YOUR MONEY

Not much joy on Wall Street and Bay Street

The New Year used to be the best time of the year on Wall Street and Bay Street as Banks and brokerages give out salary top up bonuses based on the year’s sales and profits.  For many, the bonuses dwarfed their regular salary and often allowed for a new Mercedes or Porsche or Ferrari or Lamborghini to suddenly appear on the driveway.

But not this year.   Newspaper reports and radio shows say bonuses will be far less than normal and in some cases half the expected premium.

Wall Street and Bay Street are looking at harder times as the two  life bloods of the industry – client stock purchase and sell orders, and speculative derivative funds and other ‘plays’ are all going sour.

If the Great Recession is over in the U.S. and Canada at least – supposedly ending in-2009 – slow growth of around 2% to 3% has made ‘recovery’ and ‘optimism’ delusional stock broker dreams.

Firstly, brokers make their money as ‘transaction fees”: whether buying for a client or selling.   They get the same transaction fee ‘profit’  either way, so they don’t care if the customer is making money or losing money as their commission is by the trade.  That is why the Stock Market Crash of 1929 was fantastic business for the first day or two – huge volume and tons of trade commissions --  and the same for every sudden ‘bust’ ever since. 

What kills the industry is the aftermath: when people have no money to make new purchases (for later resale).  The volume factor is key  to brokerages, not whether a stock or index goes up or down!

But newspaper stock market sections, TV analyst shows and radio market highlights are almost exclusively designed to promote buying (of stocks/bonds/Indexes/ETFs)  and fail to mention the most essential point -- market volumes --  unless someone slips up.

One analyst, in a radio interview on 680News in early February, let the truth slip out.

What seemed like a new ‘bull run’ as stock market indices rose and rose during 2012 was an illusion! Transaction volume had dropped by up to 80% and he did not expect much of a revival in 2013.           Not with Europe still in financial limbo, China retrenching, Japan in another recession, the Arab/oil world in political chaos and the U.S. up to its eyeballs in debt. 

With no sign of a turnaround in the foreseeable future, stock markets will no longer be the ‘money machines’ for brokerages as in the past.

So say goodbye to those great bonuses.

And hope you still have a job by April Fool’s Day, 2013.