He'd be spinning in his grave if he heard the financial sector outlook for 2001.
IPO fever has cooled off, the stock market is way off its highs and most analysts agree investment returns will moderate in 2001. On the other hand, unemployment is in check, the Federal Reserve could lower interest rates slightly at its January meeting, and most economists insist there will not be a recession this year.
In the final tally, 2001 will still show growth in the financial services industry, and fundamental changes that developed in the 1990s-such as online e-tail channels and higher economic expectations-will stick around. The optimists were redeemed when the Fed kept interest rates steady late last year, fueling forecasts that it will continue lowering rates through 2001 until the economy picks up steam.
Most observers say irrational exuberance has given way to unnecessary pessimism. They point out that after the longest economic expansion in U.S. history, even a healthy growth rate looks rather paltry.
"When things are great, it's hard to imagine them bad. [But] when things are bad, it's hard to imagine them good," explained Bill Lyddan, president-CEO of Brouillard Communications, a New York PR shop owned by WPP Group.
All indicators point to a healthy 2001, contends Larry Flanagan, chief marketing officer of MasterCard International. The years of uncontrolled growth and overconfidence led to a season he called "the holiday of reality" in 2000.
The dominant issue in financial services for 2001 is a slower growth of gross domestic products worldwide, said Merrill Lynch & Co. financial services analyst Judah Krushaar.
He said U.S. banks have noticed signs of moderating loan demand, a sign of impending economic slowdown. Additionally, U.S. banks will have to grapple with credit issues, even if the Federal Reserve eases interest rates on Jan. 31, said Mr. Krushaar.
"It's not hard to envision a down year for bank earnings," he said.
It's not hard to see a down year for online brokerages, either, after years of quarterly double-digit growth, fueled by $1.5 billion in advertising in 1999 and similar numbers in 2000. The big growth spurt for brokerages may be over now, as investors become far more cautious traders in the wake of the tech meltdown of 2000.
A study from U.S. Bancorp Piper Jaffray, Minneapolis, the investment management subsidiary of U.S. Bancorp, found a significant slowdown in trading volume among the top online brokerage firms during the third quarter. While the second quarter usually sees a summer slowdown, a third-quarter slowdown is troubling, since it is traditionally a strong investment period.
The report, from analyst Stephen Franco, found daily volume had dropped 12.4% from the second quarter-the first time in the industry's history that volume declined two consecutive quarters-and net new accounts grew only 5.4%, the slowest rate in two years.
While the slowdown was troubling, Mr. Franco's analysis found one bright spot: Asset levels held at $1.1 billion, a 1.1% increase over the previous quarter, an encouraging sign that investors are not stampeding for the exits.
The bipolar personality also rules in financial services advertising, where euphoria also has given way to cold reality. Agency clients are not cutting back their marketing plans for 2001, but they will be more careful about where to put their money, say agencies.
The economy underwent a fundamental change during the 1990s, and marketing has changed to accommodate it, said observers. The Internet as a marketing and sales channel is here to stay, these observers contend, but clients will be more focused on making it part of the overall media plan.
"There's going to be less noise, less advertising for advertising's sake," said Jeff De Joseph, exec VP of Doremus Advertising, New York, an Omnicom Group agency with a base of financial accounts.
For all the talk about the coming economic slowdown, agencies say clients have not pulled the plug on their efforts for 2001. But agencies admit they will have to manage the expectations of investors-and of clients. Many investors and ad executives have not dealt with a bear market.
Brokerages are bracing for, and in at least one case embracing, a bear market. A print ad from Leo Burnett USA, Chicago, for Morgan Stanley Dean Witter, presses clients of upstart e-brokers to shift to the old-line brokerage. "Face it," reads the headline. "Most e-brokers know bull about bear markets."
It's easy to think the running of the bulls is over when brokers begin running ads targeting bears.