Ringing in the New Year on Wall Street
After a stormy 2009, everyone on the Street was praying for a better 2010. Beau Willimon took in the scene.
The past 26 months have been a roller coaster for Wall Street. The New York Stock Exchange lost more than half of its value after reaching an historic high in October 2007 (14164) and bottoming-out in March 2009 (6547). By the end of last year, the market had rallied back, regaining more than half of the value it had lost, closing at 10428. In the meantime, it weathered bank collapses, government bailouts, and a global recession. Will 2010 be the year the market continues its climb out of the abyss, or the year that all hell breaks loose, déjà-vu-style? Yesterday was the first day of trading in the new year. I spent it on Wall Street taking the pulse.
“It looks good right now,” one broker said, “but if Bernanke ratchets up interest rates too much, I think the market could go down again.”
7:31 a.m. (DJ 10428 before opening)
I emerged out of the subway into a blustery, bone-chilling Manhattan morning. Most of the shop fronts were still shuttered, but streams of early commuters was already making their way down the sidewalks, leaning into the wind. As I made my way downtown, I passed by ground zero, where hard-hatted men were already busy at work in the labyrinthine foundations of the new World Trade Center. Turning onto Wall Street from Broadway, I funneled through the security ramparts and walked down the long, sloping three blocks that comprise the Street, arriving at the Wall Street Ferry Pier. The sun was just beginning to peek over the skyscrapers in Brooklyn across the East River. Despite the wind and cold, it was a beautiful, clear morning. I pulled out my iPhone to check the latest financial news with my quickly numbing fingers. Asian markets closed with mixed but decent results. European markets were gaining. U.S. stock futures were up. Everything was pointing to a strong opening for the NYSE. I turned back and headed up the street to buy a much-needed cup of coffee at Starbucks. The line was already pouring out the door.
9:32 a.m. (DJ 10501 +71 + 0.68%)
Due to a heap of last-minute red tape, the NYSE Media Relations folks denied my request to witness the opening bell from within the Exchange. So I headed to my good friend Sam’s nearby apartment to watch the opening like every other schmuck and schmuckette in the world—on TV. Sam was in the kitchen standing over a sizzling skillet of bacon, spatula in hand. I asked Sam what he thought would happen to the market in 2010. “I think it’s going to keep rebounding this year,” he said. “Maybe not to the heights of 2007, but I think we’ve seen the bottom and we won’t slip back.” Sam’s qualifications as a financial analyst? He’s a playwright.
I plopped down on the couch in the living room and clicked on CNBC’s live coverage of the Exchange. The show was named Squawk on the Street, which makes me think more of puppets than stocks. Duck puppets to be exact. The sassy Erin Burnett and the gruff Mark Haines were anchoring the countdown. I rarely watch CNBC, but as I listened to Erin and Mark’s not-so-witty-but-trying-to-be banter and faux-cozy repartee, it struck me that they were like the Regis and Kelly of finance. I prayed for the ringing of the bell, mostly so it would drown out their voices.
Sam was still busy with his skillet in the kitchen as the clock counted down the final 10 seconds. I yelled over and asked if he wanted to join me to see the bell ring. He declined. “Bacon is way better than CNBC,” he yelled back. I might be inclined to agree with him.
At precisely half past 9, Eastern Standard Time, the bell clanged away. The 2010 trading year had officially begun. The Dow immediately opened two points higher than its close on December 31, then soared more than 70 points in its first few minutes. All the indicators had been right—a strong opening for the market. But would the gains in the first moments of trading continue throughout the day, or eventually sink for a loss? There were still six and half more hours of trading to go.
12:18 p.m. (DJ 10585 +155 +1.50%)
Undaunted by missing the opening bell, I was determined to get inside the Exchange. My friend Joe—a hedge-fund trader—arranged for a broker to get me on the trading floor itself. I’ll call the broker “Mike,” because company policy prevents me from using his actual name or that of his firm.
Mike met me outside and ushered me past a gauntlet of security posts until we arrived through a set of heavy double doors into a trading room known as “The Garage,” part of a large annex opened next to the original trading hall in 1922. I gawked at the sea of broker posts, specialist booths, and flat-screen monitors surrounding me.
Volume was light, so Mike had plenty of time to chat as we meandered around the floor. A native New Yorker, Mike had started working with his father on the Jersey docks straight out of high school. In his free time, he coached kids’ basketball at his local parish. One day, a friend at the parish offered him a job at the Exchange. Mike left the docks for Wall Street in 1981 when he was just 20 years old. He’s been there ever since, participating first-hand in the great bull market of the ’80s, the crash of ’87, the extraordinary rally throughout the ’90s and ’00s, and the most recent financial crisis.
Mike explained that while the basic mechanics of the floor have not changed during his nearly 30-year tenure, electronic trading has greatly reduced the number of folks on the floor. He whipped out a graph showing the dramatic reduction of brokers and specialists over the last decade—a decline of nearly two-thirds. These days, the trading floor is responsible for only a small fraction of the actual volume that passes through the Exchange.
The floor has a very fraternal feel. Like Mike, many brokers got their start through friends or family. They are vastly white and male. I found it difficult to spot any women or people of color during my hour strolling around. Most work for brokerage firms, but even the biggest firms may only employ a half-dozen brokers. Though their numbers may have dwindled, Mike stressed the importance of the human element he and his colleagues provide the market. Due to their personal relationships with the market makers, they are able to obtain valuable information for their clients that you simply cannot acquire when trading electronically. They also enjoy the privilege of “parity,” which allows them to jump to the front of the line when placing orders.
I asked about the mood on the floor last March, when the market had lost more than half its value. “A lot of us felt like it might just keep falling, that it might never stop, that this might be the end of everything,” Mike replied. Once the market started to rally, Mike was skeptical. “It took a month of gains before I felt like things were really turning around.” I asked Mike for his thoughts about the year ahead. Would the rally continue? “It looks good right now,” he replied, “but if Bernanke ratchets up interest rates too much, I think the market could go down again.”
“Oh, yeah,” Mike said, suddenly shifting gears, “I want to show you something.” He led me over to the specialist booth covering Warren Buffet’s company Berkshire Hathaway. The company’s stock is sold in two categories, A and B. Mike pointed up to the screen above the specialists head. “You see that,” he said, “the A stock is trading for 99,000 bucks a share.” My jaw dropped. Mike laughed and pointed to another quote. “The B stock is a lot cheaper—it’s only trading at three grand a share.” It was at this moment that I truly got a sense of just how much capital was whizzing around me. A single share of Berkshire Hathaway is twice the median household income. You could buy several cars with it, or put your kids through college.
2:39 p.m. (DJ 10590 +160 +1.55%)
By mid-afternoon, Wall Street was teaming with tourists. I decided to join their ranks and visit some of the local landmarks. Directly across Wall Street from the Exchange stands the Federal Hall National Memorial building. George Washington’s first inauguration took place on this site in 1789. Inside were a number of exhibits chronicling the history of the Wall Street area. Here you are reminded that Wall Street wasn’t always about finance. In fact, it used to be the northern extremity of the New Amsterdam, acquiring its name because of an actual wall used to stretch along its length, built by the Dutch to keep out the Native Americans in northern Manhattan.
I chatted up National Park Ranger E.L. Hooper, who showed me several floor-to-ceiling cracks in the masonry supporting the enormous rotunda—fissures caused by the collapse of the Twin Towers in 2001. Federal Hall was closed for two years to repair the damage.
Since the business of Federal Hall is not business, but history, I asked Ranger Hooper if he felt insulated from all the financial activity across the street. “Pretty much,” he said, “but we get a couple hundred folks come in here every day asking where the Stock Exchange is, or thinking this building is the Exchange itself, or wondering why they can’t get inside the Exchange.” (The public viewing gallery at the NYSE has been closed since the 9/11 attacks.) “And it was pretty crazy around here during the financial crisis,” he added. “There were TV cameras everywhere, and we had all sorts of weird protests going on outside.” Among some of the protests he witnessed were a troop of bikini-clad women parading down the street on a chilly November day, a man who skulked around in a bear costume, and a duo of street performers—one of whom juggled hatchets while the other played saxophone on a pogo-stick, both wearing signs that read “This is what we’re forced to do for work now.”
After leaving Federal Hall, I treated myself to a hot dog from a street vendor. While I was waiting in line, I got to talking with a Jamaican security guard from Deutsche Bank named George. George had been working on Wall Street for seven years and grown familiar with many of the employees who passed through the Deutsche Bank doors every day. “When things were good, it was so busy in the morning you almost got knocked over from all the people rushing down the street,” he said. Things got more subdued during the financial meltdown, he said, mostly because many people on Wall Street lost their jobs. “It was sad,” George said, “there were people I knew who stopped showing up in the morning. But Deutsche Bank did a lot better than some other places. At least we survived.” George’s predictions of 2010? “It’s going to be a good year. What happened the last couple years wasn’t the first time, and it won’t be the last. Nothing can stop the market.”
Hotdog firmly lodged in my belly, I made my way over to the famous bronze bull at the southern end of Broadway. I spoke to a quartet of Argentinians posing for a group portrait in front of the bull’s big bronze balls. Had the recession hit Argentina hard? “Oh yes,” replied a bundled up young woman in perfect English, “but it’s always bad in Argentina, so we’re used to it.” (Argentina has experienced financial crises of varying degrees since 1999.) “So we feel it,” she added, “but probably not as bad you do here in the U.S.” Her point is that pain is relative, I suppose, and maybe we have less of a tolerance for it here in America than worse-off places around the world.
By now my balls were about as frozen as the bull’s and the quart of coffee I had imbibed throughout the day had made its way straight to my bladder. So I slipped into Trinity Church at the western terminus of Wall Street to warm up and relieve myself. It’s the oldest building in the area, and filled with exhibits, but I skipped those and made a dash for the toilets. They’re very clean by the way. Note to Wall Street tourists: If you need to pee, look for the steeple.
4:11 p.m. (DJ 10584 +156 +1.50%)
A half hour before closing, I was escorted up to the Member’s Gallery at the Exchange. The good folks from Media Relations had nicely arranged for me to witness the closing bell since I had missed the opening. Joining me in the gallery was a gaggle of accounting and finance students from Creighton University in Omaha, Nebraska. As we were waiting for the bell to ring, I asked one of them what his predictions were for the market in 2010. “It will go up,” he said, “then it will go down.” I encouraged him to elaborate. “It will go up by 8 percent before it starts to fall, and it will fall more than it rose.” How did he arrive at the 8 percent figure, I asked. “Well I don’t really know what I’m talking about,” he confessed, “but a really smart guy said that’s what’s gonna happen, and I trust him.” An eavesdropping classmate piped in, “Yeah, a really, really smart guy.” Who was this really, really smart guy I wondered? “I don’t remember his name exactly,” said the first student, then turned to his friend, “Do you?” “I don’t remember either,” the second student replied, “but he’s a top guy at Knight Securities, and that’s what he told our class.” Who knows who this “top guy” is, or whether the students quoted him accurately, or whether they met with a “top guy” from Knight Securities at all. I can only vouch for the correctness of the quote of the quote, so if they quoted him incorrectly, at least the above quote is correct in its incorrectness. Confused? Now you know what I felt like when I asked a banker friend to define a “derivative” for me.
A few minutes before the end of trading, a dozen folks from Weight Watchers Inc. gathered in a small balcony above the floor with NYSE CEO Duncan L. Niederauer. As the final seconds on the clock ticked toward 4 p.m., they began clapping, then the clanging of the bell blared through loudspeakers, echoing off the towering walls of the main room. The first day of trading in 2010 was over. The market had climbed 1.5 percent quickly in the morning, then leveled off around noon and remained there throughout the rest of the day, closing at 10584.
There’s no rule saying that if the first day of trading is a gain for the market, the market will gain for the year (or vice versa). But over the past 15 years, the first day of trading—basic gain or loss—has matched the year-end result 73 percent of the time. And over the past five years, the match has been 100 percent. The Dow Jones closed up yesterday. Does this mean that the more superstitious among us have cause to be optimistic? Place your bets, ladies and gentlemen. We’ll know the answer when the closing bell rings 360 days from now.