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What is in the Future now???

Hi,
My question is a very common question but is definitely looming in all MFE aspirants' minds.
1. After the debacle of big investment banks what holds in future for quants?
2. Have we reached the bottom of the DEBT CRISIS pit so as to recover within the next 3 years to a level where the trust of the investors will revive?

I have not been faring well off late because I am an FE aspirant and everyone is (obviously) giving me a negative review about FE. I dont know what to do?
Please reply.
 

doug reich

Some guy
Everything will be completely back to normal on February 19, 2009. Congress will have restored the country to its last "save point" in 2005 on that date. Please wait until then to enter the job market; otherwise you will meet with calamity. Just kidding; right now the future of this industry and the short and long term job markets are mostly a matter of opinion.

This is a hot topic around here; read one of the many threads tagged "current events" and this thread ( Does Quant MS/PhD Make Sense? - QuantNetwork - Financial Engineering Forum) which has this exact topic.
 
1. After the debacle of big investment banks what holds in future for quants?
2. Have we reached the bottom of the DEBT CRISIS pit so as to recover within the next 3 years to a level where the trust of the investors will revive?

1. The future is bleak for everyone connected with finance (not just quants). The old world is dead and buried; not sure, though, as to what will arise from the debris.

2. No. The $700bn is just for starters. The final figure will be a multiple of this (and may not even address the core problem: see here). A long and painful process has just begun; at the end of it (when?), it will not be business as usual: it will be a very different landscape.
 
1) I disagree with what BBW is saying. We have seen booms and busts in our economy come and go. And no matter how bad the hangover, we seem to still insist on getting drunk. Whatever the regulations, people that strive to make money will find ways around them, unless our entire economy gets socialized, which would be cutting off our collective nose to spite our face. So no, the old world will come back--it isn't a question of if, but when people as a whole, in their aggregate stupidity, forget about the lessons of the past.

As for quants, I am hoping that they get a mutation that no longer will the "idiot savant" (as NNT puts them) PhDs look like something great. That if you have a heavy foreign accent, no matter if you graduated from a top foreign technical college or got your PhD in mathematics from Princeton, you get shown the door in a New York minute.

In short, I'm hoping we get more quants like Doug Reich. People who look like an every day American, meaning they've been part of the culture, speak fluent English, and can communicate their knowledge far better than someone straight out of a PhD who stuck with his or her foreign clique (and believe me, I've seen plenty of these kinds of people...and if it were up to me, I'd never hire them)

2) As for consumer confidence, that depends on many factors. A) do the foreclosures stop, B) does the media stop bemoaning a terrible market and C) do people get wiser and start to see this market as a beginning of a new bull market? I think three years is enough for that.
 

Sanket Patel

i do stuff
As for consumer confidence, that depends on many factors. A) do the foreclosures stop, B) does the media stop bemoaning a terrible market and C) do people get wiser and start to see this market as a beginning of a new bull market? I think three years is enough for that.

That is easier said than done.
 
1. After the debacle of big investment banks what holds in future for quants?
2. Have we reached the bottom of the DEBT CRISIS pit so as to recover within the next 3 years to a level where the trust of the investors will revive?
1. When I started my MFE in 2006, never in my wildest dream that only 2 years later, the Wall Street investment banks that make up the bulge bracket will either default, get bought or become holding banks.
Late last year, I keep hearing many economists predict that the market will recover in Q4 '08. The same group of people now push that to Q4 '10 or further.
Now, I don't believe in anyone predicting anything about the future. Sure, it will get better. It's like saying the sun will rise and set.

2) The events the last few days will show you we are no where near the bottom. How this whole thing will play out, time will tell. People are more concerned about putting foods on the table the next few months. If anything, the effect of this crisis will hit your wallet and stomach first before you start worry about investors' confidence.

Finally, if this question is in the context of doing an MFE at the current time, ask yourself if you're ok paying 60-100K for tuition and end up with no job? That's a possibility you ought to consider.
 
Well the key right now is to find or create the next big investment opportunity. If the little people panic, it'll be tough to get out of this mess. But if we give them another dream of easy money, they'll forget all about the last crisis. It happened with savings and loans, it happened with dot com, and it'll happen here once we set up the next big fad.

I'm thinking it's Green.
 

xoxqun

The Devil's Advocate
Next Big Investment Opportunity in IPO and Movie Script

Next Big Investment Opportunity in GREEN IPO

Well the key right now is to find or create the next big investment opportunity... I'm thinking it's Green.

'Paulson's new 'Global Banking Corp.' IPO 2009
Forget Washington, forget Goldman: Our hero has global ambitions

By Paul B. Farrell, MarketWatch
Last update: 7:05 p.m. EDT Oct. 6, 2008

ARROYO GRANDE, Calif. (MarketWatch) -- What if: Hank Paulson doesn't return to Wall Street and Goldman Sachs? Builds a global banking empire? Competes head-on with Goldman, Morgan, and other domestic and foreign banks? What if the money comes from offshore, from Asia and the Gulf? He's a red-hot brand! Expect a mega-IPO in 2009.
Next: What if Oliver Stone updates his 1987 attack on "Wall Street?" With Michael Douglas again? A new script's rumored: Gordon Gekko's out of prison, sets up giant private equity empire in London? Nah, too "yesterday!" Today's news is too hot, too juicy. "Wall Street, the Sequel," needs a new predator! A poster-boy for the arrogance, greed and incompetence of Wall Street and Washington. And "Hank the Hammer" Paulson wins hands down as the archetype of a modern global megapredator.

Years ago I was a Hollywood executive. Films have long lead times. "Shindler's List" took Steven Spielberg over a decade. Stone's new film "W" was shot fast but years in development. Along the way, you're reworking scripts.
So imagine: You're Stone's screenwriter. Its 2011. You're asking yourself: What happened? Why a new bubble, bigger meltdown so fast? Paulson thought the bailout would work. Congress did too. You're looking back. Your job, sketch the key plot points of Stone's next thriller, based on all we know of the buildup and what we can rationally predict will happen between 2009 and 2011. Start:

1. Opening scene: Paulson and Goldman Sachs, 1974-2006
Harvard M.B.A., 1970. Then a staffer at the Pentagon and with Nixon. Joins Goldman in 1974. CEO in 1999. Paid $38 million in 2005. Federal ethics laws let him sell $484 million in Goldman stock tax-free when he left. Net worth, about $700 million.

2. U.S. Treasury Secretary, 2006-2008
Goldman was a big derivatives player under Paulson. His decisions at Treasury reflect 24 years as a Wall Street insider. He was protecting his old Wall Street buddies when he and the Fed chairman insisted in mid-2007 the subprime-credit meltdown was "contained."

3. Paulson suddenly flip-flops and hits panic button, Sept. '08
After years of denial, two weeks ago Paulson flip-flops. Using a classic Reaganomics "disaster capitalism" gimmick, he pushed the panic button, asked Congress for a $700 billion blank-check bailout bonanza for Wall Street. Nothing for Main Street. A one-sided Ponzi scheme, imperial powers, complete with Iraq War-type threats of "economic mushroom clouds." Conservatives were screaming "nationalization! socialism!"

4. Paulson's panic triggers 'feeding frenzy' for lobbyists, 2008
While baffled Republicans wondered why Hank pushed the panic button, his panic set off a scene rivaling "Jaws." Washington is run by 42,000 lobbyists. They smelled blood in this $700,000,000,000 ocean. Add my bank! Foreign banks! Hedge funds! Money markets! S&Ls! Auto loans! Bankruptcy relief! Sharks on a feeding frenzy.

5. Flashback: Paulson warned the president, but failed us, 2008
Yes, he saw this crisis coming years ago. Bloomberg Markets reports that back in August 2006 Paulson spoke to the White House staff at Camp David: "Paulson held up over-the-counter derivatives as an example of financial innovation that could, under certain circumstances, blow up in Wall Street's face and affect the whole economy." Yet he withheld this information from America, didn't tell us till his recent panicky flip-flop.

6. Paulson's conflicts of interest favor his old buddies, 2008
Paulson owes a lot to Goldman; 24 years almost made him a billionaire. An analyst told Bloomberg News that Goldman and Morgan Stanley may be the two "biggest beneficiaries" of the Bailout Bonanza: They've already "written down the value of their holdings." So they have much junk to dump on taxpayers, thanks to Paulson their, "inside man." And he wanted no oversight. With several former Goldman staffers working with him at Treasury now, you wonder: Did they give their old buddies early hints of the bailout?

7. Uncle Warren also gets priority before taxpayers, 2008
Main Street may be overlooked, but not old friends like Warren Buffett. Earlier as Goldman's CEO derivatives made Paulson one of the chief architects of today's "Economic Pearl Harbor," as Warren Buffett calls it (a strange comment since back in 2002 Buffett warned derivatives were "weapons of mass destruction"). Flash forward: Buffett offers Goldman $5 billion, spinning it as a show of confidence in the bailout. But in a Portfolio piece, "Salvation or Swindle?" we learn: "Saint Warren is buying $5 billion worth of Goldman's perpetual preferred stock. This stock pays a 10% dividend and is callable at any time at a 10% premium." Imagine, $500 million after taxes annually. Plus "Saint Warren also receives warrants with the right to buy $5 billion of Goldman's common shares at $115 per share over the next five years. That is 8% below Tuesday's closing price. ... This has nothing to do with saving the financial system."

8. Paulson's triumphant return to a 'New Wall Street,' 2008
Here's another sneaky script subplot from The Huffington Post: First Goldman pays Paulson megabucks, then "lends" him to Bush, a virtual Trojan Horse. Now Paulson's preparing the way for his grand march back into private life by throwing billions of taxpayer dollars to his old buddies. So Goldman gets billions, and taxpayers get a pile of illiquid junk. Scam? Yes, and a classic case of moral hazard: Freed of risky liabilities, Wall Street dances off into the sunset, laughing at the stupidity of the American taxpayer. If Paulson did return to Goldman, his future bonuses would likely more than double his net worth. In short, his 30 months in government will undoubtedly make him a billionaire while costing taxpayers a trillion in new debt as a result of his inaction and incompetence.

9. New president, same old lobbyists, same old greed, 2009
Some things never, never change, no matter who's president. America is run by 42,000 lobbyists, not our 537 elected officials. And Wall Street's the biggest political campaign donor. For example, USA Today reports that since 1989 Christopher Dodd, chairman of the Senate Banking, received $43 million. Barney Frank, chairman of the House Financial Services Committee, got $7.8 million. No wonder they voted for Paulson's Bonanza.

10. Paulson resigns, creates own bank-holding company, 2009
No, he's not going to stay. He's already the de facto president, an uncrowned king, the messiah of global finance. He raised hundreds of billions to "save" America and the world from collapse. So forget Goldman. What then? He's a former president the Nature Conservancy, a $5 billion global environmental charity. Bloomberg reports he's already working on a "$10 billion international fund under the auspices of the World Bank that would help emerging-market countries avoid investments in heavily polluting infrastructure." He's even lined up "$6 billion in informal commitments [and] Congress is considering the administration's request to kick in $2 billion." Get it? Not only is he bailing out his old buddies. Not only is he preparing for his return to private wealth. But he's also finagling more taxpayer money for his pet cause. All while being paid to work for U.S. taxpayers. Next, a new Paulson Global Bank Holding Corp.? An IPO? You bet, in 2009. But not retail, probably a private placement with $25 billion minimums.

11. Warning: Same old cycle: Bailout-Bubble-Bust, 2009-2011
"Wall Street's dead?" No way! The Street's alive, will survive and thrive. Paulson's Bonanza sets up the greatest "moral hazard" in world history. Our bad boys got away with a scam. Taxpayers are stuck with their toxic waste. Once freed, Wall Street comes roaring back with a new bull next year. The financial sector lost almost half its stock value since last summer's peak, $1 trillion. Our greedy financial geniuses must quickly invent new tricks to satisfy shareholders who lost billions and are now demanding higher earnings and stock prices. Banks must start blowing a newer, bigger, more lethal bubble.

12. Hot new aggressive competition among banks, 2009-2010
Yes! Paulson and his competition, J.P. Morgan Chase, Bank of America, Barclays, Wells Fargo, Citibank and Goldman, are revving up to Nascar speeds: Heavy trading, high leverage, risky derivatives to meet demanding quarterly expectations. Investors have short attention spans, want a new bull. The Fed, Treasury and SEC will look the other way, creating de facto deregulations to get the markets back on track. Who loses? Homeowners and taxpayers. But also small depositors in the bank-holding companies: Expect more excessive fees and commissions as all banks siphon off more to raise new cash for their same old high-risk gambling bets.

13. Armageddon: Bubble pops, global economic meltdown, 2011
Russia, China, Iran, Venezuela and others are already praying for America's demise. Now staunch allies like Germany join the chorus: The German finance minister blames the current crisis on Wall Street's "insane drive for higher and higher profits ... Wall Street will never be what it was ... The global financial system will become more multipolar." To protect itself before and after the 2011 collapse, Paulson's new global banking empire will likely be headquartered in multiple locations in Asia, Europe and the Gulf. But the moral hazard created by Paulson's 2008 bailout will eventually backfire. We relieved Wall Street of the consequences of its costly, stupid blunders. But we also released them to chase a new raging bull in 2009 ... and blow a bigger more lethal credit bubble that'll bring down the global economy before the end of the next presidential term.

Comments? My advice to Stone: Forget recasting Michael Douglas as Gordon Gekko. Start planning, plotting and writing a new script now for a 2011 released date. Get Clint Eastwood as Hank the Hammer. Then we get an IPO, you guys get a couple Oscars!

Copyright © 2008 MarketWatch, Inc. All rights reserved.

Source: http://www.marketwatch.com/news/story/paulson-now-matinee-idol-we/story.aspx?guid={3C64D415-39D2-4A35-9486-06F050D45FD7}
 

Sanket Patel

i do stuff
Well the key right now is to find or create the next big investment opportunity. If the little people panic, it'll be tough to get out of this mess. But if we give them another dream of easy money, they'll forget all about the last crisis. It happened with savings and loans, it happened with dot com, and it'll happen here once we set up the next big fad.

I'm thinking it's Green.


But one must keep in mind the sheer magnitude of the current crisis. Given the level of integration across markets globally, the current situation has the potential to make the recession of the 30's look like child's play.
 
@ xoxqun: ahahahahaha. That was a nice laugh. Thanks for that one =)

Sanket: the world economy may or may not tank because of the socialistic nature of European nations. Here in the states, the only cure for capitalism, ironically enough, is more capitalism. I forget who said this, but "when appealing to a man, appeal not to his kindness, for it only extends so far. Appeal to his greed, for his greed is unending."

Unlike communism and socialism, capitalism is built off of the evils of human beings. That's what makes it all *work*.

We are having a monster hangover right now, but that's all it is. Our financial system isn't going down the tubes. As Bill Gates has said:

"All other nations would *love* to have our problems."
 

Sanket Patel

i do stuff
I fail to see what this has to do with the socialist nature of European nations. I'm no economist but I think this situation is more than just another hiccup in the business cycle.

As for what Bill Gates said and the other unknown source you quoted, quotes like that are dime a dozen. Additionally, I'm sure the average citizen would *love* to have Bill Gates' wealth - the very same citizens who are financing this "bailout."

Have a look:

Fannie Mae forgives loan for woman who shot herself - CNN.com
 
For some bizarre reason that horrific story about the women that shot herself became national. It would have been media suicide for Fannie if they forced the debt to be paid.
 
I'm no economist but I think this situation is more than just another hiccup in the business cycle.

Even (American) economists lack the conceptual toolkit to understand what's happening. They tend to see everything in terms of cycles -- with the longest being the 50-year Kondratieff cycle. People like myself see this as a structural crisis of global capitalism. The roots of the crisis lie in a financial elite that has been skimming too much of the top and leaving not enough purchasing power for everyone else. The mortgage crisis has occurred not primarily because bad loans were made to people who couldn't pay back but because the system requires sales be made to people who will never have sufficient purchasing power. This is one of the inbuilt contradictions of capitalism: selling to people who can't afford to buy. This is why not just mortgage debt but credit card debt, automobile debt, tuition debt have all exploded in the last thirty years as a financial elite has become spectacularly rich while tens of millions of others, with stagnant or declining wages, have become ever more mored in debt.

Even the proponent and propagandists of unfettered capitalism and "free" markets don't believe in the nonsense they spout -- otherwise why go trotting to the state at the first sign of trouble? The reality is there never was a free market or unfettered capitalism: it was a political project from day one, with a framework supplied by a plutocrat-controlled state. As events now are making clear to even the blindest. In short, the authoritarian power of the state is used to deal with the contradictions of capitalism. Shades of fascism.
 
This article, by H.C.K. Liu, though dated, is instructive. And it's remarkable how prescient he was. I don't agree with his idea of cyclical crises (though he does point out that the crises have not been "congruent"). Liu's website is well worth visiting. I was impressed by his piece on dollar hegemony (but I haven't yet read the others).

A book I also found instructive is Graham Turner's The Credit Crunch. I haven't the time or energy to attempt a synopsis at the moment but interested readers might like to glance at this.
 
An interesting piece by Michael Gordon (of Fidelity) in today's FT:

3. Complexity is out and simplicity is in. Investors want to understand fully what they are buying and where their exposures really are. This is a reasonable expectation in normal times, let alone in the uncertain period that lies ahead. Many financial instruments, their underlying exposures and the leverage within them had moved beyond the understanding of those who bought them and beyond those who had the responsibility of governing the institutions which traded and marketed them. Firms will become more focused on what they feel they can do well and what they can adequately control and monitor.


4. Investors will shift away from models, quantitative or otherwise, and back to human beings, where their level of understanding is greater. Again, this lesson could reasonably have been learned in August of last year. It wasn't fully. It has been now. Many such models rely on past relationships between securities, markets and asset classes.
These relationships are breaking down and look different today. Theory and practice can be strange bedfellows as many investors are now finding out. Market participants have learned now how leverage has over-ridden historical correlations, so that everything now seems one-directional.


5. Innovation will be out and experience back in. The "shock of the new" has been painful for many. Funds will flow to those with experience in the traditional practices of traditional markets. This trend was already well underway this year, but recent events have cast it in stone - at least for the foreseeable future. "Smart" will be replaced by "sensible". Thomas Jefferson wrote that - "when a man assumes a public trust, he should consider himself a public property". Trust will need to be earned again.


6. To regain that trust, we will need to recognise that the days of opacity are over. Many investment products of recent years contained hidden features such as leverage as well as security and asset class exposures that did not align with the expectations of those who owned them. Investors will now demand transparency - both from the companies managing their money and in the products that they market. Even if investors do not demand greater visibility, the regulators will do so.



All of this sounds plausible. Readers can draw their own conclusions on what this augurs for quant employment.
 
What's in store

Finally, if this question is in the context of doing an MFE at the current time, ask yourself if you're ok paying 60-100K for tuition and end up with no job? That's a possibility you ought to consider.
This is in reference to the text quoted above. I read Tim Grant's(MD of UBS) interview and ho sounded pretty optimistic about the demand of Quants increasing!!!
Well, I am confused and the best part is I have to make a quick decision. What's in store?:wall
 
I'm optimistic about the future myself. There are always good jobs for good people.

Same here. Quant skills will be useful in any financial services company. It is naive to say that all quants will be out of the job and everyone will analyze balance sheets, work in marketing or management. Maybe some job markets will be reduced (e.g. MBS) however others will expand (risk management).

In the end, I don't think a successful career should be built by timing the markets. It matters if you have the inclination and you enjoy working in that field. For MFE, you will realize quickly if you like the academical side. If you are not at least a bit intrigued as to pricing financial instruments, I don't see how you can succeed.
 
Consider education as a long term investment in yourself, a skill and personality upgrade that is relevant for the rest of your life. While the technical skills you acquire might have a short half life and job opportunities are unpredictable, you will not lose the capability to think, organize problems, and react to situations better then your competitors who did not go to graduate school.

My feeling is that while financial markets and employment prospects are always changing, sometimes for the better and right now for the worse, the top 10% of the people will still make it. Updating your education and working as hard as possible is the minimum you should be doing to even have a chance to be in the top 10%!
 
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