Related Post
It may seem counterintuitive, but the pandemic was like a brief visit to Shangri-La for Wall Street. Instead of spending their days cooped up in corporate offices or dressed up on trading floors in suits, fleece vests, shift dresses, loafers, and sensible heels, bankers were able to work from wherever they wanted. Those with the means to escape the city did. Meanwhile, the stock market marched ever higher, as if to say: “Go ahead my sweet summer children, relax. You’ve earned it.”
But it’s no longer 2020, and that respite from the relentless monotony of office life is over. The pandemic lockdowns have ended, so has the “everything rally” that followed it. Crypto is dead. Dealmaking has slowed to a trickle. For the first time in years, Wall Street has to sing for its supper. CEOs are summoning far-flung employees back to their towers. And firms are tightening their belts: Layoffs have hit even the more rarified corners of the street — from managing directors at Goldman Sachs to investment bankers at JPMorgan.
Which is all to say that the fun — a word that is almost always frowned upon in the world of finance — is over.
Wall Street’s era of ease is dead, and nowhere is that clearer than in the Hamptons — the Long Island beach enclave for the finance set and the New Yorkers who drink with them. Early in the pandemic, the place was pandemonium. Now the raging has receded. The restaurants are still full, but the elbow-throwing entitlement around town has turned down, the passive-aggressive (or just plain aggressive) competition for space in the Citarella parking lot has subsided, the traffic jams on country roads have eased, and the lines for eye-wateringly high-priced tuna salade Niçoise at Loaves & Fishes have shortened. None of this happened a moment too soon. For a while, the place was full of, as one local business owner told me candidly during summer 2022, “people with the best lives living them in the worst way.”
The winds have shifted. But what remains unclear to even the most sophisticated capitalists in the Hamptons is for how long. No one knows whether this summer slowdown is a blip or a sign that the recession Wall Street has been watching and waiting for is beginning. In an economy as strange as the one we’re living through, only time will tell. Regardless, Wall Street’s belle epoque of officeless work is in its last days, and when everyone returns to their desks, the market will look different from how it did when they were there last.
A rich man’s recession in waiting
Seth Klarman, the billionaire founder of the Baupost Group hedge fund, kindly took a break from wherever he summers to make an appearance on CNBC earlier this month (in the studio, no less). During the interview, he reiterated his belief that the recession was coming, that it’s just a matter of time.
“I think we probably will have a downturn,” Klarman told the hosts. “The economy is slowing. Many sides of the inflation equation are under better control, but the goal of the Fed is to reduce the heat in the economy, and one way to do that is to trigger some kind of recession. It’s been slow developing. Some people think that the excess cash in people’s pockets will start to run out around year end, so maybe it’s early 2024.”
This pessimistic view is not uncommon in Wall Street circles — CEOs, economists, and market analysts have been banging the recession drum for some time. Yet even as the doom-and-gloom predictions pile up, the US economy continues to defy gravity. Consumers are confident and still spending freely, despite the fact that interest rates have roared up from 0% to more than 5% in just over a year. Restaurants, bars, and hotels are still hiring workers to meet demand. And after a short downturn, the housing market is on the upswing once again.
Over the past few years, even junior-ish bankers with cash could rent a place at the beach for extended stays — months perhaps
This may be a sign that the rest of the nation thinks the coast is clear, but no one has told the well-heeled buyers in the Hamptons real-estate market. Lee Felty, a real-estate agent on the Kulman Harrison team with Compass in New York, told me that the richest buyers thought the market was about to soften because a recession was moments away.
“The market has certainly shifted and is not as fast-paced as it has been in recent times. We are still lacking in some inventory,” Felty told me. “The midtier and high-end buyers seem to still have the means to purchase but are taking their time and being very cautious about doing so.”
That means the kind of over-the-top real-estate-transaction porn we got used to seeing in the Hamptons over the past few years is not going to happen this season. When the market was red-hot in 2021, Jim Chanos, a billionaire short seller and the founder of Chanos & Co., sold the beachfront mansion that he purchased in 1991 for $2.6 million for a whopping $60 million. (It’s possible that the village of East Hampton missed Chanos’ annual Fourth of July party. But he’s probably OK without it.) Felty said that now, in contrast, the action was on what amounts to the Hampton’s lower end, around the $3 million range.
The children are our future
For over a year, I have been warning my finance friends and acquaintances not to get too comfortable — that they were out of their minds if they thought that Wall Street CEOs such as JPMorgan’s Jamie Dimon and Goldman Sachs’ David Solomon wouldn’t call all their war dogs back to their midtown Manhattan offices. Now even Citigroup, the bank that had the most liberal of all office policies, is warning employees that anyone who does not meet the minimum number of days in the office will face consequences.
And that has consequences for the Hamptons as well. In the before times, office work limited the amount of time bankers could spend at the beach. But over the past few years, even junior-ish bankers with cash could rent a place at the beach for extended stays — months perhaps. Naturally, this turned the rental market up to fever pitch. This year, that ended.
“The rental market was extremely slow this year,” Felty told me. “Many people are traveling this summer and chose to do short term rentals, if any at all.”
This isn’t just about weakness on the demand side — the supply side has also changed. The bankers who thought “why the hell not?” and bought places on Long Island while everyone was working from home also need to go back to the office. So this summer, they want to rent out their places.
“We also have more inventory, as many of the new buyers during the pandemic also listed their homes on the rental market, which has created more inventory than usual,” Fenty told me.
A return to the office also means a return to more-classic Wall Street social norms. A visit to the Hamptons was always a rite of passage for young people in the industry. But earlier in the pandemic, that rite of passage turned into something of a welterschütternd moment — when the world is turned upside down. In all the chaos COVID-19 wrought, there came to be a (delusional) sense of some kind of parity for all bankers — from underlings to their senior task masters.
No incident (mistake) illustrated this better than the tragic story of the Goldman associate at a Hamptons lunch in 2020 who dared to introduce himself and a group of fellow junior bankers to Solomon during the middle of a workday. Solomon was incensed and used this complete corruption of banking’s caste system to argue for a return to the office, according to Bloomberg. That sort of encounter is another thing I can promise you will not see in the Hamptons in 2023.
During that horrifying period in 2020, it seemed out of place for a CEO to reprimand a junior employee for enjoying the same hiatus from New York City’s tightly packed apartment buildings as he did. But under Wall Street’s traditional hierarchy, it’s a given that a CEO gets to enjoy more time “out east,” as they say, than his underlings.
Wall Street, for all its highfalutin personalities and big paydays, is an apprenticeship system. Young bankers learn by doing grunt work, then they move up to overseeing the grunt work. Only after that do a select few get the chance to engage in interesting, important financial activity. But moving up that ladder takes time and one-on-one interaction with more-senior people who are actually cutting the deals. It’s a watch-and-learn business. Correcting someone’s financial model in person is much easier than doing so over the internet. Teaching the intuitive work of relationship building — how to speak with clients or strategizing how to negotiate a deal in the moment — requires face time, the ability to look people in the eye and understand how they are weighing their options. None of this is teachable remotely.
There will be (and has been) resistance to returning to the office, but, as one hedge-fund manager told me confidently during a recent Hamptons lunch, absolutely everyone will have their asses back at their desks by this fall. Period. No matter their rank. Naturally, though, more junior and midtier bankers are being forced back first. That means this summer, you can go to the beach without having to stumble over drunk second-year analysts in Chubbies drinking Whispering Angel out of koozies every 3 yards.
RIP WFHamptons
The reality is that working from home (or from the Hamptons) was never going to work for all of Wall Street given the pandemic’s dramatic influence on the markets. Inflation, which had not been seen in the US since the financial crisis, roared back with a vengeance. The economic and financial world has turned upside down.
Wall Street must empty the beach and go back to the office. I’m sure it was fun while it lasted.
There are professionals in finance with over a decade of experience who have never seen what happens when interest rates rise above 0.25%. Now interest rates are over 5% and unlikely to move lower anytime soon. This changes the entire gravitational pull of the market. It changes the structure of any deal involving debt, or the attractiveness of any company holding debt. It means asset classes that were not attractive before, because they lacked yield, will be attractive once again. The market is developing a new structure. And while the young and midlevel bankers have been scrambling to adapt to this business landscape, all the older heads who were supposed to teach them how to navigate it have spent the past few years in Amagansett eating at Il Buco Al Mare and learning to play pickleball.
For Wall Street, the heart of the pandemic was a moment to consider what life would be like at a slower, more-nurturing pace. But now that’s over and the market has shifted. Stocks could continue the rally they started at the end of the last year, or they could face-plant. Mergers-and-acquisitions activity has plummeted this year, which means the fees bankers earn are down. And when there is less to go around, the world of finance’s “you eat what you kill” mentality means firms will starve unless they hustle. Wall Street must empty the beach and go back to the office. I’m sure it was fun while it lasted.
One rather relaxed gentleman I met at the packed bar Almond in Bridgehampton referred to this summer as a “soft season.” Topping Rose, the crown jewel of Hamptons hotels with a Jean-Georges restaurant on the ground floor, decided to cancel its Fourth of July party. Maison Close, the SoHo celebrity hot spot that was supposed to have a grand opening of a Montauk location on Memorial Day weekend, experienced a devastating fire before it could serve even one rosé. This news shocked the Hamptons, but — to put it politely — no one I spoke with about it was surprised. It was about to occupy a big, beautiful, expensive space right at the moment everyone was departing. It’s closing time. If you happen to be the last Wall Streeter to leave the Hamptons this summer, kindly turn off the lights on your way out.
Linette Lopez is a senior correspondent at Insider.
