Harvard's Crystal Ball Flashes Sell Signal, Again

Posted by: Louis Lavelle on October 10, 2011

Bloomberg News is reporting that the U.S. has likely dodged the recession bullet, at least for now, with third quarter GDP growth now forecast at 2.5 percent. But at the same time another leading economic indicator is flashing the opposite signal.

About 38 percent of the Harvard Business School Class of 2011 has taken jobs in “market-sensitive” industries, including investment banking, hedge funds, venture capital, and private equity. According to Ray Soifer, a consultant who has been studying the connection between MBA career choices at Harvard and broader economic trends for many years, when more than 30 percent of HBS graduates take market-sensitive jobs, it’s a strong sell signal.

Soifer says his predictions are accurate because Wall Street firms tend to hire more MBAs when times are good, and if history has proven anything it’s that good times have a way of being followed by bad. A Wall Street hiring binge is therefore a fairly reliable indicator that bad times are around the corner.

The percentage of Harvard MBAs entering market-sensitive jobs peaked at 41 percent in 2008, the year the Lehman Brothers collapse ushered in the financial crisis and the Great Recession. In fact, except for one “neutral” year in 2009, this indicator has been flashing a sell signal since 2005. So Soifer may have a good reason for believing that Harvard MBAs tend to have impeccable timing when it comes to jumping aboard sinking ships.

Still, I find it hard to believe Harvard MBAs are no wiser than lemmings when it comes to choosing their career paths. If you have money in the market, does the Harvard crystal ball give you pause?

Reader Comments

Aviator

October 10, 2011 5:43 PM

Not a very persuasive argument. Rests on a simple axiom of the market, i.e. If an extreme value has occurred for a sustained time period, there exists a higher probability that less extreme values will follow. There is no guarantee on the timing. As such, one would do well to use caution with this indicator.

jo

October 10, 2011 11:03 PM

wow - great indicator....pretty sure 2009 was an AWESOME year for market investors....pls, start at least TRYING to get some decent reportage....

Dan

October 11, 2011 1:30 PM

Not sure about you Jo, but 2009 was a pretty good year.

Texas

October 11, 2011 1:32 PM

Don't know about you, Jo, but 2009 was a pretty good year...

Joe Stratford

October 15, 2011 12:30 AM

Or... is it a matter of causation? The harvard MBAs cause these sectors that hire them in boatloads to go down because of their incompetence.

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