The financial sector may be far stronger than most people realize.

Former Morgan Stanley exec Bob Auer offered an interesting explanation for Wall Street's recovery.

"I think to just look at numbers on Wall Street and say, 'It looks like it's struggling' -- it's contracting in a very healthy way," said Auer. "It's almost like a big fat guy that is losing weight. To say, 'Oh, he's just not the same guy…' No -- he's getting healthier and better."

Auer was vice president of investments for Morgan Stanley from 1986 through August 2007. He advised roughly 350 accounts with total AUM in excess of $100 million.

"Whether you want to admit they're getting better or not, things are getting better, companies are hiring," said Auer, who was a three-time winner of the National Sales director award, which is granted to the top 10 percent of Financial Advisors at Morgan Stanley. "Usually that goes for a cycle. It doesn't just go for a quarter or two and then fall back off the cliff, even though there's people calling for that. So I'm very bullish, I'm very positive, and I think the train is just leaving the station."

Auer, who now manages SBAuer Funds, LLC, said that Wall Street had gotten "kind of fat and lazy on leverage."

"Some of the [big banks] were running at 35 times leverage," he said. "A lot of that leverage was being used on their proprietary trading desk. Wall Street is really getting back to basic business versus 'let's trade our own account like a big hedge fund.' I think what you're seeing more on Wall Street is the morphing of it and re-staffing to the proper level."

While it may appear that select parts of the industry are still in turmoil, there is a reason for that.

"It's not that business is down, certain businesses we're just not even gonna do anymore," said Auer. "If you're gonna call that business being down… But I think the traditional business is actually up and getting stronger."

Auer believes that Wall Street has learned from its mistake of paying overinflated salaries but noted that it is still a profitable industry for ambitious job-seekers.

"Wall Street is still a good place to make a lot of money for a good, talented person," said Auer. "But I think those go-go days of, you know, some 23-year-old out of college who figured out some trading algorithm and is being paid $10 million… That ain't gonna happen anymore, and I think that's all for the better."

Ultimately, Auer said that this adds to the thesis that the overall economy is getting better.

"If the financial sector is shaky, the economy is probably not on good ground," he said. "But I think the financial sector, including the banks -- which are probably the healthiest they've been -- [are on good ground].

"We [invest] in a lot of small, little regional banks [that] meet our criteria. They're already back to all-time record levels of profitability and revenue. The Citibanks [of the world] are not back to their all-time records, but these little banks are doing the best that they've ever done. There is a lot of hope in the system."

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