Catching up, evaluation of coursework so far, on-campus internship assessment

Man I am a sad excuse for a blogger. 4 months since the last blog. I hang my head in shame. But in my defense I must say that I have no desire to blog about anything but that in this case I am because I would like to share some insider info about this program, info that I would have liked to have when I was researching MFE programs.

Progress meter shows: 1 semester down, 2 to go. Last semester was thoroughly enjoyable. Why wouldn’t it be? Living the low-stress life of a student insulated from the ongoing madness in the outside world, investing in self, gauging things from a safe distance.

Evaluation of 1^st semester courses (will use “Core” to denote core courses; all other courses are electives):

1. [Core] Stochastic analysis for finance: solid course (uses Shreve I and II). An inevitable course in an MFE program.
2. [Core] Statistical analysis of financial data: the most demanding course of the semester according to most including myself, very dense, covered a lot of topics, but my favorite course of the semester, and essential stuff to know.
3. Fixed income securities and markets: a non-technical business school class. I get a sense that many technical types new to finance just want to see a lot of math all the time. Soak in some practical knowledge, financial markets are deep, and they don’t run on math. Though I knew much of this material having gone through the CFA program and otherwise, I still learnt a lot from this class, it was interesting and the Professor was great.

(The other 2 courses I took were extra math ones that [almost] no one else took and that don’t count toward the degree: a Probability Theory course and a PDE course. I took them solely to bolster my math ability).

This semester’s line-up (classes just started Jan 7 so I won’t give any kind of evaluation):

1. [Core] Financial Engineering I
2. [Core] You will see the course listed as Discrete-State Stochastic Processes. This is a misnomer by the instructor’s own admission as this course mostly covers continuous time processes. Is inexplicable to me why they haven’t changed the name.
3. [Core] Optimization Methods in Finance
4. Financial Trading (half-semester, 1.5 credit course): a very nice practical course, trading simulations every class, good content so far
5. Applied Financial Analysis and Portfolio Management: the class manages an equity fund
6. Advanced Derivatives and Risk Management Techniques (half-semester, 2.25 credit course): uses Hull’s Options, Futures, and Other Derivs book

SUMMER INTERNSHIP INFO SO FAR:

There is a 4 month summer break and one must find an internship; there is almost no coursework over summer that counts toward the degree (there is one real world project-based financial engineering course possible but I don’t think it is available every summer).

Given how royally screwed up things are in our beloved financial industry, I was honestly surprised to see how many recruiters came to campus. There is a ton of i-banking (I include here private equity, venture capital) and consulting recruiting at both the analyst and associate level.

Now I just want to give some general info to foreign students and others who may not be familiar with the internship programs at banks. All the major banks have the same position hierarchy. The entry-level position is the “Analyst” position. The next higher up is the “Associate” [then typically Assistant VP, VP, Senior VP, MD]. It so happens that many of the banks look to take MFEs (along with other non-MBA Masters degree students) into their Analyst program along with undergraduate students, and to take MBA students into their Associate programs. But if you have a Masters degree then why shouldn’t you get an Associate position? Their answer is relevant work experience. MBAs typically have several years of relevant work ex, and MFEs typically do not.

Now look, if you have some years of relevant, financial industry work ex, then of course you belong in an Associate position and they will consider you in this category (and they will usually disqualify you for Analyst positions because you are overqualified), so it is fair.

Getting back to on-campus internship recruiting. So there is a ton of i-banking/private equity and consulting recruiting at both levels. But as an MFE you would most likely be looking at Sales and Trading and Investment Management (S&T and IM from here on out). There was also a lot of S&T and IM recruiting for Analysts positions (just about every big-name bank showed up), but very poor recruiting for S&T Associate positions. If they hired anywhere for Associate positions in S&T in this miserable economy it would be at Wharton, Columbia, a few of the other Ivies, and Stern. So as good and as high in the rankings as Michigan is (Ross 12^th best B-School in nation by US News and ranked 5^th best B-School in nation by Businessweek for 2008), you will see more S&T and IM recruitment at these schools, and relevantly more during recessions like this.

But as you know banks aren’t the only places to go. Besides i-banks several market-making/prop-trading firms are recruiting interns on campus (there are many based out of near-by Chicago), and here you don’t have competition from MBAs since they want quantitative people. They don’t really have the same hierarchical designations as the banks either. We also have several hedge funds but many are looking for either undergrad interns or US citizens.

Which brings me to one more important point. Independent of which school you go to, if you are a foreign national, you will be PO’ed at how many internship and full-time job postings you see that are for US citizens only. How many companies have this stipulation? Hard to say. Major banks do not have this stipulation (1 or 2 exceptions), they are very diverse organizations. Nor do most independent trading firms to my knowledge. Many regional banks do. Many hedge funds do. Many other small financial companies do. What can you do about this? Nothing so don’t worry about it, just wanted you to be prepared.

This being a very long post I will stop it soon. In closing, I want to summarize my assessment of internship opportunities at U-M to avoid any confusion. I am disappointed in the amount of Associate-level S&T and IM on-campus internship recruiting by the banks. I am genuinely pleasantly surprised at the amount of Analyst-level S&T on-campus internship recruiting by the big i-banks and at the amount of all other recruiting. Know that my assessment is based on a sample of size of one: internship recruiting at U-M for summer 2009, which is not a typical recruiting season. I will write more about on-campus internship recruiting later as the internship recruiting season progresses and as I gather more information.

rant about Lehman

The purpose of this blog is to share information about the MFE program at U-M but I feel compelled to digress and rant about what happened with Lehman. What happened enraged me on several levels. First and foremost I am very upset that my friends, acquaintances, and other people I know are faced with a very difficult time in their career and their lives. Yes I know that Barclays bought the IB and S&T divisions and the operations that support S&T, but even so many people in these divisions do not really know what to expect. And outside of these divisions thousands will probably lose their jobs.

On another level, the way that Lehman went down really ticks me off. Lehman was brought down by shorts with an assist from a predominantly ignorant and panic-stricken market and a screen by the sensationalist financial media. After Bear fell, the shorts moved on to Lehman. Some shorts may have actually understood the balance sheet and the bank’s operations, but many I’m sure did not. Regardless, they shorted Lehman and saw some good price action because the majority of the market would rather stay away from something they did not understand. The path of short-sellers was made easier by the media who immediately after Bear’s demise started yapping: “Bear Stearns, one of the biggest investment banks in the US, has fallen. So who’s next? Is it Lehman?? Let’s ask our experts!” Enter “experts”: “Lehman has got a lot of toxic subprime debt on its balance sheet, I wouldn’t touch it with a ten foot pole” (I love the usage of the toxic adjective here; it conjures up an image of a disease or poison spreading through and ravaging the company, and of course you wouldn’t want to touch something like that); or “Lehman has billions of dollars of mortgage-related assets on its books, just like Bear did, and we all know what happened to Bear. We are in the middle of a mortgage crisis, and its not out of the question that another big bank fails” (a completely simplistic and qualitative statement, and equating the situation at Lehman to that at Bear is just wrong; Bear came out and said that they had a liquidity problem, whereas Lehman as a matter of fact had ample liquidity).

Now be clear that I am not criticizing anyone for not understanding something. What I am criticizing is that any old schmo gladly plays analyst these days (when I say schmo, I am not evaluating the entire person but rather the person’s expertise and understanding of the particular situation). How many “experts” who were called upon by the paper, electronic, and TV media to proclaim their esteemed diagnosis of Lehman (or any other investment bank) did a real analysis of the company, using actual numbers and actual facts? I would guess maybe one in a hundred, and I don’t think I ever heard that one guy. Yet with confidence they voice their assessments, when really the assessments made by these schmos are largely based on assessments made by other schmos (this is obvious just by how they all say almost the exact same things in almost the exact same way without ever citing any quantitative information or sharing anything new that they haven’t heard others repeatedly say).

But part of the reason that the health of Lehman remained a topic in the news was a continual stream of false rumors that were going around ever since the takeover of Bear. Rumors such as those that purported large counterparties had stopped trading with Lehman when they hadn’t. In my opinion it is obvious that many of these rumors were perpetuated by certain short sellers.

Negative rumors + sensationalist media + herd of vocal schmo analysts + preponderance of short selling (with probably some collusion between certain hedge funds here) + lack of resistance to short selling due to lack of general market’s understanding of balance sheet --> crisis of confidence in the stock and the CDS. Perception affected reality more and more as the stock slid further and further. Something like this would not have happened in the case of, say, a car manufacturer. Everyone can understand a car-makers balance sheet, very few understand a modern investment bank’s (I doubt that any one person in an investment bank fully understands his own company’s balance sheet). Short-sellers could not move a car-maker's stock from the 40’s to $4 in the absence of a single material event; buying would come in way before.

The final destruction of the stock price during the week of Sept 8 (as well as the blow-out of credit spreads), which is by this time reflective of the general and all-out crisis of confidence in Lehman, prompts counterparties to stop doing business with the bank and/or to post more collateral. There is a run on the bank. Perception finally becomes reality. The reflection in the mirror now starts moving the object. That weekend, as I understand, Lehman could not find a buyer willing to buy without a federal insurance program like the one offered to JPM, which the government refused to provide this time.

I am not saying that Lehman was a picture of health, and I am incapable of even trying to understand what the company was worth before counterparties started ditching. But what I am saying is that Lehman did not go bankrupt, it was made bankrupt.

Perhaps this was foreseeable, with the extent of the lack of confidence being estimable, and could have been avoided with a full/partial sale to another company. ML I suppose had the benefit of seeing what was happening with Lehman and averting disaster by selling itself. MS then may have saved itself (and other companies) by lobbying the government to do something about the short selling attacks which resulted in the imposition of a ban on shorting financials (the stock at least).

Abrupt end to rant.

After Summer, Before Fall

Many moons since the last blog. And this is a good time for one too: after the summer course and before the fall term.

Summer was enjoyable with respect to both academics and broader life. The summer course contained the following modules in no particular order:

-financial and managerial accounting
-finance (corp fin, capital markets, international fin)
-managerial economics
-excel and visual basic
-C++
-SAS (statistical analysis software)
-linear algebra
-multivariable calculus
-ODEs and PDEs
-probability and statistics
-resume writing and mock interviews
-database management
-ethics

Most of these modules I found very useful: I needed to review C++, math [through ODEs], and statistics; I bolstered my VBA skills significantly; and learnt a little about PDEs and SAS.

I have a strong finance background so the finance/acct/econ sections were of little benefit to me, but the vast majority of students in class have strong technical/math backgrounds and little finance training, so I believe many of them found these sections beneficial and the C++ and math sections less so.

Extracurricular activities primarily comprised of partying, watching the Olympics, and playing sports. Far and away one of the greatest things about being back in school, and especially at a serious sports school like Michigan, is that any sport you want is available at your fingertips. Personally, I played soccer, badminton, and basketball weekly, pool now and then, golf once, and hit the gym several times a week. Living in Jersey and working in NYC, the height of my weekly physical activity oftentimes was catching the [goddam, accursed] NJT train.

This is one of several reasons I find Ann Arbor to be a very desirable breath of fresh air from NYC. Other reasons include environmental cleanliness and beauty, general affordability, and Midwestern niceness. Ann Arbor really is a great, and in my opinion, ideal place to study. But of course, for an MFE student who is looking for a job, the glaring downside is that relative to living in NYC, your opportunity to network is enormously curbed simply because the serious financial operations in the US are so concentrated in NYC.

Onto Fall. I substituted 2 math classes I have deemed I need for finance ones I don’t; the nice thing about the program is that it is quite flexible and there are a lot of elective courses to choose from. The Fall line-up:

1. Probability theory (most other students taking Options and Futures in Corporate Decision Making)
2. Boundary value problems for PDEs (most other students taking Capital Markets and Investment Strategy)
3. Stochastic analysis for finance
4. Statistical analysis of financial data
5. Fixed income securities and markets

I also have a tentative schedule for Winter 08 (they call the Jan-May term Winter instead of Spring; yes its technically more correct given the Michigan winter but it just peeves me) and Fall 09, so let me put that down so you have a representative curriculum (this blog is for you after all):

Winter 08:
1. Financial Engineering I
2. Advanced derivatives and risk management
3. Financial trading (7 week course)
4. Discrete stochastic processes
5. Statistical analysis of time series
6. Securitization (7 week course)

Between Winter and Fall is internship time.

Fall 09:
1. Financial Engineering II
2. Computational finance
3. Continuous optimization methods
4. Risk theory

I’m happy with this curriculum. Of course I will write more about these courses throughout the semester.

The other notable experience was going to the football season-opener. Football is a huge deal here. The atmosphere before the game is like spring break, except people have more clothes on. Leading up to the game there are just rivers of people flowing into the stadium. And they call it the big house for a reason: the stadium is gigantic; the second biggest in the country and supposedly the fourth biggest sports stadium in the world. And its supposedly almost always packed to capacity, so its great to watch games there. I’d much rather be playing though this will never happen.

Long post so will cut it off now. Till next time. Auf wiedersehen.

first post

Rolled into Ann Arbor, MI about 4 weeks ago in a moving truck hauling all my humble possessions with me from Jersey. Had 11 days before the summer course started and spent most of that time setting up my on-campus graduate student apartment and scoping out Ann Arbor.

Diamond in the rough. The town is beautiful. They call Jersey the garden state but I’ve never seen a town as green as Ann Arbor; “more trees than people” a cabbie told me. This may be a reason for the inordinately large squirrels on campus. I was looking out of a window on the second floor and saw one hopping along the ground and the thing was so big even from a distance that it totally skewed my perspective.

Bold little buggers too. I was walking down a sidewalk and saw a squirrel going to town on an acorn or something right in the middle of the path. As I walked up to him he looked up at me but the cheeky tyke didn’t budge. After a brief stare-off I just walked around the guy.

^actual picture taken during stare-off
(image from cybersalt.org/cybersalt communications)

Getting back to Ann Arbor though: the town is compact and very easy to get around without car (further validating my decision of trading my car for food money before moving here). U-M students can ride the local buses, which have a great coverage footprint, for free. And though the campus is vast, it is easily traversable via frequently running U-M shuttles.

From what I’ve seen and heard so far there are lots of good restaurants and bars in and around downtown and central campus. Nightlife has been great even though it’s the low-gear summer season in a university-centric town.

And the atmosphere in graduate student housing (north campus) is serene and very conducive to studying, which is what I’m here to do.

The summer course began July 11. We have classes Monday thru Saturday until late August. All topics from accounting to probability to C++ are covered in modular format. The intent of the mandatory summer course is to bring the entire class to about the same level as far as certain fundamentals go, as well as to clean out the cobwebs and refresh particular topics. Will expatiate upon the summer course after I get through it a little more. Arrivederci.