbers are simply so staggering that suggesting a speculative bubble is not the primary culprit is simply irresponsible. So, assuming that it is a speculative bubble, why is that important? Good question!

The prices are now so high that they are actually affecting demand - rather than vice versa. Drivers are driving less; airlines are cutting flights and jobs as well as authorizing new fees for customers to cover the cost of rising fuel prices. Similarly, other commodities are rising (most notably wheat prices, which have doubled in the past few months) under pressure from increased transportation costs. All these rising costs mean one thing: a slowing economy. Given that many, including the likes of Mr. Warren Buffett, have publicly stated that we are already in a recession, this does not paint a rosy picture for our economic near-future.

Yes, inflation is also a big deal. With all these rising pressures the concerns over inflation have been rising as well. The only thing that has kept those inflation rates from jumping along with commodity prices has been the Fed's ability to retain the trust of its citizenry who appear to continue to believe it has things under control; this belief has led to stable wage prices. Basically, people don't believe that it's in their interest to demand higher wages because of the rising unemployment rates. That said, this won't last. As prices continue to rise, people will eventually have to demand more money in order to pay for that expensive gasoline and bread and, when they do, the Fed will lose control. Fed Chairman Ben Bernanke has received a lot of kudos for his efforts thus far, but if inflation isn't brought under control many believe that he will be faced with an economy similar to that faced by his predecessor Volker.

When inflation grew to double-digit-levels in the late 70s and early 80s, Fed Chairman Volker was forced to move interest rates even higher; this, of course, led to one of the deepest recessions since the great depression. Many now believe that we may be heading into a similar situation if the Fed doesn't begin to raise rates sooner rather than later. The Fed is enjoying low inflation expectations, but those expectations are beginning to show signs of upward movement and the Fed really does need to take this seriously. 

Trusting the markets to manage themselves is wise, in theory, but the market won't keep itself out of a recession. The business cycle is a natural phenomenon and the only way to flatten that cycle is via fiscal and monetary policy. If the Fed doesn't do its job, the speculative bubble will lead to one of the worst economic slowdowns ever. Ask anyone who was invested in the markets during the bubble-burst of 2000 and you're likely to hear about their lessons learned. Well, this is another bubble; it's time to apply those lessons-learned and react proactively rather than reactively.

It's Not Mark-to-Market, but it's a start!

The Financial Accounting Standards Board (FASB) has just announced a new rule that will make it tougher for the likes of MBIA, and other bond insurers, to hide losses  until it's too late. Many have criticized the insurers following dramatic declines that saw MBIA, as an example, fall by more than half in less than one-quarter; the new rule will force such insurers to recognize faltering claim liabilities as soon as there is evidence of credit deterioration - not just waiting for a default.

As someone sitting on the side lines, I immediately thought that FASB issued the rule in response to the recent fallout from the CDOs and mortgage-backed securities, but ...apparently... FASB has been working on this for the past 3-years. This is particularly good news because it implies that the system works; everything takes time and the design of such rules is no different, but it's good to see the regualtory agencies adapting to the changing financial landscape.

I had mentioned before the simple power of marking-to-market and how this little task ensures that financial securities are recorded at their fair value. While the new rule doesn't go so far as requiring the bond insurers to mark their liabilities to market on an on-going basis, this is certainly a step in the right direction and will shed more light on what is actually taking place with these complex securities.