Wall Street's crazy spending spree, with third homes in Hawaii, is finally over. Turney Duff breaks it down.
Wall Street used to be brazen about its spending. Traders would spend large amounts of money to attain or maintain a certain social status. It was like "Keeping up with the Paul Tudor Joneses."
But there's been a shift happening over the last decade. I did an informal poll of 50 Wall Street professionals and the collective response was that spending habits have changed.
"There's a lot less peacocking going on these days," said Rick, a hedge-fund trader. (Peacocking, as in strutting your stuff like a peacock.)
There are several reasons for the change: 1) The average Wall Street bonus fell 9 percent in 2015 to the lowest level in three years, according to an annual report by the New York State Comptroller, 2) Fear of job security, 3) Fear of a downshift in the economy and 4) "Street shame"—the idea that, in an economic downturn when people are suffering, it's shameful to be openly extravagant.
So what are six- and seven-figure Wall Streeters spending their money on and what have they cut out? Here's a breakdown:
There's an expression on Wall Street: "F— you, money."
That's money spent knowing it's financially offensive to others, but done in order to maintain one's obscene lifestyle and reputation. And right now, the flexing of f— you money muscles is down. It doesn't mean people aren't making that kind of money anymore; they're just exercising discretion.
The days of picking up a second or third home while on vacation in Hawaii are basically over. The Wall Streeters I spoke with said they're more likely to add an extension or do a remodel before purchasing another home. They'd much rather save or improve existing equity.
Boat buying has been ticking higher for the last five years but buyers have started to become cautiously optimistic recently.
A couple of financial professionals attended the New York Boat Show at the Javits Center in January and walked away new Yamaha watercraft owners.
"It's a buyer's market," a portfolio manager said. "Anybody who walks in there will be treated very well."
But most everyone I spoke with said that boats are usually last on the list. It's difficult to own and maintain a boat unless all the other boxes are checked. "Owning a boat is a commitment unless you have unlimited money."
When it comes to flying, there aren't as many people clamoring to fly private as there used to be. It's been upgraded to a luxury—not the norm.
"The line in the sand is flying private," said Teddy, a trading-desk manager. "Either you can or you can't. You're on one side of the line or the other." He said most people on the Street have seen enough cautionary tales to know that things can change instantly. "It's not like it used to be."
Spending on third homes and other big-ticket items may be down, but Wall Street still sees a benefit to enjoying luxurious vacations. The whole "work hard, play hard" mentality won't go away without a fight.
Money shelled out for private school for the kids, $40,000 vacations, new cars, high-end jewelry and watches is holding steady. And for the most part, the consensus was that finance guys will keep on feeding the meter on these items.
"It's not like I'm going to pull the kids out of school," said Franklin, a sell-side trader. "I'll still go on two nice vacations a year. What's the point of making a lot of money unless you're going to enjoy it?"
The majority of those polled agreed they weren't cutting back on current expenses, but they also weren't adding to the list.
If you can't brag about your third home in Hawaii, what CAN you brag about? Your new Tesla.
Traders are notorious for their impulse buys. They'll be sitting at their desk on a slow day when they start browsing the Internet. Next thing you know, they bought a new toy.
And, according to my informal poll, that type of impulse spending is up. So what are they buying?
Tesla ($70,000) — Three different traders mentioned they'd recently ordered one of these premium electric cars. They said it's impossible to go a day without hearing the Word Tesla or Elon Musk over the course of a trading day. Call it the power of suggestion: "It just sort of happened one afternoon," a trader said.
Living wall ($5,000-$150,000) — This is a vertical garden of plants in your house. "A friend of mine's interior decorator suggested he get one. It looked great so I bought the next day," a hedge funder said. "But I went a little crazy and paid up for it. $150,000.
Oculus Rift ($600) — With these virtual reality goggles, you can watch movies,play games and wander through virtual realities. But, it's probably the cool factor that sold it. "I'm not sure how to use it yet, but I got one," an analyst said. He plans to figure out how to use it soon.
3D printers ($400-$7,000) — Dads are "buying these for the kids" but you know they're really buying them for themselves! This item was especially popular among the dads who hate electronics. "I saw a feature on tv about making your own toys so I bought it," one trader said.
Amazon Echo ($180-$300) — The Echo is like a Siri for your life—only she's named Alexa. Through voice commands, she'll tell you the time, play music, tell you the traffic report or order things online. Several finance guys said they bought it after seeing that Alec Baldwin-Dan Marino ad for it during the SuperBowl.
Hey, Alexa—Can you order me 1,000 shares of Apple and play, "Who's the Man?"
Commentary by Turney Duff, a former trader at the hedge fund Galleon Group. Duff chronicled the spectacular rise and fall of his career on Wall Street in the book, "The Buy Side." Catch him on CNBC's "Filthy Rich Guide." He's also a consultant on the Showtime show, "Billions," starring Damian Lewis and Paul Giamatti. Follow him on Twitter @turneyduff.
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