Editor's Note: Jim Cramer's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published May 1, 2002 on RealMoney.
Don't underestimate how much money these brokers can make if they somehow manage to convince their customers to accept lower interest rates on their cash balances, as
The Wall Street Journal
mentions today in a story about
In fact, if you combine this news with the prospects of higher commissions for some customers, as the
story in the
indicates, we could see a real rally in this totally beleaguered group. Of course, a settlement with Eliot Spitzer would go far toward a full-fledged rally, but I still don't think that's in the cards.
No matter; both of these changes, the cash balances and the higher commissions, could cause huge rallies in the likes of
Morgan Stanley Dean Witter
, not to mention
because of its Salomon Smith Barney division.
Let me explain why. The issue of credit balances is a very sensitive one for brokers. When I was a pup at
, the firm had a default strategy: If clients didn't request it, they couldn't get high interest rates for idle cash. That way the firm could earn more money on my clients' balances. I always insisted my clients check off the box that gave them market rates, but it was not a practice that was encouraged.
The differential on a huge client base between market rates and below-market rates would be a huge windfall for the sales and trading businesses of the large retail houses. It might even make up for some of the shortfall that the missing IPO market has delivered.
Of course, I don't have to tell you how important a rise in commissions would be for these brokers, provided, of course, that it's across the board. The notion of all of the consolidation in this business allows for an easier time getting those commissions higher. Don't expect all the brokers to get in a room and raise prices -- that's illegal. But if the others follow Schwab's lead, you are going to get a sustainable rally in the likes of
, Schwab and AmeriTrade.
(Arne Alsin just picked AmeriTrade as a turnaround in his fantastic new newsletter --
click here to sign up and you'll find out why.)
I can't hide what good news this would be for the market. This market loves it when the financials, particularly the brokerages, rally. It is a true sign of health, a much more important sign then a technology rally, although I know I can't convince people who just entered this market in the last five years of that.
Watch this group. It will tell you whether this rally has legs. It is the "tell" of the tape.
You know Doug Kass likes this group if you have been reading
. If you haven't been reading
, I figure you aren't a pro. If you have been reading it, you know
will have live coverage of the
conference call this morning, as that site does for all of the important conference calls. I know this is a big-ticket site, and I know that many of you are still averse to paying big money for resources on the Web -- but that's why you can soft-dollar your subscription. Email
Joseph.Marino@thestreet.com if you want to know how soft-dollaring works. And if you don't know, here's a hint: If you are a pro, the government lets you pay for important stock research with commission dollars. If you spend a certain amount on commissions for trades, you can use those commissions to pay for research. For lack of a better analogy, it's like a rebate on your business that can be used to get valuable, money-saving Web research! Check it out, see if you qualify. Believe me, the reason I keep insisting you read this site is that I go to it every five minutes and I love it. There's more
money-making information for a professional there than you get from
-- sold to you!
James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. At the time of publication, Cramer was long Prudential, Citigroup and Comcast.
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