It’s nice to be back after the holidays.
I just watched a series of short videos from the Wall Street Journal’s Digital Network. The series is called the “End of Wall Street”. It is a short oral history of the past year since the demise of Bear Stearns and the current crisis. It ends with a part called “What Happens Next”, yes the biggest question in the world, right next to the last cyclon cylon on Battlestar Galactica. It’s a nice piece of journalism even with the mood inducing sad piano.
Follow this up with another WSJ story on Morgan Stanley written by Denis Berman: “Answering Morgan Stanley Riddle” about the possible successors to CEO John Mack. The two top contenders are James Gorman – longtime brokerage guy and Walid Chammah the institutional securities guy. Both of these guys represent what Wall Street has always been about: Sales, Trading, Research and eventually core Investment Banking. I think we have witnessed (first understatement of the year) the end of financial alchemy of complex assets with neatly model risk assumptions passed to investors as securities, those days to some degree, as long as memory holds, are over (whew!). It is one of the questions I will look to ask Bill Janeway and Richard Bookstaber at Money:Tech as they continue their conversation from last year.
In fact a return to fundamental investing (with some help from the Internet, RSS & social media) is upon us. As sell side firms reduce the number of companies they cover, being able to do ‘real’ research and find proprietary data is an advantage, again.
Back to MS as a barometer for the Street as a whole, the final sentence in the article is the money quote,
“The CEO pick will say a lot about the firm’s vision of itself. And whether Wall Street has, at last, died or survived.”
If the choice is between a brokerage guy and a markets guy — that should tell you where we are going – clients and trading.
The good news is that Wall Street never really dies, firms go under or get acquired, but creative destruction always takes place. Just because MS & Goldman Sachs are bank holding companies doesn’t mean they are going to stay that way forever – my own hunch is that this is a holding action to provide stability, as we all start to understand the new rules. In the next few months and years, the shackles of stability and emerging competitors will give way to prudent risk seeking and higher profits. It’s just human nature.
As long as people seek to do something more than earn a risk free return and have capital to invest, Wall Street survives. If it didn’t die after ’29, tariffs, and a World War, the Great Panic of 2008 isn’t going to kill it.