WASHINGTON, January 16, 2013 – In a sign that at least some justice still survives in the world of high finance, word has been spreading fast on Wall Street that bonus pay for investment bankers is getting smaller. And less advantageous for traders who live for the thrill of extreme risk.
To make a long and tedious story short, the days of outrageously fat bonus pay for Wall Street’s Jolly Rogers—the guys who combined with asleep-at-the-switch Federal regulators to bring us Great Depression II—seem to be more or less permanently over, and with this, the extraordinary incentive for extreme risk-taking with Other Peoples’ Money. At least for now.
Mr. Potter, the evil, greedy banker-villain in the popular Christmas film “It’s a Wonderful Life,” would be positively ecstatic at this turn of events, figuring, no doubt, that this would channel even more money into his big, seemingly bottomless kangaroo pockets. Hearkening back to yesterday’s movie analogy, today may be remembered on the Street as “The Day the Bankers Stood Still.” Why not mix metaphors and analogies? It’s that kind of market these days.
But the Maven digresses. Adding insult to well-heeled injury, Morgan Stanley has indicated that most of its overpaid bonus recipients will be getting their 2012 bonuses parceled out in four quarterly payments throughout 2013. The junior and senior Blackbeards resident at Goldman Sachs and other pirate dens may suffer various flavors of the same miserable fate.
This extraordinary fit of fiscal morality largely puts an end for now to those annual, post-Christmas yacht and Rolls-Royce purchases that Wall Street’s pirate captains traditionally indulged themselves in by deploying those predictably massive, lump-sum checks. This also makes it more difficult for these poor little rich dudes to jump ship to another firm, as most would forfeit the balances of those quarterly bonuses if the decide to head for literally and figuratively greener pastures.
Some of these former Masters of the Universe may even have to downsize from their upper-East Side penthouse condos and co-ops to a flood-ravaged, rehab shell somewhere out in the distant wilds of faintly Republican Staten Island, the land that time, Democrats, and the White House conveniently forgot.
Even J.P. Morgan’s sainted Jamie Dimon got his wings clipped, forfeiting a fat chunk of bonus money for the “London Whale” debacle, the gigantic trading loss incurred early last year on his watch. Makes you want to sing a verse or two of “Cry Me a River,” doesn’t it? Without any bonuses at all, these miscreants have been making it through Great Depression II virtually unscathed. So now they get their comeuppance at last. One less mansion in the Hamptons this year, or maybe one less brand new 550 ft. yacht to dock in a low-tax red state marina. That’ll teach ‘em! Makes drowning middle-classers like the Maven feel downright upright. As in this little ditty from the current Broadway musical, “Avenue Q” which covers some of the same turf (but you’ll have to endure a short ad first):
Well, enough with the analogies and schadenfreude. Partially as a result of today’s dire news, Wall Street is wallowing in malaise this morning, with financials going nowhere and inspiring similar activity in other stocks as well. Earnings, options expiration, and the President’s endless, Ozymandias-style blustering are helping keep a lid on the post fiscal cliff I party, even as pols on both sides of the aisle gear for a debt ceiling battle that will result in an overabundance of heated rhetoric and blatant lies and a concurrent lack of viable ideas for throttling the Debt Monster before it devours a generation of taxpayers yet unborn.
As we’ve been warning all month, the first couple of fun weeks in January will slowly give way to the chaos of a government that no longer represents its citizens. As this sinks in, the selling could put a crimp into what some traders are calling a return of the retail investor. For patient investors, however, there’s at least one temporary strategy for waiting this out: high-yielding stocks.
Normally in wretched times, frightened investors head for the money markets, the remaining equivalent of passbook savings accounts, and investment grade bonds. Problem is that these days, while these investments are nearly rock-solid safe, they effectively offer a negative return. What’s the point of parking your money somewhere when, say, $10,000 will bring you about a dime of interest over the course of a year whether you’re storing those dollars in an interest-bearing checking account or in a T-bill? Well, you do this if you’re scared. But if a marginally less safe investment pops up offering you a juicy yield, you might just be inclined to take it.
Such deals exist right now in preferred stocks and preferred stock ETFs; REITs and MLPs; and in the common stocks of utilities, some large companies (particularly old-line pharmaceuticals). We’ll be putting up two or three articles over the next couple of weeks in our companion column, The Prudent Man, explaining how to cozy up to these relatively safe investments.
Meanwhile, we’ll likely spend most of the rest of today chortling over the fat-cat banker’s mini-comeuppance while studiously avoiding the President’s smarmily-staged gun-control event, which promises to shamefully deploy a phalanx of little kids to induce guilt and support for the gutting of the Second Amendment. After all, who needs those well-armed, religious bitter clingers anyway, right?
See you tomorrow.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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