Both these “banks” function as “hedge funds”, that is they can go long and short and create all kinds of securities on their own. Obviously the simple fact that they can play the entire spectrum of possibilities gives them an enormous advantage over others that are confined to a much narrower range of the spectrum. This, and seeing most of the flows, accounts in large part for their enormous profitability. That every second central banker or any other key player call either of the two their alma mater does not do any harm either.
Clearly regulations affect these pretend banks, in fact MS was created in the wake of Glass-Steagall , enacted in 1933 as a response to the great depression, specifically to circumvent the rules. GS on the other hand operated to a degree outside the scope of Glass-Steagall but was reluctantly drawn in by the bailout. Of course Glass-Steagall was repealed in 1999 which has some people conclude ironically that this law was both the result of the great depression as well as the cause of the great recession. Dodd-Frank (2010) is the new Glass-Steagall and Trump has promised to do away with it (and maybe the Fed. as well). His administration-to-be seems to subscribe to the Ayn Rand philosophy of complete and total unfettered selfishness and a government that interferes as little as possible, sort of where we were after 1999 and before 2010 at a time when these stocks peaked. Oddly enough Greenspan was once part of her (Ayn Rand’s) inner circle.
We have no idea if this Trump rally is over or if it has a long way to go, therefore we would suggest that the best approach is to “when in Rome, do as the Romans do” that is be your own hedge fund and short GS and go long MS. Both companies are about the same size, GS has a slightly larger cap. and MS more employees. The spread between the two has never been larger. A ratio of about 6 shares of MS (at $40) against 1 share of GS (at $240) would, more or less, do the trick. You can achieve something similar with options.
Better yet, listen to this;
Merry X-mas and a Happy New Year.