Thursday, May 31, 2012

Changing job market for MBAs

Worthwhile Financial Times piece on how the job market for full-time MBAs has changed over the last couple of years.  A few of the more interesting trends:
  • Gaming companies such as Zynga and Electronic Arts are starting to recruit MBAs
  • The hot skills: communications (as always) and analytics
  • Hiring and salaries are up a little bit from a year ago
  • Finance and consulting down; "consumer goods, pharmaceutical, media, technology and industrial companies" up; social media also hot
  • Students are more likely than ever to be directing their own job searches: "Even at Harvard, the master at on-campus recruiting, almost 50 per cent of students now find a job via a different route."
Hiring of Jenkins MBAs at NC State is tracking close to last year.  Employers include American Airlines, Caterpillar, Chevron, Cisco Systems, Lenovo, Novartis, Red Hat, Siemens, Simmons, and Wells Fargo, among others. 

Tuesday, May 29, 2012

Why we have more manufacturing jobs

One of the few bright spots in today's economy has been the growth in manufacturing jobs, up 4.3% over the last two years.  Today's WSJ reports a key reason for the growth: wage growth in the U.S. has been flat since 2000 (adjusting for inflation), whereas wages have been rising rapidly in China and moderately in Mexico.  With unemployment running high, it seems like a safe bet for manufacturing wages to continue to be flat for at least the next year or two.

Many people continue to cling to the belief that the U.S. needs more manufacturing jobs to compete globally; that we need to make "stuff" to survive.  Some governments are actually subsidizing manufacturing companies in an effort to keep good jobs (see this NYT piece for examples in case you think the auto bailout was an isolated case).

This was not a totally crazy idea 50 years ago when manufacturing wages were relatively high compared to the rest of the economy.  But how good are those jobs in today's knowledge-based economy? Why would anyone would want to subsidize a sector where the mean hourly wage is $18.94 (private sector average is $19.47)?  Pay is significantly higher in mining, construction and most parts of the service sector.

Monday, May 28, 2012

Looking for a guaranteed 8% return?

Me too, especially in today's market where long term bond yields are at historic lows.  Where might one find such an investment?  We need to ask the advisors of state and local government pension plans.  Researchers at Boston College have calculated that the average plan assumes it will get an 8% return and adjusts its annual contribution accordingly, reports today's NYT.  The hitch, of course, is that pension plans are highly unlikely to see such returns, so in future years taxpayers will have to kick in more to cover obligations to retirees.  So some political leaders such as NYC major Michael Bloomberg have pushed plan managers to lower the interest rate assumption to something more realistic. 

Although this looks like basic good government, public employee unions are not happy.  They realize that if governments have to kick in more dollars for future pension obligations, there will be fewer dollars to spend on raises and there might even need to be cutbacks in state services. 

In the private sector, the average plan assumes it will earn 4.8%.  Although I am not the sort who usually looks for ideas for new regulations, would it be unreasonable to ask state and local pension plans to use the same interest rate as plans in the private sector? 

Friday, May 25, 2012

Upheavel in the newspaper business

Two noteworthy items this week: First, the New Orleans Times-Picayune has decided to cut back to three days a week: Wed, Fri and Sunday.  The paper will cut back on staff as well.  It will continue to provide free news on its website.  Puzzle: nationwide newspapers get over 80% of their revenue from print ads.  One has to wonder if newspapers are on a death path.  

But that brings us to news item #2:  Bloomberg reports that Warren Buffett is thinking about buying more newspapers.  Buffett is not known for getting into a market too late.  So how is he going to make money?  Presumably he will have to change the business model, including the ongoing practice at most papers of providing online content for free.

Newspapers could cut costs tremendously if they could shift customers to online.  The trick is that they would then need to get additional revenue online -- both ads and subscription fees.  Getting people to pay for something that they have had for years is no small feat.  TV stations provide local news on their websites (in print and video), which complicates matters even further. 

The heart of the matter, in my view, is what content can today's newspapers companies create that no one else can?  If you look at your typical newspaper, you see a wide range of material: national news, state and local news, human interest stories, comics, sports, movie reviews, recipes, obits, and more.  Some of this stuff is done better on specialized websites such as  Do not be surprised to see newspapers ditching non-local content and perhaps even forming strategic alliances with the local TV stations. 

Tuesday, May 22, 2012

Will Google be EU's next antitrust target?

NYT thinks the odds are high, according to today's front page story.  The euro-trustbusters are concerned that, for any given search string, Google gives its own services priority over those of rivals.  Google's advertising business also is a focus of the investigation. 

Google has about four-fifths of the search market, so it definitely meets the numerical standard for a monopoly case in the US (where a parallel investigation is taking place).  The EU can charge Google a fine of 10% of its global revenue, a fine that would be twice as much as the London Whale lost for JP Morgan.  Google's defense will be that its dominance is due to having a superior product. 

Antitrust cases typically take many years to settle.  In industries subject to rapid technological change, the issues that launched the case may be moot by the time it is resolved (e.g., IBM, Microsoft).  It is hard to imagine a world without internet searches 10 years from now, but what if someone comes up with a better way of doing it than Google?

Sunday, May 20, 2012

Consequences of a shrinking labor force

WSJ's David Wessel devoted his column last week to why the labor force is shrinking and what this means for the recovery.  The labor force participation rate for men has been trending downward for some time, as a result of youth staying in school longer (and being less likely to take part-time jobs) and older men retiring earlier.  The rate for women had been steadily climbing from 1950 to 2000, but has since leveled off.  It has taken a big drop since the Great Recession.

The big question is what will happen once the unemployment rate starts coming down significantly.  Will workers return to the labor force once opportunities improve?  If so, then we must accept the likelihood that the current 8.1 percent number vastly understates the true degree of excess supply in the labor market.  On the other hand, what if the labor force participation rate does not recover?  In this case the upside of any recovery will be compromised by labor shortages and tax revenues will be permanently reduced, exacerbating government budget deficits even more. 

Thursday, May 17, 2012

J.P. Morgan can happen to any of us

So says SmartMoney columnist Brett Arends in his latest piece.  He cites five huge mistakes that financial institutions continue to make:
  • Too many people still don't understand what "risk" really is.
  • They rely far too much on dangerous computer models.
  • They aren't prepared for the unexpected.
  • They put too much faith in "experts."
  • People have all the wrong incentives.
I emphasized incentives in my previous post, but this fleshes it out a bit more.  Arends claims
The entire world of investing -- including your 401(k) -- is now being operated on pretty much the same lines as JP Morgan's "synthetic credit portfolio." And everyone is making the same mistakes, even if for most, it's on a smaller scale.
And people wonder why large companies and many individuals park their money in low interest bearing accounts?  Maybe it's because they are secure they will not lose their money.  

Tuesday, May 15, 2012

Agency theory and JPMorgan

Nice WSJ blog post pointing out the real reasons why JP Morgan Chase lost $2b on derivatives trades.  It has nothing to do with regulation and everything to do with incentives.  The traders stood to land massive bonuses if the trades went well and stood to lose relatively little (at least compared to JP Morgan's stockholders) if the trades went sour.  MBA 505 veterans will instantly recognize this as a basic agency problem: heads we rake it in, tails someone else gets stuck with the loss. 

My own take: this has been very embarrassing for JP Morgan and very costly to them financially.  But the costs have been limited to the shareholders, not to mention the fired employees.  JP Morgan was big and lost a lot of money, but did not need any help from the Treasury or the Fed.  Which is a good thing because it would have been very damaging for the Obama administration to have had to step in during an election year.

I am amused by all of the politicians using this incident to make a case for more stringent financial regulations.  If Morgan CEO Jamie Dixon could not prevent this from happening (and he had every incentive to do so), what are the odds that a band of federal employees could prevent it?

Monday, May 14, 2012

Resumes and reality

Former Yahoo CEO Scott Thompson's resume said he had a double major in accounting and computer science at Stonehill College.  In fact he had not completed the requirements for a computer science major and was found out.  That is why he became a former CEO.

This seems to happen with depressing regularity.  Cases in recent years include a former CEO at Radio Shack (David Edmondson), a vice dean at the University of Pennsylvania (Douglas Lynch) and a former football coach at Notre Dame (George O'Leary). 

Remember what Forrest Gump said: "Stupid is as stupid does."  

Friday, May 11, 2012

Austerity in the EU

Insightful graphic on the well-known econ blog Marginal Revolution about government spending in five European Union members which have been following the austerity path.  As you can easily see, spending in France and the UK has continued to increase every year, whereas spending moved from rapid growth to flatline in Italy.  Government spending has actually fallen in Greece and Spain over the last two years but remains well above where it was 10 years ago.  And these are countries with little to any population growth.