jueves, agosto 16, 2007

Economic Uncertainty and the MBA

I have spent some time recently trying to assess my full-time job options. The past two years have seen record-high employment figures for MBA students, particularly for those at the London Business School. Nevertheless, like everyone having taken a class in Macroeconomics knows, expansion cycles cannot last forever. Some hints are pointing directly to the cooling down of the economy. Luckily, an MBA helps understand and make informed guesses about what is going to happen next. Hereby my (completely amateurial, take it under your own responsibility) analysis:

  • The construction and real estate boom in Spain and the US are clearly over. The Euro Stoxx Construction Index is down 18% since May, and the Euro Stoxx Real Estate Index is down 45% since February. Property prices are stable if not slightly downward in the past quarters. Pretty scary, bearing in mind the sheer importance of both sectors in employment and household expenses, determining consumption.
  • The credit markets are drying up. Central banks had to inject liquidity into the system in order to bail out the global financial markets (and probably, most hedge and mutual funds that had bet on real estate related securities). Again a bad sign: much investment (including M&A) activity was propped by the availability of cheap debt.
  • The stock markets’ volatility is increasing, and the probability of a stock market crash is not zero any more. More and more analysts, central banks, etc. are warning the investors to me more cautious.

On the other side of the balance, the companies’ balance sheets (excluding construction and real estate) appear to be strong. Profits are growing, and so are dividends. Consumer confidence indexes appear to be high. Some sectors are still quite bullish (renewable energy, oil & gas, healthcare, technology, telecoms). General sentiment is that the expansion will continue for 6-12 months still.

So I wonder, are the markets forecasting the future evolution of the economy?

In any case, what is clear is that there is quite a lot of uncertainty about the future out there (and, from Finance I, uncertainty = risk = volatility).

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At 11:48 a. m., Blogger marry said...

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