I’ll be back from vacation next week, hopefully rested and ready to return to a more regular regimen of posting. In the meantime, I thought I’d share an article that caught my attention during a week otherwise occupied by beach reading, …and playing with my kids.

For those of you who follow this blog, you know that I have an interest in the job market for MBA graduates. As I have argued in the past, as difficult as the job market has been for MBA graduates from the class of 2009, it is my expectation that that the job market will, unfortunately, turn out to be worse for graduates from the class of 2010 (see Visit to the FT and Crisis for MBA Grads). I was therefore not surprised to come across an article in yesterday’s New York Times  detailing the difficulty that Law students have been having on this year’s market (see Downturn Dims Prospects).

This fall, law students are competing for half as many openings at big firms as they were last year in what is shaping up to be the most wrenching job search season in over 50 years.

New York University, Georgetown, Northwestern and other top universities confirm that interviews are down by a third to a half compared with a year ago, while lower-ranked schools are suffering more. What is more, when interviews finish in a few weeks, even fewer offers will be extended, said Howard L. Ellin, the chairman of global hiring at Skadden, Arps, because many firms are interviewing students for slots they may not fill.

We were already in recession at this time last year. So if interviews are down 33-50% from last year’s already depressed level, how bad must the market be this year?? Wow!

Although the New York Times article is specific to the market for attorneys, the job market for Law School grads shares many similarities with the market for MBA grads. Interviews start a bit earlier for law graduates than business graduates; but as with law, the lion’s share of the MBA interview activity takes place in the Fall.

And even if the broader economy is improving (and I am not quite convinced improvement is the word to characterize it, stabilizing is probably more accurate), it will be quite some time before the market for MBA grads picks back up, as many companies do not foresee robust growth. So not only are graduates competing for fewer overall slots, but they are also competing with the unemployed and under-employed (individuals who are working part-time for economic reasons, and similarly-credentialed graduates who took whatever jobs they could find).

So unfortunately, no green shoots for grads thus far…

A hearty hat tip to Muir for sending this along. Hysterical! Enjoy…

If for whatever reason you cannot view the embedded video, you can see the video by clicking through to MBA Ethics Oath.

On my way out of town for a much needed break. Here are a few things that caught my attention:

1. American Graduates Finding Jobs in China
2. Hints of a Rebound in Global Trade
3. Interest Fizzles in Cash for Clunkers
4. Volkswagen and Porsche Close In on Deal to Combine
5. The Pay at the Top (Compensation for 200 Chief Executives)
6. Life without Landlines
7. An Early Stab at Quantitative Easing
8. US Homeowners Cut Asking Prices
9. GM and Chrysler in Different Paths to Recovery
10. Asia’s Astonishing Rebound?
11. A Debate over Cause and Effect (kind of geeky, but how can I not include an article that mentions instrumental variables)

Happy Weekend!

The New York Times published a fascinating piece Sunday about Chrysler’s acquisition by Cerberus, and its main protagonist – Steven Feinberg (see For Private Equity, A Very Public Disaster). Louise Story was somehow able to secure an interview with Steven Feinberg, the notoriously reclusive Chief of Cerberus. In commenting on the interview, Louise points out:

…how he [Feinberg] and his private equity firm, Cerberus Capital Management, choose to describe their journey with Chrysler is a delicate matter. If he says he should have shelled out more money to help Chrysler, he could face the ire of investors who have already suffered heavy losses on his gambit. If he says he should have simply dumped Chrysler’s auto arm, while clinging to its more promising finance unit, he could be accused of caring more about his wallet than he did about Chrysler’s workers and the automaker’s role in the economy.

MY COMMENT: My knee-jerk reaction after reading that was, “OK, so if he can’t be candid during the interview, what good is the interview?” But the article delivered. In fact, if you go into the article knowing that an interested party is engaging in retrospective rationalization (a behavioral attributional bias) when speaking about a personal failure, it’s not that hard to read between the lines.

But back to the article:

For Steve Feinberg, the onetime owner of Chrysler, the past year has been a crawl toward defeat. He lost billions of dollars. He lost prestige. He lost his privacy. And he ended up a ward and supplicant of the federal government.

But, even now, Mr. Feinberg…is hard-pressed to pinpoint many mistakes.

MY COMMENT: Really now?

“I don’t know what we could have done differently,”…“Maybe what we should have done was not bought it.”

MY COMMENT: Gee, ya think?

Cerberus bought a business with little future. The automobile industry has been plagued by mass overcapacity and has been in decline for decades. As the weakest of the American manufacturers and the one of the weakest global players, how could the expected outcome have been anything other than failure for Chrysler?

Granted, Cerberus didn’t really want Chrysler. They wanted Chrysler’s financing arm. But the fact remains that the financing arm came with an enormous, politically-connected sinkhole that was backed by an incredibly powerful union.

But the lucky thing is that patriotism was guiding Mr. Feinberg:

“Steve saw this as a huge patriotic opportunity, in addition to a great investment,” says Robert L. Nardelli, the former Home Depot chief executive whom Cerberus installed at Chrysler’s helm.

…he [Feinberg] was authentically excited by the prospect of reviving an American corporate icon…

…Mr. Feinberg and his colleagues at Cerberus maintain to this day that their time at Chrysler was, in part, a reflection of their patriotism…saying his experience at Chrysler has left him feeling like a good citizen.

MY COMMENT: I don’t know about you, but now that I know that patriotism was an underlying motivation makes me feel so much better about the stripping-down of Chrysler’s assets. So as you see, it was good for us all along.

Mr. Feinberg says that…business restructurings are, unfortunately, often brutal affairs. “It’s demoralizing when things go down,” he says. “But that’s a turnaround, you know. Some guys make it; some guys don’t want to deal with it. This was the most difficult environment. You couldn’t think of a worse storm for an employee to have to live through.”

MY COMMENT: Hey, a bit of candor. It is true. Turnarounds are brutal for employees. But frankly, I would have been better with the following explanation: Cerberus bought Chrysler for profit-seeking motives. They thought they might be able to turn around a firm that was most likely to fail anyway. There was a bit of hubris mixed in. They weren’t able to pull off a miracle. The end.

But to veil it in patriotism is disingenuous. After all, Cerberus is named after the mythical three-headed dog that guards the gates of Hell (see also, A Benevolent Cerberus?).

Stumbled across the following in New York Magazine — Hot Waitress Economic Index. According to Hugo Lindgren, there may actually be a better gauge of economic activity than GDP.

Are things getting better? The answer is rarely straightforward.

In New York, we have our own economic indicators, often based on the degree to which people are being thwarted by the lack of opportunity. An old standby is the Overeducated Cabbie Index. The Squeegee Man Apparition Index is another good one. There’s also the Speed at Which Contractors Return Calls Index: within 24 hours, you’re in a recession; if they call you without prompting, that’s a depression.

The indicator I prefer is the Hot Waitress Index: The hotter the waitresses, the weaker the economy…

Interesting hypothesis.

Check out the full satire by clicking Hot Waitress Economic Index.

For readers of my blog, you know where I stand on the private equity industry. I have suggested for several years now that private equity activity would be entering a long slumber (see Private Equity: The End of an Era and Private Equity – Stupid Money Chasing Stupid Deals).

I was therefore interested to read an article that appeared in last week’s issue of the Economist claiming that private equity might be on the rebound (see The Barbarians are Coming, Again). According to the Economist:

As banks, which had been lending buy-out firms spectacular sums of money on extraordinarily generous terms, abruptly turned off their taps, buy-outs became a rarity. In the first half of 2009, just $24 billion of private-equity deals were completed worldwide and only three loans were extended to fund leveraged acquisitions, the lowest number since 1985, according to Dealogic. That compares with deal volumes of $131 billion last year and $528 billion in 2007.

MY COMMENT: Wow. A phenomenal decline! Those numbers are characteristic of an industry in utter free fall. With those kinds of numbers, it’s hard to see the rays of sunshine. But the Economist identifies several stylized facts that it believes are indicative of a recovery.

…several signs in recent weeks that the wind may be starting to blow in a better direction for private equity.

First, a few deals have been announced…Bankrate, a financial-services website, has agreed to be bought by Apax Partners for $571m.

There has also been a twitch of life in the market for disposals [exits from deals], with the announcement that Vitamin Shoppe, owned by private equity, intends to hold an initial public offering (IPO), albeit a tiny one that may value the retailer at $150m…Perhaps the exit market, which in the first half of this year has raised only $21 billion, compared with $115 billion in the first half of 2008 (according to Dealogic), is past its worst.

But the clearest signal that things are looking up for private equity is the news that the granddaddy of the industry, Kohlberg Kravis Roberts (KKR), is to revive its plans to go public—and fast.

MY COMMENT: Although private equity may be rising from the mat, I think it is a bit premature to use these events as de facto evidence of a revival. With respect to the first point about the recent uptick in deal-making activity, even including those recent deals, we are still on track for a greater than 50% decline in activity from 2008 to 2009. Moreover, there is no assurance that Apax’s $571m investment in Bankrate won’t suffer a similar fate as TPG’s recent $1.35B investment in Washington Mutual. As for the exit from Vitamin Shoppe, a $150m IPO might seem impressive, …had it not been for the fact that the private equity buyer paid in excess of $300m for the firm in 2002 (see DM News article). Finally, I am not surprised that KKR is trying to revive its previously delayed IPO. Wouldn’t you if you saw a 50% rally in the equity markets? They are acting perfectly rationally – trying to get while the getting is good.

The Economist continues:

For all its recent difficulties, private equity still has plenty going for it—not least an estimated $400 billion of uninvested capital. True, the credit-fuelled mega-deals of old are unlikely to return soon. Deals will be mostly financed with equity rather than debt, which means that private-equity groups will need to improve the fundamentals of the businesses they buy rather than just profiting from financial engineering.

MY COMMENT: The $400B pool of uninvested capital might seem like quite a war chest. But the fact of the matter is that even if 100% of those assets were put to work tomorrow, private equity activity would still fall some 20% short of that in 2007.

I agree with the sentiment expressed in the Economist that credit-fueled deals are a thing of the past. In fact, in March of 2008 I wrote:

…for me, these events officially mark the end of an era. We will likely look back at this period and eventually refer to it as the second LBO wave. In my opinion, there are now two identifiable, and distinct, LBO waves:

1. The 1980’s – the wave that most of us associate with the LBO heyday; driven by the break-up of conglomerates, culminating with the RJR Nabisco deal, and etched in our memories by the movie “Wall Street”
2. The 2000’s – the cheap money wave; fueled by excess leverage, cov-lite deals, financial engineering, and a dose of Sarbanes-Oxley compliance avoidance

I also agree that future deals will require much more equity than debt. But the Economist failed to identify what will likely become the largest draw of private equity investment in the coming years: distressed firms and assets. That’s where they will best be able to “improve the fundamentals of the businesses they buy”. Even so, we are many many years away from the next private equity heyday.