Is a crash the answer to the volume recession on Wall Street?

To a certain extent, the fortunes of top banks are mirrored not only by the major stock indexes, but also the volume and volatility measures. When turmoil reigns, the VIX kicks up, as does volume. We're seeing that now. Volume has been strong across the board over the last week, and that has led to talk of a big windfall for the major exchanges and broker-dealers. More volume typically leads to more revenue.

In one sense, this is good news. The volume recession has really stuck it to a lot of broker-dealers, not to mention high-frequency traders who, in some ways, rely on volume for their livelihood. The problem is that crash-driven volume can't last, which means the current levels aren't going to last. So any pick up in revenue will likely be short-lived.

What will it take to return a healthy volume surge to the stock markets? A good old-fashioned return to prosperity would do the trick. In fact, I can't think of much else that would work. Mutual funds, retail DIY investors, hedge funds and the whole panoply need to jump back into assets across the board. That's where the opportunity lies. If you believe that people were liquidating to sit out the storm, they'll hopefully reverse course at some point. But we seem to be far away.

So perhaps we should just enjoy the volume while it lasts. Like the fleeting days of summer. As an aside, I do wonder if some high-frequency trading outfits will seize upon Bank of America and or other stock to ride out the short term. At some places, all you need is a single stock that you can work in and out--rebates here, rebates there. The volumes at the top banks have been nothing short of mind-bending.    

For more:
- here's a related article from the Financial Times

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