Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Goldman, Morgan Between Rock and Hard Place

By

And nine other predictions for 2009.

PrintPRINT
Not to be left out of the list-making prediction craze, here are my top 10 for 2009:

1. The Brand-Name Investment Banks Caught Between a Rock and a Hard Place.

And they'll find themselves with talented people operating riskless businesses departing for larger payouts, on the one side, and less talented people operating capital-dependent businesses on the other.

It's no secret that the world has dramatically changed for Goldman Sachs (GS) and Morgan Stanley (MS) (that's right - they're the only 2 "brand-name" banks left, all due respect to Ken Lewis and Jamie Dimon). In 2009, we will realize just how dramatic that change has been.

While dealing with impaired capital markets, becoming bank holding companies, and their own de-leveraging process, they'll face perhaps their biggest challenge: Keeping the right people. Look for groups of talented individuals who run desks to leave these firms en masse in 2009 and go to smaller, regional shops like Raymond James and Jeffries.

And they'll do so for one reason: pay. Cutting bonuses on Wall Street isn't as simple as it may seem. It is easy to decry CEOs as overpaid, because they clearly didn't understand the risks their firms were taking. But when you cut the payout of a profitable desk, it causes problems.

If a group trading, say, government securities has their share of the desk's profits cut too severely, they can pick up their bat and ball and go home. And they'll do it right after bonus season (or what's left of it), so… Right about now.

What the banks will have left are those individuals whose productivity depends on the availability of capital. Good luck with that.

2. The Short Sale Uptick Rule Returns.

This one is fairly self-explanatory. Short selling is an essential ingredient to any healthy market. The ability to pile onto the downside of a stock, and to augment that process by blowing out the credit default swaps, will come to an end this year. We may not be the best regulators in the world, but this one we will figure out.

3. Leveraged ETFs Lose Popularity, Ultimately Leading to Their Demise.

ETFs have followed the road most traveled by the majority of Wall Street innovations: Fundamentally, they're a value-added concept with merit for a certain class of investors. Unfortunately, Wall Street has this habit of overdoing things. The leveraged ETFs -- ie, 2 times long or short -- are a perfect example.

Simply put, these leveraged ETFs don't deliver the returns they're supposed to, and they incur far more risk than their plain-vanilla brethren. If 2008 has taught us anything, it's that unsustainable things eventually collapse. Look for a collapse of the leveraged ETF in 2009.
< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE