Money, Models, and the Market

Commentary: Wall Street may need a little help from angels

I am standing on the sidewalk in front of a SoHo clothing store in lower Manhattan. It’s Fashion’s Night Out, and thousands of people are having a one-night fashion celebration. On this night, models, celebrities, and designers are encouraging customers to shop for clothes at reduced prices. Judging by the festive crowds and ringing cash registers, the night is a huge success.

Models and Money

In front of me are hundreds of awe-struck fans waiting in line to meet the angels: Victoria’s Secret Angels. Victoria’s Secret (NYSE:LTD), an American retailer of women’s clothes, is popular for its spectacular fashion shows and reasonably priced lingerie. The twelve Victoria’s Secret angels are some of the highest paid models in the industry, and a few go on to become supermodels. Victoria Secret’s Adriana Lima’s estimated annual income is eight million dollars; Alessandra Ambrosio’s estimated income is five million dollars.

Four angels suddenly enter the room, and the large crowd hushes. Adriana Lima, Alessandra Ambrosio, Lily Aldridge, and Erin Heatherton walk over to me for an interview. These million dollar models are charming, and very knowledgeable about Victoria’s Secret products. (See photos of my interview with the angels here: http://bit.ly/nBT6Ev.)

Models and the Market

What do fashion models have to do with the stock market? Actually, the stock market and fashion industry are more alike than many people realize. The similarity? Both are based on a fantasy: one promises to make you beautiful while the other may make you rich.

Yet, when customers enter a fashion store, they expect to be seduced by gorgeous models. When investors enter the market, theydon’t expect to hear fantastic promises that won’t come true. Instead of beautiful models, investors often feel as if they’re looking at the Emperor’s new clothes.

Even if Wall Street hired a flock of lovely angels, it’s not easy to inspire faith in its products. Who cares that the stock market rose more than 70 percent from its 2009 lows? Because many investors didn’t earn back their money, they feel that the market is rigged against them. Unlike the fashion industry, Wall Street has lost its sex appeal.

In the last few months, some people have revolted against Wall Street by protesting against an unfair financial system. There is some truth to the complaints, so unless Wall Street wants to lose investors for the next decade, they’ll need to change the way they do business.

How Wall Street can bring investors back

As the protests grow louder and last longer, Wall Street may want to consider taking the following steps:

  1. Create a fair stock market
    The stock market isn’t fair anymore. The market often goes up or down not based on fundamental or technical analysis but volume generated by high frequency traders (HFT) or flash traders. Although the increased volatility might help a handful of traders, it certainly doesn’t instill confidence in the system. In addition, some rules, such as the uptick rule, were eliminated or changed to favor insiders. If Wall Street wants to recover from the negative PR, they’ll need to create a fair stock market with logical regulations. Otherwise, it is buyer beware.
  2. Make a transparent stock market
    Right now, there are almost two stock markets, one for the insiders and the other for everyone else. “The average investor is not privy to how Wall Street really works,” explains former hedge fund manager Shah Gilani. “If you don’t know what is woven in that cloth, it’s hard to tell what kind of quality it’s going to be.” If Wall Street truly wants to level the playing field, then “they’ll have to start looking at what’s good for the economy and investors, and not just for them,” he cautions. (Click here for my full interview with Gilani: http://bit.ly/o8Okax.)
  3. Punish wrongdoers
    For years, the Securities and Exchange Commission (SEC) looked the other way while Bernard Madoff and others scammed individual investors. This gave the impression there were no consequences for illegal behavior. Lately, the SEC appears to have found courage, but some still want this agency defanged. When bad behavior is ignored or rewarded, it destroys people’s faith in the financial system. If individual investors or traders break the rules, they’ll get in big trouble. Who was penalized for helping cause the 2008 crash?
  4. Putting lipstick on a pig
    This season, the fashion trend is bright, bold, and colorful, anticipating good times ahead. On Wall Street, however, the market trend is indecisive and volatile. Unless Wall Street undergoes an extreme makeover, even angels with lipstick can’t make it pretty again.

Note: Here’s the Marketwatch link to the article: http://bit.ly/tpkb6p