2011Dec27 Going, Going...Outa Here!
We thought this was a great look back at the year that was from the Wall Street Journal.
Reflections From a Year of Tumult
Forgive me if I sound a little jumpy but I am penning this column from an Amtrak train with a callous disregard for suspensions. Hurtling between New York and Washington in a bouncy metal tube seems an apt metaphor for the year that is drawing to a close. Talk about a bumpy ride. If you invested money, wanted money, or simply had money, 2011 was the Year of Living Dangerously. We had downgrades and Wall Street Occupations, sovereign crises that led to abdications of fiscal sovereignty (come on down, Italy and Spain) and "voluntary haircuts" that no investor wanted. We had rogue traders, insider traders and really awful traders (yes, you Jon S. Corzine). New words entered the financial jargon, ranging from the tongue-twisting-try saying EFSF 10 times quickly-to the vaguely insulting-Piigs, Giips-to the Mary Shelley-esque (what does a Merkozy look like?). And there were casualties along the way. Veteran financiers called it quits-so long, Morgan Stanley's John Mack, UBS's Oswald Grübel and Deutsche Bank's Josef Ackermann-leaving mixed legacies in their wake and untested leaders in their place. Former high-fliers crashed and burned-Mr. Corzine, but also Rajat Gupta, once head of McKinsey & Co. and director of Goldman Sachs Group Inc.-and are now trying to defend their names. Markets were buffeted by all of this, and a lot more. For much of the year, investors were dazed and confused by a cacophony of news, rumors and wishful thinking. The Dow Jones Industrial Average swung 100-plus-points from open to close more than 100 times, even though, by Christmas, bulls and bears appeared to have fought themselves to a virtual stalemate. "Bloody untradeable" is how an experienced British fund manager summarized the year's markets. Banks, those cornerstones of the financial system, looked brittle and bruised in Europe, and weak, lackluster and paranoid about regulation in the U.S. Their most memorable moments were either spectacular mistakes-Bank of America's since-aborted decision to charge fees on debit cards-or negative milestones, such as Goldman's second quarterly loss since its 1999 listing. Will 2012 be better, or at least calmer? Nobody knows, but few believe it. Markets will remain unnerved by events on both sides of the Atlantic. Muddling through without messing up will be the name of the game in the European Union. If the EU manages to contain the economic fires raging in its midst and buy itself time to implement much-needed fiscal consolidation and recapitalize its banks, investors will be mightily relieved. In the U.S., an election year will add to the uncertainty. But should the economy deliver on the current promise of a steady, if modest, recovery, fund managers might be tempted into a "decoupling" trade from Europe and buy American stocks. What is unlikely to disappear is governments' hulking shadow over capital markets. Be it from the Federal Reserve or the European Central Bank, the global financial system will continue to be heavily reliant on state-sponsored liquidity and ultralow interest rates. You can almost hear Dire Straits' "Money For Nothing" playing in the background. In banking, the storm of regulation that has been brewing since the end of the financial crisis will unleash its full force in the next few months. Wall Street will lobby for a dilution of the most radical changes, such as moves to streamline derivatives markets and the "Volcker rule" banning banks from trading with their own money. Some U.S. politicians are campaigning on a platform of rolling back post-crisis reforms, an unlikely but not impossible scenario. And if the situation gets worse in Europe, there is a chance that the long-awaited capital rules known as Basel III will be delayed by a few years. But even that wouldn't change the sad assessment I heard recently from a Wall Street executive: "With the rules that are around the corner, you can see that our business models as they are don't really work." Cue one of the financial industry's periodic restructuring with the inevitable loss of jobs, lower bonuses and a wave of consolidation and/or failures among weaker players. The shakeout is likely to last for several years and, until the new financial order emerges, fund managers will remain skeptical of the sector's earnings power and long-term strategies. Elsewhere, investors large and small will face an unenviable choice: ramping up risk in anticipation of a global recovery, or keeping the hatches battened down on fears of a prolonged downturn? That, like an Amtrak train seemingly with no suspension, isn't a comfortable place to be. But at least the Year of Living Dangerously is about to come to its final stop.
HAPPY NEW YEAR !!! |
