The value of my Ivy League MBA degree just went to “zero”

The Global Economy and Financial Markets

Okay, so I don’t mean that literally. But the point is – MBA graduates spend an enormous amount of time studying theories of classical finance, the behavior of financial markets and precise methods of valuation of companies. We pore through complicated financial statements, calculate the weighted average cost of capital to the second decimal place, plot Beta correlations on complex spreadsheets, and like magicians, can come up with detailed cash flow statements of a company for the next 5 years. How pompous is that – but I digress. Now why do we do all this – supposedly to find the fair value of what that stock should be worth. We convince ourselves (and others, unfortunately) that taking such a rigorous approach to analysis cannot result in anything but the precise values for the market, stock or company.

 

But we’ve reached a point where all these finance theories need to be re-written. There is absolutely no need to perform fundamental analysis of this kind. There is only one rule that dictates how the S&P 500 (and due to Beta correlations, most stocks as well) are going to perform – how much overtime is being put in by the massive printing presses of the central banks of the major economies around the world. Case in point right now – in anticipation of an undesirable outcome in the Greek elections coming up this weekend, central banks are putting together a coordinated “shock and awe” bazooka. This is straight out of Reuters today –

 

(Reuters) – Authorities in the world’s major economies are preparing for a possible market storm or public panic after cliffhanger Greek elections this weekend, officials said on Thursday, should radical leftists win and cast doubt on the nation’s future in the euro zone. Britain announced on Thursday it would flood its banking system with cash as the euro zone’s crisis casts a “black cloud” over the nation’s economy.

Officials from the G20 nations, whose leaders are meeting in Mexico next week, said that central banks were ready to take steps to stabilize financial markets – if needed – by providing liquidity and prevent any credit squeeze after Sunday’s election. Canada is “ready to act” if the situation takes a serious turn for the worse of there is “an external shock,” Andrew MacDougall, a spokesman for Prime Minister Stephen Harper, said on Thursday. In Europe, authorities also laid plans for tackling turmoil such as if Greeks emptied their bank accounts should the SYRIZA party, which has promised to tear up the country’s bailout deal with the EU and IMF, score a decisive victory on Sunday. (end Reuters)

 

 

Shockingly, there’s not much mention of what the U.S. is going to do, but we all know what Helicopter Ben likes to do – he invented this game and the rest of the world is only now figuring out the true power of his brilliance. Ever since this news emerged yesterday that this massive arsenal is being moved into place, markets have been moving up sharply. A horrendous weekly jobless number – no problem. Five big Dutch banks downgraded – piece of cake. Spain’s debt rating cut – a daily occurrence. France got downgraded – no problem at all. FRANCE GOT DOWNGRADED !! Okay, so the downgrade was by a lesser known agency, Egan-Jones, but this agency actually has a reputation for unbiased ratings devoid of conflicts of interest, and fairly accurate past performance. But none of this matters anymore – none of those spreadsheets we created burning the midnight oil in our MBA programs matter any anymore. The finance books proudly displayed on every MBA graduate’s bookshelf is not worth the paper its printed on. The only thing that moves the markets (and stocks) is the answer to this question – which is no different from that of any drug addict on the street corner – When is my next fix ?? And that’s all you need to know to be profitable in the markets today !

2 Comments

  • Elisa

    Reply Reply June 16, 2012

    I’m part of Dean’s Challenge but this post caught my eye because I’ve spent so much worthless time in college myself. Anyway I enjoyed what you wrote and I look forward to reading more of your insights.

  • Hari Swaminathan

    Reply Reply June 26, 2012

    Elisa,
    I meant it in a sarcastic way, as I’m sure you do as well. Where we stand in the financial markets at least, things have deviated so far off from fundamentals that you can’t help but wonder ….

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