Pimco Expects A New Wall Street to Emerge From the Ashes

As we lap the anniversary of the kickoff the to credit crisis, it is apparent that life on Wall Street will be radically different going forward.

Pimco recently wrapped up their annual mind meld, the 2008 Secular Forum, a forum of big picture thinking that brings in outsiders, including Nassim Taleb and John Plender, to spend a few days stepping back from their screens to focus on seeing the forest through the trees.

And while time will tell if their conclusions will prove correct, their crystal ball includes a radically different landscape for Wall Street in the years ahead:

The Federal Reserve’s financing window for primary brokers, introduced on March 16th in the midst of the Bear Stearns crisis, will likely evolve into a permanent facility that is accompanied by stepped up regulation and capital requirements. As investment banks are forced to converge over the next few years towards the lower leverage model of commercial banks, they will seek ways to secure a deposit base that can reduce their cost of funding, including through merger and acquisition. Pimco

This process of de-leveraging and, if done properly, de-risking will have a number of implications for investors. And by creating an initial vacuum in the more highly leveraged space vacated by investment banks, it will entice new entrants, some of which will come from the current generation of private equity and hedge funds.

A combination of de-leveraging and capital raising will continue for the financials for the time being, and Mohamed El-Erian also expects inflation in the U.S. to continue to be driven by foreign factors and demand from emerging economies.

But Pimco’s crystal ball sees the global economy maintaining solid growth despite our problems here at home; emerging economies are in a “truly historic breakout phase” that will see them continue to assert themselves as the “main engine of growth.”

Wall Street professionals who are seeking to re-invent themselves might want to take note of all this; life on the Street will likely never be the same as capitalism and the capital markets evolve into a new species that many old timers will view as an alien life form.
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A Tale of Two Cities
PIMCO Secular Outlook
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John Plender, a senior editorial writer and columnist at the Financial Times whose insightful columns, as well his 2003 book (Going Off the Rails - Global Capital and the Crisis of Legitimacy), have identified many trends that have subsequently proved consequential for global markets.

Nassim Taleb, whose best selling book (Black Swan) is just one illustration of his superb ability to highlight the inherent vulnerability of certain aspects of behavior that markets take for granted…until they go horribly wrong .
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author

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