Trading: State of the Union
I was visiting a large Oil trading floor last year, and they
were having their big state of the union town hall on the floor and the CEO of
the group that trading and marketing rolled up into talked about the dying volatility
in general saying that they could hold on for a couple more years with this
level of volatility, but if this continued for 5 or 6 years they were in
trouble, and would have to find new ways of making money, i.e., new business
models for trading and marketing.
Industry Layoffs
Last week ING and SOCGEN both announced significant layoffs despite
the rest of the economy seeing a slight improvement over the last 12 months.
CITI has already restructured, and promised more layoffs in the future, and
J.P. Morgan announced substantial job cuts in their equities division on
Friday.
Dead Markets
Just watch markets lately and one realizes rather fast that
more job cuts are on the way, and in a major way all across the spectrum from
financial analysts, stock analysts, traders in most products, back office
support staff, and management.
More Layoffs Inevitable
I would say that all firms probably need to cut staff by at
least 1/3 over the next two years, with current and trending market dynamics in
the industry over the last five years, these positions are just not needed
today. Frankly, these jobs are dead weight on firms’ balance sheets, and it is
amazing how long it has taken firms to reduce staff given the evolution in
financial markets.
Changing Market Dynamics
First of all be sorry for what you wish for in fed induced
liquidity taking all the volatility out of markets; and trading profits are
sure to decline in trading shops all along the spectrum of products.
Next, with the evolution of computer trading and computer
driven Algos not only has this reduced volatility, but traders’ jobs in the
process.
Third, with highly correlated markets and more money flowing
into ETFs, stock and commodity differentiation is less relevant than in the
past requiring fewer analysts.
Fourth, with major consolidation in the industry due to the
collapse of Bear Stearns, Lehman Brothers and Merrill Lynch this has reduced
the overall size of market competition, shrinking volatility further, and
reducing overall trading volume.
Fifthly, the overall sluggishness of the global economy
where many countries have debt problems and are still in the deleveraging phase
has severally shrunken GDP growth which hampers private capital infusion into
businesses which hurt the IPO and investment banking markets for the financial
industry.
And finally as the chart of the 10-year note versus the
S&P 500 futures contract illustrates asset class differentiation over the
last five years has reduced significantly requiring less investment expertise
than in the past. All of which is bad for jobs in an industry struggling to redefine
itself after the financial crisis.
Revive Markets=More Industry Jobs
In watching financial markets there are many products which
are simply deteriorating before my eyes from
a volume, volatility and profitability standpoint, and the more of these
markets that pop up each year means that many more job cuts in the industry are
on the horizon.
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