patrick.net

bonus link - IMF's long, hard look at itself might be too late

plenty of material in that article for anti-globalists AND econometricians...

Prove you’re “too smart to be coding Oracle apps for some corporate IT department”.

hey!

I’m wondering if Randy knows if there is anything stopping a “day trader” from calling himself a “hedge fund manager”…

I'm wondering if FAB knows of any "day traders" with a Prime Brokerage, SEC registration requirements, and Series licensed traders?

There are plenty of bad HFs, but these aren't generally Junior Richy running around "managing" the family jewels. Much more often they are bad-boy IB traders -- usually top traders, often from modest backgrounds, who are out to prove their IB bosses were jackoffs. They get into trouble because they take winning trading strategies from one area, like equities, and try to replicate them in other area, like commodities. For example, there are a couple HF managers running around doing long/short pair trades in natural gas. We should start a dead pool on how long until those blow up.

Assuming I am an apologist for the HF industry would be wrong. I have become extremely critical of their supposed "uncorrelated returns", which have proven to not really hold up well over time.

Am thinking of pursuing the financial engineering program at berkeley, but not sure yet.

Don’t bother, there will be an Indian waiting to take that job for about what they will pay you to pick up trash in a park. Better off getting a job in the service sector or if you really want to do that kind of work, move to India.

I wouldn't worry about offshoring/outsourcing as a real threat to a MFE degree. I've seen no evidence this is likely to occur anytime soon. The real risk of an MFE is that the degree is relatively new.

Erc,

Good question. One of the misunderstandings regarding AAA rated munis is that while it's true they are insured it simply means the insurer steps in to make int. payments while the issuer sorts things out. There have been cases (particularly w/ revenue backed bonds) where redemption wasn't possible. At least to the liking of bond holders. Serial redemptions mean you may have to wait in line OR hold until maturity.

Since you're in what sounds like a fund most of this is more the managers problem than it is yours. My 2 cents? If you're not in an AMT situation you can look at funds that have not been "scrubbed" of non-AMT holdings or even a "national muni" BF for better diversification. Also (b/c we're such big fans of ETF's here) there are several that yield 8-9+%, pay monthly and are fully liquid. One that I've used is EVV. Everyone here has taken their turn flogging MBS (yours truly included) and while EVV is leveraged and contains MBS, they are "seasoned" w/avg. duration of 12-16 years so the downside is more prepayment of the loan rather than default of the loan. Randy H can explain that better than I but you get the idea. www.investinginbonds.com has a great "Taxable Equivelant Yield" calculator and a LOT of great general information.

NIA

Oh just a quick correction!

Serial Redemptions can also occur when the issuer has the window to refinance at lower rates in which case Murphy's Law dicatates that your bonds will be recalled first! Sir, your CUSIP Number is up!

Can anyone else think of a scenario where you get "re-called"? In know there are others, just can't think of 'em now.

Since Suman brought up financial engineering, I'd like to report this tiny data point.

I spoke to my cousin (the one looking at US finance and accounting programs) this Friday and apparently, financial engineering is all the rage in the cream of China's education system. My cousin said that the people who have a seriously shot at getting in are those with math or physics masters or were undergraduate stars at China's MIT/Harvard equivalents. She said that finance undergrads cannot compete, either to get in or with the coursework once they are in.

The ostentible reason for this "super hot" status (apparently this is the hottest area in finance for the average Chinese student) is that good paying jobs are currently easy to come by. However, the degree has zero application in China right now.

We yakked on a bit more and two other somewhat interesting points came up.

1. All Chinese applicants to foreign finance programs focus on writing their career goals in their personal statement. My cousin and I agreed this was a patently absurd approach for a 20 year old with no working experience away from a couple summer internships.

I suggested a more realistic and softer sell by emphasizing that she's a great person who will be an asset to the school and go far. I also recommended requesting phone/face to face interviews, which will hopefully help her stand out a bit more from the crowd of 20-50% anonymous Chinese applicants.

2. The finance students start looking for work as soon as they arrive. This is because most finance programs only run for a year. So this all seems more like a "get the US/UK job" approach and not at all like an attempt to get some education.

She's taking the November GMAT and then we'll do some strategizing for application and so on. She's looking at 2 year finance and 2 year accounting programs. As always, any tips on this matter would be much appreciated.

She's a smart girl and she did her homework. I think she'll do alright whereever she ends up.

I want to warn confused renter that the household income of most people with MBAs from top 5 schools is well below $500K and he should plan on making less than $100K his MBA from the University of Phoenix after the slow real estate market forces him to back to school to try and get a real job...

I wouldn’t worry about offshoring/outsourcing as a real threat to a MFE degree. I’ve seen no evidence this is likely to occur anytime soon. The real risk of an MFE is that the degree is relatively new.

Is the MFE program similar to the Mathematical Finance program at Stanford?

I am going to take a spiritual approach to finance and see how it goes.

I am a strong believer of competition avoidance. If the quantitative finance is becoming competitive, it will eventually collapse.

I feel that there is less "alpha" out there than necessary to support all the HFs with similar methodologies and approaches.

I afraid their recent apparent success are mostly from beta. This is scary.

When thousands of people are doing the same thing, they must be misguided. When millions of people are doing the same thing, they must be wrong.

I was doing some research on DE Shaw and it must warm you r heart that they have also established their India operations!

DE Shaw, as far as I know (and I no longer have a direct contact there in that area), only offshores non-proprietary work. Any quant programming you would do on the model development side would be done strictly here, and under very tightly monitored circumstances. Big guys like DE and BGI go to unbelievable lengths to keep even the tiniest "competitive secret" from getting out. These guys are already continually trying to reverse-engineer/infer each other's models, because even the smallest nugget of info can lead to hundreds of millions in gains.

Stanford would probably disagree, but their Mathematical Finance is essentially the same as Haas' MFE. Probably the Berkeley flavor is a bit more practical-focused while the Stanford side is probably a bit more theoretical. Either will probably get you to the same place, but some places will *only* consider you if you're Stanford branded.

There's a long tail to the competitiveness of the MFE discipline. Right now probably 99% of the graduates are going into high finance proper. But, places like GE, P&G, Boeing, etc. are starting to hire these types also as a solution to the limitations of the current state of internal finance. Any global company with substantial capital, debt, and currency issues has a need for some MFEs.

Probably the Berkeley flavor is a bit more practical-focused while the Stanford side is probably a bit more theoretical.

I agree. I took a class. Stanford's is more about math than finance.

What is the university's "official" position on the "alpha pursuit"?

Confused,

The FT is one of the better MBA rankings because it is driven primarily by straight salary-related data, and not a bunch of social-preference factors (like diversity, etc.).

http://www.ft.com/businesseducation/mba

Download the PDF versions, where all the salary data is included inline.

There you'll find the most recent median salary for Stanford was $156,126, Columbia $148,778, Haas $123,968.

I have to look down to #18 to find a salary below $100K, and then #31 to find a *US* school that is below $100K (Michigan State Univ).

Also note these are for full-time MBAs, which are on average 28 years old upon graduation (and falling as per another FT article).

You can download EMBA and Part Time MBA data separately, and there you will find much higher salary averages, but lower salary % increase averages -- because graduates tend to be older and already higher on the salary curve. My own alma mater in this camp comes in at $193,188 median salary (2005).

If you're really going to Univ of Phoenix then good luck. That's not regarded as a legit MBA.

There you’ll find the most recent median salary for Stanford was $156,126, Columbia $148,778, Haas $123,968, India $5,000

Sometimes if something is much cheap than the rest, you have to ask why.

Do you think the employers somehow overlooked such data?

I too am surprised at the slow speed of off-shoring.

India $5,000

Not even close, even for home grown Indian MBAs working within India. And note there are no top-50 Indian B Schools yet. Assuming their B Schools keep increasing in ranking, so will their salaries.

http://www.dqindia.com/content/top_stories/2005/105091201.asp

This answers your question too, Peter P. There are very few MBAs in India, relatively. They aren't producing very many new ones, and all top school MBAs have to come through a foreign program and thus they lose a lot to emigration. Add to that the roughly 20% management salary yearly growth, and you see the value proposition falls apart pretty fast.

China and other Asian countries could pose a different long-term threat, though. Yet to be seen.

China and other Asian countries could pose a different long-term threat, though. Yet to be seen.

Yeah, by then their MBAs will cost just as much, or more.

Look at the eMBA ranking. No. 2 is in Hong Kong. 255K!

The cost of living is that much lower in India.

Code monkeys in India make more than that.

Randy - Thanks for perfectly proving my point USNWRandBW all show $120,000-$150,000 first year starting salaries for 28 year old MBA grads. So many people think that everybody is making the Bay Area median or is it avg of $70,000. People just don’t know.

The only reason why they are making that much is because there are not many of them.

Even if there are two MBAs making 250K each (500K total), the family still cannot afford a 2M house with 20% down. What can they get in SF for 2M? A 2/2 condo?

http://sfbay.craigslist.org/sfc/rfs/221499453.html

What is the median salary of lobbyists on J Street? DC must be prime!

I just spent some time on the HSBC site and Randy H is correct when he says that "according to the HSBC research it has usually been more expensive to buy then to rent".

I stand by my original comment that other than in Bubble Areas over the past few years “the cost to rent has always been close to the cost to buy (after making a down payment)”.

I play with Argus models before I buy anything, but my Dad has always just run the numbers in his head. Over the years when he has tried to talk people in to buying he will say: ”As long as the mortgage is less than your rent you should be OK since insurance and maint. will just push things up a little bit, your tax deduction should come close to covering the property tax and you will probably get a better return on your 20% down payment with 5:1 leverage than you can get anywhere else”…

The main problem with the HSBC data is that they are comparing the median rent in an area to the median sale price in an area and don’t adjust for the fact that median home or condo that sells in an area will rent for much more than the median “rental property” since there are very few high end rentals and many low end rentals.

Using the HSBC logic I could show that it is cheaper to rent a car than buy one by taking the median prices to rent for a car in the Bay Area and buy a car in the Bay Area. There are very few rental Ferraris or BMWs and a lot of stripped down rental Fords and GMs so the cost to “rent” the median car available for rent in the Bay Area will be less then the cost to “buy” the median priced car sold in the Bay Area.

Other adjustments that HSBC did to push up the cost of buying were:

1. Looking at only first year cost after adding a 5% “closing cost” (who pays 5% extra to buy a home)?

2. Adding the opportunity cost on a down payment (and the mystery 5% “closing cost”) without giving any credit for the leveraged home appreciation (and they did not give any value to the flexibility of renting).

3. Only using a 30% total tax rate when over the years (when most CA homebuyers have paid a higher percentage in combined federal and state taxes).

I appreciate detailed research, but sometimes you can’t look at things from such a high level. If you just look at the median temperature from Chicago you will think it is always 65 degrees there. The HSBC data also didn’t adjust for alternative financing during periods of high interest rates (most sales in the late 70’s and early 80’s had creative financing

What is the median salary of lobbyists on J Street? DC must be prime!

That's a good point Peter P. I'm not trying to argue that housing is priced correctly. It is not. But I also highly doubt we'll see dual income MBAs "waking up on the street" anytime soon either, even though a lot of people would be happy to see it come to pass.

I'm just taking a nice Sunday (starting last night) to refute the normal spew of fabricated data, made up numbers, and flawed conclusions. I'm not making this stuff up. Anyone can find it or read it just by opening the FT or WSJ every day.

Confused Renter let loose with:
The lesson? Time goes by with or without you and education and love make you much wealthier than you could have imagined.

Let’s enjoy the weather!

Absolutely! Don't waste precious time looking at overpriced properties to buy. Enjoy life for a few years, and buy after prices have dropped. And oh, by the way, you don't need a useless realtwhore to 'help' you buy.

SP

FAB raises some legitimate methodology debate with the HSBC research, and I appreciate that. They are not, however, making the "median temperature from Chicago you will think it is always 65 degrees there" error, however. I'm also not convinced that their opportunity cost of money equations are flawed either. I'd like to see a candidate equation to beat how they compute apples-to-apples opportunity cost of money. There's plenty in there to take issue with outside of that, though.

Suman said:
All I need now is to challenge myself and work out a strategy/career path towards finding a job in DE Shaw

Suman,
You sound like you are motivated, adaptable and willing to work to succeed, instead of wallowing in a state of entitlement. With an attitude like yours, you don't have to worry about jobs that are inevitably outsourced for lower wages. You will find more rewarding work when that happens.
SP

Allah Says:
There you’ll find the most recent median salary for Stanford was $156,126, Columbia $148,778, Haas $123,968, India $5,000

Wow! Is the India number from FT, or is it just something you made up? It wasn't clear from your post, and I didn't find this number in the FT link.

SP

# lars39 Says:
Any chance that more home buyers will buy smaller, less expensive houses that they can actually afford? Maybe ones without granite, stainless steel, 400 sq ft bathrooms and more room than they can maintain? Probably not.

Why not? After prices fall, I fully intend to buy a house that is smaller, cheaper and more modest than the maximum that I can afford. A house has to 'fit' my family's needs. To borrow a phrase from another context: Anything more than a mouthful is a waste.

SP

@ConfusedRenter, master of anectode and manipulation of data to prove your point,

Lemme ask you this: how many top MBA program grads are there out there in the world? Not many, relatively speaking. Now how many are in the US? Less than that. How many in the BA? Even less. How many of those earn the median incomes you quote or higher? Even less so. How many of those are married to someone else with equivalent salary? Miniscule. Most MBA's, like lawyers and doctors, aren't married to other professionals. Having both spouses work hellacious hours is a tough road to take (believe me, we're doing it).

My point is, your examples barely make a dent in the overall BA RE market.

Enjoy the "whether".

RMB,

Most of them go into high finance or strategy consulting. Those heading into finance were mostly already in a big investment bank, and after graduation return (not always to the same IB) or go into a private equity fund (M&A, LBO, etc.). I'd be very surprised if very many of these guys were making less than $100K _before_ entering the full time MBA.

Strategy consultants will easily make $100K after graduation. There are tons of these jobs, and have been for many years. Doubtful a bubble.

There's a good argument that HFs are a bubble. Some say PEs are a bubble, but probably not. PEs are very cyclical, with huge money inflows during periods of consolidation driving massive M&A activity, like the last half decade. It'll dry up eventually, and tons of these guys will be trying to get into corporate development jobs, probably for pretty nasty salary cuts.

I would have thought a MBA from U. of Phoenix would detract rather than improve a resume. Such a diploma would certainly bring up more questions than it would answer.

Peter P,

Did you meet lots of Chinese students at your Stanford class?

Premise: Plentiful employment in SF, but RE stays unaffordable while tanking in the non-commutable/commute-from-hell hinterland -> What I will call the London response.

ah, markets are so good at delivering what people need...

i can barely bring myself to write the several doomsday scenarios that have occurred to me over the months:

40% of new mortgages are for investment property -> if specuvestor FBs can just hold out long enough making a loss, they can control rent and purchase prices -> will force JBRs into renting from them forever, thus ensuring a golden retirement for themselves and creating a new class of permanent renters to feed off -> welcome Victorian England/pre-Revolution France/pre-Communist China!

Actually the top 10 MBA schools generate about 8000+ graduates each (Stanford generates the least number, but 80% of Stanford graduates stay in the Bay Area).

About 25-30% of these MBAs come out to the Bay Area, I saw statistics from HBS, Wharton, Kellogg etc before, and that is my impression. That gives you about 2000 graduates here, each year.

Cumulatively, you get about 35 years of these MBAs in the Bay Area who are still in the workforce, making it a total of 75,000.

Now, what you quoted was a median salary, and out of school, most of them are filling IB, consulting jobs (at least 50% of the class). The median salary most likely includes bonus. At McKinsey or BCG, the associate to partner ratio is 7:1, or 6:1, so not everyone progress along that pay scale. Lots of them fall off the ladder and take a pay cut at the industry. We cannot possibly hire a middle level manager at 150-200K.

So the first year median salary is a bit high because of two factors:
1) IB salary + bonus in a good year, or consulting salary
2) Sign-on bonus which ranges from 25-50K

I know of these things because many of my friends are MBAs from top schools who are several years out of school. A lot of them are not earning 200K+ salary 10 years out of school. Once they fall off the consulting or IB salary scale, they will just have to deal with the industry pay, unless they hit a jackpot with HF, VC or stock options of a startup.

oops, corrections. There should be around 70,000 of them around in California, not Bay Area.

Assuming Bay Area takes about half, that will make it 35,000.

That's why I have been saying, for the prime areas, I wonder if there will much of a hard landing at all.

Have the subprime lenders fallen enough?

I am planning to short CFC. Not sure if it is the right time to get in yet.

OO Says:

> Actually the top 10 MBA schools generate about 8000+
> graduates each (Stanford generates the least number,
> but 80% of Stanford graduates stay in the Bay Area).

Let’s not forget that most female MBAs (and other high earning women) stop working after a few years to become stay at home mom’s.

I remember reading a study that said that just over 1/3 of the HBS gals were still working and found a reference to the study at this URL http://tinyurl.com/bwny2

Most of the females that I went to undergrad and business school with (who have kids) are no longer working…

ConfusedRenter Says:

>The FT rankings are a joke. Very few read the FT in the US.

I bet most of the realtors CR works with have had a lot of time to read People and US Magazine waiting for couples making $500K to walk in to their open houses...

Erc,

I think OO (OwnerOccupier) has made a good call there. Why....... I can't think of a state that ISN'T contemplating a law suit against CountryWide? Building materials pricing has slid in a meaningful fashion, everything from copper to concrete and they could be some solid shorting candidates as well.

I am considering doing part time MBA at Santa Clara University. I can not get into stanford or HAAS based on my previous academics and GMAT scores. I am a 27 yr old professional gal already making little less than 100K. Is it worth my time and money? Any ideas on how much SCU MBAs make after graduation?

These are just my opinions, and they are very biased by my own experience and decisions in life. Others will surely disagree.

An MBA from a non-top school is seldom worth the investment, with a couple of exceptions. Remember that going to earn an MBA costs a ton in tuition, it costs in lost salary and advancement opportunity, and it costs very heavily emotionally, especially if you're married, with kids, etc.

Part-time or executive programs allow you to keep working but (a) they cost an astronomical tuition, (b) they will practically kill you because you quickly find out it's still a full load of coursework, just compressed into fewer marathon length classes.

Lower tier MBAs can be worth it if you're going to a school that has a particular specialty in your industry. If you were a director at Monsanto, then an MBA from Ohio State probably will take you farther than one from Haas.

The problem with SCU is that it's only regionally recognized, and even there it's regarded as average. C of W&M is more respected on that comparison.

My advice would be to *just try*. You may very well surprise yourself. In reality, you only need a 650+ GMAT to get consideration if you have a few good years of experience and some career success under your belt. If you can't get in now, then just try to raise your GMAT a bit and try again in a year. (And don't over-focus on the GMAT. Most top schools don't use it to determine who gets in, only the minimum cut-off. Plenty of 700s GMATers get rejected.)

I can’t think of any good MBA schools that has part time programs (Haas being the only one, even then I don’t know if you consider them top tier).

All of them do except Stanford and HBS. The EMBA programs. Wharton, Columbia, Haas, Kellogg, Chicago; even internationally LBS, INSEAD, and so on. These pretty much all cost +$100K in tuition, be warned.

FAB,

good point. I know 3 women from HBS and GSB who are no longer working any more, and their husbands are making "merely" 200s. However, they all got into a home much earlier at half the current price, like 5-6 years ago, so making the mortgage payment is no longer an issue.

For those MBAs, JDs, or MDs who graduated 5-10 years ago, they are pretty set and unless they commit some blunders, hardly anything can kick them out of their homes.

Can the newly minted MBAs, even from the best schools, get into a decent home in a decent neighborhood at the current price in the sought-after parts of the country where the high-paying jobs are located? No, very unlikely. Of course we are not counting exceptional examples of those who can make partners at VCs, IBs, or hit a jack pot with IPO. I am just talking about the average crowd.