Tuesday, July 5, 2011

Horror on Wall St.- Rated PG:

Another Finance Industry Horror Begins to Unfolds

Like a bad horror film, relentless slashing is imminent, and likely resulting in a blood bath of Wall Street employees, running for cover(unemployment line). Thousands of innocent victims scattered on the street as a result of massive Wall St. cuts....you get the idea. In all seriousness though, this will be a living nightmare for those hard working employees who will lose their jobs in the coming months.

As trading remains lackluster, the impact on returns have forced Banks to consider another merciless round of trimming. Certainly many perceived that the Market's continuous climb past DOW 12,000 meant it was going to be safe from a repeat of the economic trauma that plagued 2008. Well, from my standpoint, Wall St. may not revisit the lows and panic of 2008, but the Market is far from being “safe”.
Although the economy has managed to gain traction over the past 18 months, and bring the unemployment rate below 10%, it has not stabilized substantially enough - at least not in the way we had hoped. The monetary and fiscal policies of the Obama Administration and Federal Reserve have not had the impact on the economy that they anticipated either. This comes at a bad time for the President and the Democrats as they gear up for next year’s elections.

In the last 3 years, businesses have been sleeping with one eye open, if they're sleeping at all. Let’s face it, the economy is just not recovering fast enough. If you combine bank losses from the first 6-months of last year, and the first 6-months of 2011, it is estimated at $20 billion globally. That number only represents the lost revenues of 9 of the top banks. The Wall St. Journal Article “Wielding the Ax” quoted Michael Karp of Options Groups as saying “banks are cutting a lot of deadwood and live wood”. Based upon the word on the Street, this apears to be a statement of truth.

Banks have taken just about all they can stand from the Wall Street slump, and report plans to take steps toward trimming down the staff. A few of the tops Banks are ready to make severe cuts in annual expenses, as early as this week. Austerity is not limited to the borders of Europe, J.P. Morgan, alone, is preparing to trim nearly a billion in annual expenses. Credit Suisse Group laid off investment banking employees, as part of the planned layoff of 400-600 jobs, while Barlcays is expected to cut additional jobs - on top of the 600 jobs eliminated in January. Goldman Sachs' annual Survival-of-the-fittest program ( 5% annual reductions) wont be enough this year, therefore deeper cuts can be expected. Surprisingly though, Goldman still plans to add jobs in Brazil, India and Singapore.

There's a saying; When Wall St. sneezes, the rest of us catch a cold. That said, prepare for the worst, and hope forthe best.

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