Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

Jefferies Group has an unusual fiscal calendar that puts it a month ahead of most other banks. So whenever the company reports earnings, it's often said that Wall Street combs through the results to see what can be learned about bigger competitors.

That's true to some degree, but it's not exactly a perfect reflection. Since it's a smaller firm that may have concentrated risks that aren't representative of larger banks' exposures in any given quarter, it can sometimes be more like looking at a fun-house mirror. 

So what can we learn of the general health of Wall Street from the Jefferies fourth-quarter earnings today? Well, it's clear the slumping fixed-income desks probably did not come roaring back to life in the first two months of everyone else's fourth quarter. The firm's fixed-income revenue fell to $8.4 million, down 83 percent from the period a year earlier. On the bright side, that's a whole lot better than the loss of $18.2 million the firm reported on the fixed-income line in its fiscal third quarter ended in August.

Fix Needed
Like other banks, Jefferies has experienced a big slump in fixed-income revenue.
Source: Bloomberg data

Distressed energy debt was the main problem for Jefferies's fixed-income revenue earlier in the year. During the first nine months of its fiscal year, it suffered $90 million in losses across more than 25 distressed energy positions as it traded $5 billion worth of those securities. The exposure to distressed energy decreased by half during the third quarter, to $70 million, and was reduced further, to $39 million, by the end of November.

But one of the other main culprits, as described by CEO Richard Handler on Tuesday, was (you guessed it) the Federal Reserve: "Almost all our fixed-income credit businesses were impacted by the prolonged anticipation of the lift-off in Federal Reserve rate-setting."

This brings the image in the fun-house mirror a little more in focus. While the distressed-energy exposure may have been more of a problem for Jefferies, the seven-year flat line in the federal funds rate appears to be an issue that has hit the fortunes of most trading desks as activity slowed and anxiety grew before the much-speculated liftoff.

Not that it's possible to add any more drama to the coming Fed announcement on Wednesday, but let's try anyway. As Bloomberg News pointed out in May, a big chunk of Wall Street is too young to even remember the last interest-rate increase cycle by the Fed. What were they doing when the Fed last raised interest rates, back in the ancient era of 2006? Important stuff. Like trading baseball cards, according to the Wall Street Journal

Farewell to the Flat Line
The Fed is expected to increase its benchmark interest-rate target on Wednesday.
Source: Bloomberg data.

That may sound scary, but the truth is even the old timers are probably just as clueless as the youngsters when it comes to what to expect when rates start rising this time. There are too many variables that make this decision unique -- the prolonged period during which borrowing costs were held down, the rising importance of policy from other central banks, liquidity-sapping new regulations, greater automation of market making, the crash in oil and junk bonds, the list goes on and on. 

Yet there is one other intriguing peculiarity regarding the timing of this potential rate increase: it's taking place in the middle of December, when even the Scrooges of the equity world talk about a Santa Claus rally with a straight face -- and traders in all asset classes can almost taste their coming bonuses or performance fees. So far this year, that taste may be a little bitter for many. But is there a chance it could get sweeter if the right trades are made after the Fed?  

Well, of course! Or at least, that has to be on the mind of many. And it's just another reason to believe that market reactions to these first 25 basis points have the potential to be a lot different than 25 basis points in the past.  

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Michael P. Regan in New York at

To contact the editor responsible for this story:
Daniel Niemi at