Six High Frequency Indicators For A Continued Recovery

These indicators are mostly for travel and entertainment – some of the sectors that will probably recover very slowly.

The TSA is providing daily travel numbers.

This data shows the daily total traveler throughput from the TSA for 2019 (Blue) and 2020 (Red).

On July 1st there were 626,516 travelers compared to 2,547,889 a year ago.

That is a decline of 75%. There has been a slow steady increase from the bottom, but air travel is still down significantly.

The second graph shows the 7 day average of the year-over-year change in diners as tabulated by OpenTable for the US and several selected cities.

Thanks to OpenTable for providing this restaurant data:

This data is updated through July 4, 2020.

This data is “a sample of restaurants on the OpenTable network across all channels: online reservations, phone reservations, and walk-ins. For year-over-year comparisons by day, we compare to the same day of the week from the same week in the previous year.”

Note that this data is for “only the restaurants that have chosen to reopen in a given market”.

The 7 day average for New York is still off 81%.

Florida is only down 57% YoY, but declining recently. Note that dining seems to be declining in many areas (probably due to the recent surge in COVID cases).

This data shows the domestic box office for each week (red) and the maximum and minimum for the previous four years. Data is from BoxOfficeMojo through July 2nd.

Note that the data is usually noisy week-to-week and depends on when blockbusters are released.

Movie ticket sales have picked up slightly from the bottom, but are still under $1 million per week (compared to usually around $300 million per week), and ticket sales have essentially been at zero for fifteen weeks.

Most movie theaters are closed all across the country, and will probably reopen slowly (probably with limited seating at first).

The following graph shows the seasonal pattern for the hotel occupancy rate using the four-week average.

The red line is for 2020, dash light blue is 2019, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

2020 was off to a solid start, however, COVID-19 crushed hotel occupancy.  Hotel occupancy was off 38.7% YoY last week.

Notes: Y-axis doesn’t start at zero to better show the seasonal change.

Usually, hotel occupancy starts to pick up seasonally in early June. So some of the recent pickups might be seasonal (summer travel).   Note that summer occupancy usually peaks at the end of July or in early August.

This graph, based on weekly data from the U.S. Energy Information Administration (EIA), shows the year-over-year change in gasoline consumption.

At one point, gasoline consumption was off almost 50% YoY.

As of June 26th, gasoline consumption was only off about 10% YoY (about 90% of normal).

The final graph is from Apple’s mobility. From Apple: “This data is generated by counting the number of requests made to Apple Maps for directions in select countries/regions, sub-regions, and cities.” This is just a general guide – people that regularly commute probably don’t ask for directions.

There are also some great data on mobility from the Dallas Fed Mobility and Engagement Index. However the index is set “relative to its weekday-specific average over January–February”, and is not seasonally adjusted, so we can’t tell if an increase in mobility is due to recovery or just the normal increase in the Spring and Summer.

This data is through July 4th for the United States and several selected cities.

The graph is the running 7-day average to remove the impact of weekends.

IMPORTANT: All data is relative to January 13, 2020. This data is NOT Seasonally Adjusted. People walk and drive more when the weather is nice, so I’m just using the transit data.

According to the Apple data directions requests, public transit in the US is still only about 45% of the January level. It is at 38% in New York, and 49% in Houston (down over the last couple of weeks).


Does The Fed Know Something That We Don’t? (**Of Course They Do!)

Over the past week, investors have been entangled in weighing the risk of rising infections against the reward of a smooth reopening (economic recovery). In the midst of a turbulent market, Fed intervention has swayed the invisible hand.

The recent expansion of the Federal Reserve’s supervision and regulation duties has been historic in scope. One of the first examples of this occurred towards the end of last year, when the central bank started actively intervening in the overnight repo markets as interest rates soared to 10%, way past the 2% target rate set by the Fed.

As a consequence of a liquidity crunch, soaring rates in the repo market led the Fed to buy short-dated treasury bills, and then roll over their positions after consecutive weeks and months. The total procurement amounted to upwards of $500 billion. Officially, the Federal Reserve labeled the program as “repo operations” rather than classifying it as a Quantitative Easing (QE), which involves the purchase of longer-dated Treasury securities

Then came a pandemic that jolted the US economy into its worst contraction since the Great Depression. In contrast to the recessions of the past (2008), this time around Fed response was swift and expansive. Intervention in the aftermath of 2008 was delayed and carefully weighed, in order to prevent inciting fear in the financial markets.

This time around, things are different. The depth of market intervention by the central bank has penetrated deeper than the mere purchase of short-dated T-bills. Not only did the central bank announced that it would be buying $750 billion worth of investment-grade corporate bond ETFs, but also added on Monday that its new lending facility will dip its toes in the sale and purchase of individual corporate bonds.

Additionally, the Main Street Lending Program announced in April would allow the central bank to purchase 95% of the loans that banks have made to small businesses. By limiting the private lender risk of small banks to 5%, the Fed intends to discourage irresponsible lending. In essence, the Fed would take over the private risk borne by commercial banks as lenders to small businesses.

This asymmetric transference of risk has come with its fair share of surprises. As findings reveal, the central bank owns the debt on two companies – Hertz Global Inc. and JC Penney – through its ETF exposure. The result: both firms have seen their stock soar over 100% after they each filed for Chapter 11 bankruptcy protection.

Last month, chairman Jerome Powell defended Fed intervention in an online event hosted by Princeton University. “We crossed a lot of red lines that had not been crossed before,” Powell said, “I’m very confident that this is the situation where you do that and then you figure it out.”

As investors weigh recession against recovery, we are yet to witness what happens when the dust settles.


Stifel Recruiting Rebounds

After the departure of their national recruiting head, John Pierce, Stifel recruiting took a bit of a pause. As they circled the wagons they remained engaged with advisors that had been in the pipeline before Mr. Pierce’s departure and the fruits of those efforts have finally found their way to the firm. Via On Wall Street

“The largest of Stifel’s latest recruits is an ex-Merrill Lynch team that managed $935 million. It is composed of advisors Blase Sparma, Stephen Long Jr., Brad Ripplemeyer, and Hampton Ballard. They made the move last week and will staff a new Stifel office in Venice, Florida.”

“Sparma and Long had been at Merrill Lynch since starting their careers in 2000 and 2004, respectively, according to FINRA BrokerCheck records. Ripplemeyer began his advisory career at Smith Barney in 2000, moving to Merrill in 2012. Ballard has spent the entirety of his four-year career at Merrill.”

All in all, Stifel brought in $1.5B in client assets via their recruiting haul, adding several other advisors and teams to go along with the flagship group from Merrill Lynch.

Over the past four years, Stifel has feasted on Merrill Lynch’s legacy teams and advisors. This group adds to that batch of former Merrill Lynch faculty that now call Stifel home.

Beyond Merrill Lynch, Stifel also landed a sizable grouping of Wells Fargo talent across the country. Interestingly enough Wells Fargo has a sizable presence in St. Louis alongside Stifel – so a bit of hand to hand combat on the recruiting front.

Whether or not Stifel can keep up the pace that is set in 2018 and 2019 is yet to be seen, but $1.5B in recruited assets is a great start.

Amidst Pandemic Chaos Big Teams Accelerate Moves To New Firms; We Tell You Why

If it seems like larger and more frequent recruiting headlines keep hitting the tape, you are viewing the wealth management landscape correctly. Each and every week hundreds of millions, if not billions, in client assets are filling out asset transfer paperwork on Saturday and Sunday across the country. And there is no slow down in sight.

The wirehouses continue to be hit hardest as advisors are either opting for perceived greener pastures at a rival firm or setting up their own shop as masters of their inside an RIA aggregator of note. The mass exodus remains real and ongoing, no matter what firm brass at places like UBS and B of A/Merrill Lynch would have you believe.

But we are more interested in why these moves are occurring now…and accelerating in the midst of COVID-19 and historic market volatility. We think the following four dynamics are fueling the recruiting market and have tipped the scales in the question.

  1. Practice valuations and client balances (AUM) are at historic highs.The thought process here is that with client balances at or near all-time highs, annual production levels, along with the stock market, are bloated in ways the industry has never seen before. T12 numbers and their multipliers are extremely ripe and perfectly situated to capitalize on the next dynamic in this list. Advisors would be well advised to take advantage of the gift that the markets have given them.
  2. Recruiting deals are at all-time highs and almost artificially outsized for big teams.The competition for teams of scale is as fierce as it has ever been, and deals reflect that competition. At both Wells Fargo and First Republic, when including deferred compensation balances and choosing to retire at those firms, the numbers can surpass 500%. Yes, you read that right. Deals are more apt to retreat from these levels than to press much higher – another reason why big teams are hitting the bid.
  3. Expired deals.Every advisor and team that mattered during the financial crisis has had the deals they signed back in 2010 (either to stay at their firm or in a move to a new firm) expire. Everyone is a free agent and evaluating the best way to play out the rest of their career – both philosophically and by way of monetizing their book. Besides the two firms that exited protocol in UBS and Morgan Stanley, most advisors are completely legally detached from their current firm.
  4. The COVID-19 effect is real and a significant advantage for transitioning to a new firm.At the outset of the pandemic most thought that the chaos and market turbulence would stifle recruiting movement. Just the opposite has been true. Clients that have stayed home from work are more available to discuss moves and sign transition paperwork virtually; while advisors deal with fewer colleagues attempting to keep their clients at the firm they are leaving. In terms of the drama of the first weeks of a transition, COVID-19 has become an easy off-ramp for exiting advisors.

Doing a serious evaluation of the tent that you find yourself under as an advisor is an absolute must right now. With so many deals stretching beyond 300% and production and asset levels at historic highs, big teams will continue to leave. Considering the factors above and the cover for a transition, you should be doing your own evaluation right now.


Merrill Lynch Advisors Shook: “…new workstations using AI to spy on us.”

Merrill Lynch formally announced a brand new workstation for advisors that have already been rolled out to 5,500 of the thundering herd so far this year. The other 10,000 or so ‘advisors’ (let’s not have the conversation today about Merrill’s actual broker headcount please) underneath the BofA umbrella will have the new system installed over the coming months. While the new workstation has all sorts of bells and whistles and cost BofA nearly $100M in development cash, advisors are worried about one thing and one thing only – the AI inherent in the system and its ability to hear, see, interpret, and control every keystroke, word spoken, and client interaction.

While Merrill was quick to trot out several promotional quotes from their corporate PR arm, advisors are acutely aware of what this new system is: a modified system to serve as a legal control mechanism that expertly flags any advisor with an eye towards leaving the firm. Here are some of the quotes from Merrill on the corporate side of things:

“The advisor of the future needs to be able to offer highly personalized service, enhanced by a digital experience,” Merrill spokesman Matthew Card said yesterday. “Technology allows advisors to serve clients at greater scale, recapturing for them the capacity they need to spend more of their productive time on client engagement.”

And this particular gem: “What we are able to do is mine activity across the entirety of the banking and wealth relationship. That gives you insight into anything that is important to the client.” – from Kabir Sethi, head of digital wealth management for Merrill Lynch and Bank of America Private Bank.

A clear admission that Merrill Lynch is using advisor input, both active and passive (read that again), to gather data about what is going on in and at the desks of financial advisors at the firm. A frightening specter that two advisors spoke to us about overnight.

An advisor on the west coast had this to say:

“From what I’ve heard there have been some really creepy stuff come from the ‘suggestions’ that this thing will make connected to both client activities and feedback that it is picking up. Two guys I know that were in the pilot program said that there are strange similarities to Facebook and Alexa in that they can be talking about a client before they ever pull up the account in the system, and a few minutes later they will get an alert about that specific client. The system was listening to their conversations. Now imagine if you are having a conversation with your wife or significant other in the privacy of your office?? I guess none of us should assume any semblance of privacy anymore.”

An advisor who was in the pilot program was even more explicit about what he thinks is going on and how he dealt with the spying aspect of the new system:

“It was obvious to me that the system was listening to every word I was saying and every single keystroke. After one week I didn’t take any personal calls from my office or make any. I would leave the office and nearly the building altogether. I would either wait until I was out to lunch or out of the office altogether. It is really fucked what they are doing. I’m sure there is legal language somewhere in Merrill’s policies that allows for this and removes any assumption of privacy. They may not have opted out of the protocol, but this may actually be worse.”

This isn’t necessarily new to the industry. Just last year UBS’s new leadership touted the ability of the platform to pick up all manner of communication that advisors are having with clients under the guise of ‘better serving clients’ by monitoring the activities of advisors via the firm’s CRM. Creepy as fuck.

Prediction – two of them actually; this will drive more big producers away from BofA/Merrill and into the arms of rival firms, but this isn’t the end of spying systems within the world of wealth management. They will become more prevalent and ubiquitous under the guise of client service. We’d recommend being careful and retaining your own personal counsel.

Rockefeller Continues Recruiting Rush; Lands Another Whale In Texas ($15M Deal!)

Rockefeller remains on a recruiting tear as it launches new locations and lands massive teams from what should be considered rivals now, like UBS, Merrill, Morgan Stanley, and Wells Fargo. The latest trade has Rockefeller landing another big team in Texas for the second straight weekend. As you may recall we predicted this streak and are aware that it will continue: Rockefeller Set To Win Big Over The Next Three Weeks

The details of their latest hall read like this: Rockefeller Capital Management on Friday landed a three-broker team headed by Shay Scruggs,  that generated $5  million in revenue. The group, which includes junior partners Kevin Wright and Trenton Hollas, who have four and five years of experience respectively, oversaw $500 million in AUM.

The group will be part of a cadre of advisors in Houston that are set to open up another flagship office for Rockefeller in Texas. Rockefeller continues to expect to add more and bigger teams in both Houston and Dallas, respectively.

There continues to be a strong drumbeat for three issues that make Rockefeller intriguing. The name itself, Greg Fleming’s leadership, and the tech platform they seem to have nearly perfected. Every single contact we have with anyone engaged with Rockefeller mentions those three points. Everyone.

Recruiting in wealth management is as hot as it has ever been right now. Deals are sky-high if you are a ‘Tier 1’ advisor or team. Competition is absolutely fierce across several levels of the wealth management spectrum.

As an example, what could a $4M team at Merrill Lynch expect to be able to demand from the recruiting market place right now? Assuming they laid their fleece out to Wells Fargo, Morgan Stanley, UBS, Rockefeller, and First Republic? At a minimum the package would ring the bell at $12M; and maximum with deferred matched and back ends met (wait for it…) $20M. In other words, a team situated like that should expect no less than a bidding war and not a penny less than $15M. Yes, the recruiting landscape is on fire.

And Rockefeller is as hot as any name.


Morgan Stanley Push: Recruiters Make Claims “…they are being very aggressive.”

Morgan Stanley re-entered the recruiting sweepstakes, post protocol exit, late last year with a bang. After leading the wires (along side Wells Fargo) in losing headcount to the resurgent regional space over the past two years Morgan Stanley has been very aggressive in recruiting large teams away from their rival wires. They’ve had specific success in recruiting away large teams from Wells Fargo and UBS.

There is a good reason why those teams are listening to Morgan Stanley’s pitch. Besides the requisite largess of the firm as a global investment bank that competes directly with the likes of Goldman Sachs and JP Morgan – the firm *dolla dolla bills y’all* recruiting deal is massive. If you play your cards right you cash in to the tune of 250% in the first 4-6 months at your new desk. All in, the firm has been known to pay the biggest and most visible teams more than 350% when you count deferred comp recovery payments. Huge.

Doing a little math – if you are a $3M dollar team in, say, Washington DC the numbers quickly skyrocket. You walk in the door and receive a check for $6M dollars (200% upfront). Transfer 50% of your assets in the first 180 days and you will be handed another $1.5M dollars. By the time you’ve hung a few pictures in your office and have finally figured out how to use the firms CRM software you are $7.5M dollars to the good.

That puts butts in the seats. The total of 250% within your first 180 days at the firm is an eye opener and sets the wirehouse apart from rivals. The low barrier of entry on that extra 50% is a dealmaker as well. Big teams find themselves intrigued by it and finding ways to justify tethering themselves to the firm for the rest of their careers.

Speaking to a long tenured recruiter about Morgan Stanley’s current push:

“They are being aggressive in specific markets with teams that are north of the $2m dollar mark. The aggression largely has to do with the funds added on the deferred comp end of things, but also moving hurdles around to make the deal more ‘gettable’ in the short term. Teams are responding to the flexibility that comes with a 350% deal, most of which you essentially get up front. My guess is that they will remain aggressive coming out of the pandemic and try to scoop up some headliners. I know that is what the current thinking is with Saperstein.”

The pandemic issues have brought a uniqueness to recruiting with a particular set of circumstances that can be exploited. In some specific locations clients are still locked in quarantine and much easier to reach. Reaching them, though, has its challenges as advisors can’t get face to face to process ACAT documentation. Still, the narrative has been that transfers have been swifter based on clients availability and lack of distractions.

Clearly, Morgan Stanley is focused on capitalizing in whatever way they can.

UBS Set To Reduce COVID-19 Restrictions For Employees; WFH Policy To Be Optional

UBS is set to tell it’s global staff that the era of enforced ‘work from home’ is about to come to an end. Not that employees (traders, advisors, admin and operations staff) will be forced to return to office buildings and trading floors, but rather be encouraged to return as they deem reasonable and comfortable.

A limited number of employees in jobs that have risk-management aspects will be allowed, but not required, to return to the bank’s skyscrapers in the U.S. city, a person familiar with the matter said. The Swiss lender joins rival Morgan Stanley in allowing some employees to return to work after the pandemic’s spread eased.

The bank’s trading floors in New York are being reconfigured to comply with physical distancing guidelines, the person said. UBS is also considering staggering and assigning departure and arrival times for its staff to avoid lines forming at entry points and elevators, as well as when employees should wear masks and have their temperature checked, according to the person.

“The health and safety of our employees and clients remains of the utmost importance. As we monitor the relaxation of lockdowns across the U.S., we are beginning to prepare our workplaces and our teams for a gradual and safe return to the office,” UBS spokeswoman Erica Chase said. “Our approach will be coordinated across our entire regional footprint, taking into account the relevant local conditions, as well as the guidance of government and public health authorities.”

In Switzerland, UBS workers beyond essential staff will return to offices starting in the middle of the month, with the speed of their return depending on capacity to maintain social distancing.

Morgan Stanley And UBS: Non-Protocol Firms Aggressively Stalk Private Banking Teams

A clear narrative is shaping up amongst wirehouse rivals Morgan Stanley and UBS. As both firms exited the broker protocol within weeks of each other their recruiting strategies have begun to mirror each other as well. Both firms have decided that aggressively pursuing private banking teams at the likes of Goldman Sachs, Bernstein, Bessemer Trust, and even J.P. Morgan is a pathway to stability and revenue growth in their all-important wealth divisions.

Over the first six months of 2020, even with the coronavirus pandemic and civil unrest, UBS continues to announce large team acquisitions that hail from the private banking sector. Managers across the US, at the swiss-based firm, have confirmed to us that deal negotiations no longer include private banking discounts – rather, UBS is paying full freight, and then some, for private banking teams of scale. This is a dramatic shift from years of recruiting teams that may include employment contracts laced with non-compete, non-solicit, and even garden leave language. UBS has decided that it is worth the legal risk.

Morgan Stanley isn’t far behind and is quickly learning from its rival that leaning into the private banking space makes a lot of dollars and sense. Morgan Stanley has begun to back away from any discounting of private banking team deal dollars and treating advisors and their teams no differently than an elite level Merrill Lynch recruit. Again, a major shift in both philosophy and execution.

It now looks like the unrest in markets and potential larger-scale disruption to books of business is on hold, but the impetus to switch firms looks to be at or near all-time highs. Why? The nearly 40% haircut that occurred in a furiously fast downturn spooked a lot of advisors and woke them up to the long-term value of monetizing their hard work right now. Adjusting policies around recruiting deals and the who/what/where/why matrix seems to have shifted at both UBS and Morgan Stanley.

So far, UBS is seeing real dividends in landed recruits. We expect Morgan Stanley to follow suit as the year moves forward.

Goldman Sachs Botches Response; Emails Passive Denial Of Details Of Sexual Harassment Claims

Goldman Sachs attempted to reach out to us yesterday in hopes of reducing the interest that our story garnered regarding two individuals that had dealt with differing degrees of sexual harassment at the global investment bank. The denial was both weak and soft and didn’t remotely speak to the veracity of the allegations themselves, but rather to the release of the information and whether or not it was appropriate to leak the nature of ‘sealed agreements’. Saying that again, their response was weak.

The specific email that we received asked us to remove the article on the basis of privileged legal information that was agreed to by all parties at the time. (Should they really be sending an email with the term ‘privilege’ in it right now?) No denials of the claims made by the women, no denials of the existence of the women and their circumstances, no denials that there is potentially a systemic issue among some managers in the wealth division, and no commentary that the firm is doing its part to clean up the problem. Just threats.

A reminder of what was alleged in the article regarding sexually charged claims that were settled at the firm and how those claims were viewed by the victims themselves. A quick look back at one quote that sums up, in comparison, how weak Goldman’s response was late yesterday:

“During the investigation, which took more than 8 months, I was passed up for a promotion that, per the criteria, should have been a foregone conclusion. It was right there that I decided to leave the firm. When GS offered me a settlement I agreed and left the firm 90 days later. Easy decision. I wasn’t about to let those fuckers stunt the growth of my career.”

One of the victims chose to stay at the firm for 8 months, no doubt enduring being ostracized and whispers as the investigation dragged on. She should be celebrated. And having the will to leave one of the most powerful firms on Wall Street is a real act of courage. Goldman asking us to take the article down was a gift to us, so thank you for giving us the opportunity to print a follow-up article on this issue.

A quote that sums up the other victim’s reality and further proves the ‘weak hands’ of Goldman’s legal team:

“It took me a week to report it and the trauma of dealing with a snake that masqueraded as a friend was traumatic. Ultimately I stayed here because I thought remaining was the more important choice than walking away. Needless to say, my ‘friend’ was fired.”

And bravo to her for staying at the firm, fighting for her rights, and probably fighting for change as well. We can assume that nobody is going to be stupid enough to fuck with her going forward.

We do expect to get another email/letter of some sort from Goldman regarding this story as well. Please send it – we will simply post the screenshot of it and provide the much-needed context.