James Grant wrote an article in Saturday’s Wall Street Journal wondering “Why No Outrage?” from the public concerning Wall Street’s reckless behavior during the credit boom and the assistance they’ve received from their government enablers.
Three factors will keep the cash register ringing for investment banks: 1. Demographics of baby-boomers saving for retirement. 2. The cheaper dollar, meaning that foreign firms will be on a shopping spree for U.S. companies, which will help M&A advisory. 3. Mortgage portfolios that have been marked to market. When liquidity retuns to this market, portfolios of mortgages will start to show profits.
It would seem that Wall Street also hasn't forgotten that it is the second most regulated industry in the U.S. (after nucular energy) and that it needs to keep track of where its bread is buttered. Banks are betting that the butter will be spread by a Democrat in 2009.
On the next pullback, which I think is coming once all the shorts are done covering, I'll be looking to buy the investment banks cheap again. Look out for U.S. firms like Goldman Sachs (GS - $179.63), Lehman (LEH - $48.65), Morgan Stanley (MS - $49.67) and Merill Lynch (MER - $46.71) to continue to do well. I own the investment banks directly, but rather than pick individuals, the Exchange traded fund (IAI - $39.43) works well as a proxy.
