What Business is Wall Street in ?

another post from last year that i thought was relevant again:

What Business is Wall Street In ?

May 9th 2010 11:36AM

My last two posts were designed to stimulate discussion.  But lets talk the real problem that regulators, public companies, investor/shareholders and traders face.  The problem is that Wall Street doesn’t know what business it is in. Regulators don’t know what the business of Wall Street is. Investor/shareholders don’t know what business Wall Street is in.

The only people who know what business Wall Street is in are the traders. They know what business Wall Street is in better than everyone else.  To traders, whether day traders or high frequency or somewhere in between, Wall Street has nothing to do with creating capital for businesses, its original goal. Wall Street is a platform. It’s a platform to be exploited by every technological and intellectual means possible.

The best analogy for traders  ? They are hackers. Just as hackers search for and exploit operating system and application shortcomings, traders do the same thing.  A hacker wants to jump in front of your shopping cart and grab your credit card and then sell it.  A high frequency trader wants to jump in front of your trade and then sell that stock to you. A hacker will tell you that they are serving a purpose by identifying the weak links in your system. A trader will tell you they deserve the pennies they are making on the trade because they provide liquidity to the market.

I recognize that one is illegal, the other is not. That isn’t the important issue.

The important issue is recognizing that Wall Street is no longer what it was designed to be.  Wall Street was designed to be a market to which companies provide securities (stocks/bonds), from which they received capital that would help them start/grow/sell businesses. Investors made their money by recognizing value where others did not, or by simply committing to a company and growing with it as a shareholder, receiving dividends or appreciation in their holdings.  What percentage of the market is driven by investors these days ?

I started actively trading stocks in 1992. I traded a lot. Over the years I’ve written quite a bit about the market. I have always thought I had a good handle on the market. Until recently.

Over just the past 3 years, the market has changed. It is getting increasingly difficult to just invest in companies you believe in. Discussion in the market place is not about the performance of specific companies and their returns. Discussion is about macro issues that impact all stocks. And those macro issues impact automated trading decisions, which impact any and every stock that is part of any and every index or ETF.  Combine that with the leverage of derivatives tracking companies,  indexes and other packages or the leveraged ETFs, and individual stocks become pawns in a much bigger game than I feel increasingly less  comfortable playing. It is a game fraught with ever increasing risk.

The Pimco (who I think are the smartest guys on the Street) guys talk about a new normal as it applies to today’s state of  the world economy. I think just as important is the new normal as it applies to Wall Street.  Wall Street is now a huge mathematical game of chess where individual companies are just pawns.  This is money in the bank for the big players like Goldman, Morgan, etc. Why ? Because the game of chess is far too complicated for 99pct of the institutions out there investing money. So to keep up, they turn to Goldman, Morgan and the like to invent products for them. “You don’t know how to play the housing boom, let us show you”. “You think the housing boom is about to crash, let us show you how to play that”. “You think that PIIGS are in trouble because they can’t print money to pay debt holders, let us create a product to allow you to play that game”  The big houses have the best hackers in the business and they put together the games and sell them to the many, many institutions managing Billions and Billions of dollars.  They are the ultimate Hackers selling their attacks to the highest bidder, regardless of which side they are on. That is a new normal.

Again, I’m not passing judgement one or the other.  I’m just recognizing what is going on in the financial world today.

It’s rare for companies to go public these days. Just as rare for secondary offerings.  The only thing that keeps me in the market is that most of the stocks (not all) pay dividends or some other sort of cash payout. For the first time in my life, I bought outside the United States.  I bought Australia in a big way because it is becoming increasingly hard to find new domestic investments that are not influenced by the “hackers” and the games being played on a macro level. It’s hard to believe, but evaluating countries as an investment is now easier than evaluating companies . Even with all the unrest in Europe. Or maybe because of it.

So back to the original question. What business is Wall Street in ?

Its primary business is no longer creating capital for business. Creating capital for business has to be less than 1pct of the volume on Wall Street in any given period. (I would be curious if anyone out there knows what percentage of transactions actually return money to a company for any reason). It wouldn’t shock me that even in this environment that more money flows from companies to the market in the form of buybacks (which i think are always a mistake), then flows into companies in the form of equity.

My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business.  Whether its through a use of taxes on trades, or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 5 years or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.  However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy.  It won’t come from traders trying to hack the financial system for a few pennies per trade.

And solutions won’t come from bureaucrats trying to prevent the traders from hacking the system. The only certainty when bureaucrats step in is that the law of unintended consequences will smack us all in the head and the trader/hackers will find new ways to exploit the system that makes them big money and even more money for the big institutions that develop products for the other institutions that are desperate to play the game.

Regulators have got to start to recognize that traders are not investors and vice versa and treat them differently. Different regulations. Different tax structure.  Different oversight. Individual investors and the funds that just invest in stocks and bonds are not going to crash the market.  Big traders who are always leveraging up and maximizing the number of trades/hacks they make will always put the system at risk.  We need to recognize that they do not serve much of a purpose other than to add substantial risk to the global economy.  That their stated value add of liquidity does not compensate the US and World Economy nearly enough for the risk of collapse they introduce into the system.

Wall Street as a whole needs to be in the business of creating capital for companies and selling shares to investors who believe they are shareholders.  The Government needs to create incentives for this business and extract compensation from the traders/hackers for the systemic failure level of risk they introduce.

There will be another crash, because there are too many players looking for the trillion dollar score. They can’t all win, yet how many do you think wouldn’t risk everything, even what is not theirs, for that remote chance to score big ? Put another way, there is zero moral hazard attached to any trade. So why wouldn’t traders take the biggest risk possible ?

Update at 10pm 5.9.10

One more consideration. If there are traders of any kind that are unregulated or unmonitored, and trade for their own account, how do we know how big they are and how much of a threat they pose to the system, individually and in aggregate ?. For any High Frequency or big leverage derivative folks out there- is it possible there could be firms that have billions at risk with questionable ability to make a margin call or fulfill their side of the trade  if things went against them ?  Could there be hidden AIGs that few people know about  or a bunch of AIG like situations ,which in aggregate fail and put the system at risk ? I have no idea. Just asking the question.

Update 8-9-2011

As a follow up from a comment, I found it interesting that Australia treats professional traders very differently than individual investors that invest in shares of companies.  Traders pay regular income tax on their gains, investors pay capital gains and if held more than a year can even get a discount on the capital gains rate. Something that would make a ton of sense in the USA as well

From the site:

Carrying on a business of share trading

Increase text size  Decrease text size
A ‘business’ for tax purposes includes ‘any profession, trade, employment, vocation or calling, but does not include occupation as an employee’. This definition would include a business of share trading.

The question of whether a person is a share trader or a share holder is determined in each individual case. This is done by considering the following factors that have been used in court cases:

  1. the nature of the activities, particularly whether they have the purpose of profit making
  2. the repetition, volume and regularity of the activities, and the similarity to other businesses in your industry
  3. the keeping of books of accounts and records of trading stock, business premises, licences or qualifications, a registered business name and an Australian business number
  4. the volume of the operations, and
  5. the amount of capital employed.

1. Nature of activity and purpose of profit making

The intention to make a profit is not, on its own, sufficient to establish that a business is being carried on.

share trader is someone who carries out business activities for the purpose of earning income from buying and selling shares.

Shares may be held for either investment or trading purposes, and profits on sale are earned in either case. A person who invests in shares as a share holder (rather than a share trader) does so with the intention of earning income from dividends and receipts, but is not carrying on business activities.

It is necessary for you to consider not only your intention to make a profit, but also the facts of your situation. This would include details of how the activity has actually been carried out or a business plan of how the activities will be conducted.

A business plan might show, for example:

  • an analysis of each potential investment
  • analysis of the current market and various segments of the market
  • research to show when or where a profit may arise, and/or
  • the basis of decisions by you as to when to hold or to sell shares.

Last Modified: Monday, 23 June 2008

 

 

48 thoughts on “What Business is Wall Street in ?

  1. Pingback: Mike Silva's New York Baseball Digest » Blog Archive » Morning Digest: Review of Moneyball The Movie Edition

  2. The game I was refering to is called Jenga, not Chenga. “Yet day by day, we allow satellite technology to continually “jenga” our brick and mortar world.”

    Comment by masatenisimi -

  3. Well if we have to ride the Patent Carrousel why not do it on the cheap.

    If the economy has presented your small business or individual life hardship that is verifiable, use that to allow you to pay reduced fees, and in some cases obtain a waiver of fees. It might not work for everyone, but for the few that grab the gold ring with dirty feet, getting sweat on the suit sitting on the painted stead next to them, Bravo!

    Yes, you read that right a “Reduction or Waiver of Patent Fees.” Here is the link http://lnkd.in/W5vu9S !

    Have a Great Weekend.

    Comment by 2dpopout -

  4. “Equities dont trade on FCF and earnings. They trade on momentum and algorithms. That is hacking. That is the problem.”

    Mark,

    You are right up until the last sentence. Events like the flash crash and the market’s recent daily volatility pretty much shoot the efficient market hypothesis straight to hell. What results is not a “problem” but an “opportunity” for value conscious investors with a long-term time horizon. Instead of bringing those people back into the market, a decrease in volatility (and irrationality) would make investing in the market less lucrative for those long-term investors who look for intrinsic value (as a function of things like FCF and earnings).

    Since Ben Graham’s early research in the 1930s, it has been observed that the market value of a security can deviate from its intrinsic value in the short run but that the market tends to be self-correcting in the long run. Examples of this include:

    1) the correction after the dot-com boom, which previously valued profitless companies at billions of dollars but ultimately corrected itself

    2) the broad stock market recovery between 2009 and 2011, which previously saw a number of profitable companies selling near or below estimates of their liquidation values and/or very low multiples of profitability, but resulted in somewhat more rational valuations for many of those companies

    By trying to “stabilize” the market, you might actually drive away the long-term value investor types who, today, profit from the short-term market inefficiencies and volatility you observe by maintaining a long-term time horizon and focusing on company fundamentals.

    Lenny

    Comment by epolitical -

  5. ” Just as hackers search for and exploit operating system and application shortcomings, traders do the same thing. A hacker wants to jump in front of your shopping cart and grab your credit card and then sell it. A high frequency trader wants to jump in front of your trade and then sell that stock to you.”

    The problem you have, Mark, is that you understand literally nothing about how the market works. You remind me of the old joke about asking and NBA star what he would have done if he hadn’t been an NBA star, and he opines, “oh, a governor or senator”. You’ve made a lot of money, Mark, but that has little to do with achieving understanding of the US Equities market. High frequency trading will save the average 401k investor about 30% at cashout time, according to Vanguard. The “hacker/thief” as you derisively characterize the modern high frequency trader, is not jumping in front of the investor and selling it back to him, he is acting to adjust the price to what is fair given what’s knowable, so every investor can be confident that every purchase is at a price as close as possible to what’s fair. The people who make your “jump in front” argument are the slow, expensive “best execution” firms, who can no longer compete. They want to screw the unsuspecting retail investor by getting them to buy the stock they are selling at prices that are too high relative to their intentions and the size they have to sell. Of course they want the price to stand still as they sell huge amounts of stock with VWAP and other algos intended to dupe the other market participants about the true state of supply and demand. Nothing illegal about that. High frequency traders eliminate some, but not all, of that insider advantage by inferring the likely future price action given the behaviors of these folks. You do a tremendous disservice to your loyal fans by disseminating these fairy tales about how the market works, your take on things is truly sub-amateurish, but, unfortunately, well aligned with the toxic political climate du jour. The fact that you are so proud of this mistake that you republish it is, well, it is what it is.

    Comment by slackful -

  6. Mark,

    Another great post! I also saw “The PostGame” report on your original blogpost on this topic. I largely got out of the market in 2002 specifically because I became aware of the ways that the market hackers were accessing Wall Street to line their pockets. I was also aware that if there were people like me learning these tricks then there also had to be companies investing in technology to exploit the concepts and that I couldn’t compete with multi-billion dollar companies investing in such technologies. Thank you for getting the word out about Wall Street! Now we just need to get people to stop paying into 401Ks and IRAs that invest in the market. These people are being raked over the coals and basically market hackers are just skimming the profits off of their retirement accounts.

    -Dave

    Comment by aspfl -

  7. Pingback: Another Crazy Week Goes By – Roundup – Investorz' Blog

  8. Pingback: Panic in the Economy - is this our future? | Grow VC > Blog

  9. Mark,

    Do you follow Max Keiser (www.maxkeiser.com) host of the Keiser Report? He has been discussing the various problems Wall Street has and how it’s affecting us all. Now if only the sheeple would wake up.

    Comment by keshbach -

  10. Wow, my first hedgie post reappeared! Fascinating.

    Comment by hailguardian -

  11. I doubt I’ll get an answer, but I’m curious why my post to this particular blog, which spoke of hedge funds and high frequency computers effects on the market, was deleted.

    The post wasn’t belligerent. It merely explained how people with access to information and access to immense resources have the power to move the markets in any direction they choose. And the high freak computers follow the trend the hedge funds set and accelerate the speed and impact.

    It’s not some wacky conspiracy theory. It’s merely the facts of the situation. Of course I also said the SEC is a puppet organization. Possible saying they are instead conveniently inept, would have been more appropriate. Naked short selling being the thing most abused by the hedgies and most overlooked by the SEC.

    Well, let’s see if this post gets deleted as well. Within my comments I also noted that it’s unlikely to change, so more than studying the fundamentals of a company or it’s products or it’s management, you are best served to study where the hedgies will attack next. Follow the leader, where it’s right or wrong, it’s the only way to make money in the market. But they sure are good at what they do. As much as I study them and attempt to follow them, they get me all the time too. Just when I think I got it figured out, I go back to being a dear in the headlights and get run over by their ever changing agenda.

    Comment by hailguardian -

  12. Mark, your comment even a year old still rings true today. Our politicians don’t understand how Wall Street works, nor do they understand the role of government in our society as the framers of the constitution had in mind. We are no longer government for the people by the people, under Obama we are government over the people.

    Comment by miriken -

  13. Pingback: What Business is Wall Street in ? « blog maverick « mawillits

  14. Mark

    i understand and agree that the vol is tremendous now, and machines have added to it greatly. 7B is 2x five years ago, but you cant dismiss FCF and earnings. If we had specialists, market makers and no black boxes with 3b shares traded yesterday, maybe we cut volatility in half, the move in the last hour was a joke. But by your logic (equities trading on mo and algos), is that why CSCO is outperforming the market today? Was it not earnings last night and confidence in guidance, firm metrics like book/bill and rev? Does Warren Buffett bid for transatlantic on mo and algo valuation? I would have puked my position in MAMA as well, did you not sell based on fundamentals (i think they missed a couple days later)? Or was in mo? We cant get a handle on SnP earnings right now, @$85 for ’12 with a 12 multiple we get 1020, seems low but nobody knows. GDP forecasts are all over the map. The head of the fed comes out with a time horizon, never seen that before. He is a deer in the headlights, and his 12 regions talk with thousands of businesses. I agree that these machines are a joke, they cause tremendous confusion and need to be eliminated. Everyone is having a tough time putting value on any company,and running their businesses. one day, someday, i hope we can have normalcy back.

    Comment by cwysz -

  15. Pingback: Thursday Morning Reads | 11th August 2011 | Safal Niveshak

  16. Mark,

    I like your analogy comparing Wall Street traders to hackers but think that some of your conclusions are mistaken. The decoupling of security prices from underlying value represents an opportunity for the savvy investor with a long-term time horizon, not a reason to abandon, restructure, or tax the markets. I would, however, support curbs on speculation in certain commodities markets, where irrational pricing driven by speculation has significant real-world consequences for Main Street (corn, oil, etc.).

    The systemic risk is not a function of high frequency trading or speculation; it is a function of excess leverage (i.e. the big banks), insufficient reserves to cover potential losses (particularly with derivatives–i.e. AIG), and misaligned incentives throughout the value chain (i.e. brokers paid to close bad mortgages by banks, who were pretty much guaranteed the ability to profit by offloading that risk to other investors, by I-Banks who were paid a commission based on securitized loan volume irrespective of whether those loans defaulted). Your proposal does not deal with any of those issues directly, but those are the items that need to be regulated.

    Personally, I’m glad there are market inefficiencies to exploit as I built and sell software to enable sophisticated individual investors to exploit them. We support US, Australian, and other global markets and I would be happy to give you an account if you are interested :-).

    Lenny Grover
    Screener.co

    Comment by epolitical -

  17. Pingback: What Business is Wall Street in ? ? blog maverick | inelalekogop

  18. Mark

    Interesting ideas and there is merit to what you are saying but i would not pin this economic malaise on day traders and quants (if i read correctly). You began by saying that in the last three years things have changed, but 1987 we were off greater than 20% in one day due to futures and insurance, a breakdown in market trading. Brokers turned off their phones, and futures traded. What about the tech bubbble we witnessed and dont get me started on market makers on the floor of the NYSE. I cant tell you how often they held up a market to front run their own book, markets today are more efficient in pricing equity than they were even a decade ago, due to tighter spreads and more transparency within the quote. Wall St allocated capital efficiently, and if i was jamie dimon or head of a bank, i would be very hesitant to lend with the macro factors facing our nation, and the globe. We witness that in bonds yields, PIMCO see’s it as well. Are we sitting at 1120 SnP because of day traders? Call me naive but equities at the end of the day trade on FCF and earnings, valuation. We have no idea how to value companies today because we are working thru the steepest slide in economic activity since the depression. it takes time. We have tremendous risks ahead, but i believe there is more to the story of where we sit today than simply pinning problems on Wall St, traders and quants. This is a systemic problem that has been building for years, decades and the deleverage will take time.

    Comment by cwysz -

    • not pinning it on day traders . Looking at it this way. The number of public companies has declined significantly over the past 10 years. Even if you include ETFs. Despite this we traded SEVEN BILLION SHARES. How in the world do you trade 7,000,000,000 shares in a single day and even consider that as investing ? Im not saying systems were perfect in the past. Im saying this is a whole new ballgame and of those 7B shares, few are actual investments. Equities dont trade on FCF and earnings. They trade on momentum and algorithms. That is hacking. That is the problem

      Comment by markcuban -

  19. Pingback: Mark Cuban – What Business Is Wall Street In? « Economics Info

  20. Pingback: Are ROBOTS taking over Wall Street?

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  22. Mark,
    Thought I’d add a thumbs down message for the crowd. Tested Hail Guardian yesterday for a large manufacturer. For the first time tested it with softball size hail equivalents from 85′ up. We can say equivalent because we know the math. Our hail is more dense and large in size than a softball hail stone, to create an equivalency. Hail Guardian performed wonderfully. It’s clear to me now that Mother Nature is incapable of creating hail large enough to concern Hail Guardian. I am told that we have till Friday to hear from Shark Tank or it will be official that we will be passed over for season 3. In either case, we have just broke the code of hail damage to cars nationwide. 100M cars nationwide are excited. $100M per year spent by Insurance companies on auto hail damage losses are excited. 500M cars worldwide are excited. We’d love it if you were excited too. I see everyone offering you ideas of one sort or another. But Hail Guardian has actual relevance to your Dallas life. North Texas is the most hail damaged in the country. Our business is based in North Texas. We can create jobs in the US creating Hail Guardian. Be it an up economy or down economy, the protection of one’s assets is equally important. And the cost of Hail Guardian is overcome on it’s first use. Tell me someone is bringing you a better venture than this? Video of our softball hail test coming soon to our website. http://www.hailguardian.com. Ok folks, thumbs down me.

    Comment by hailguardian -

  23. Pingback: What Business is Wall Street in ? « blog maverick | fozbaca’s WordPress

  24. Pingback: Mid-Week Reads | The Big Picture

  25. Mark, Wall St is in the business of empire building. You can ride along or get washed out. Take a look at my offer and begin to imagine the potential of the 9-Month Cycle Technology. Once you see it, you will never be able to not see it.

    Comment by 9-Month Cycle -

  26. I wonder how much 401Ks are contributing to this problem. It’s really hard if not impossible to be an investor in a company when one buys a fund that owns dozens if not hundreds of different stocks. Yet, 401Ks have pretty much completely replaced pensions as retirements savings and are pushed by corporations.

    Comment by Frank -

  27. Well the Tea Party / Republicans are of the informed opinion that all taxes are bad, so good luck with any reasonable reforms. Taxing traders as regular income seems like a great start. There is a large resistance to a trader’s tax on transactions though.

    Comment by ankursethi108 -

  28. Pingback: Wall Street versus us « mathbabe

  29. Hackers? It’s more like snake oil salesmen. The problem is the weak corporate ‘managers’ at the insurance companies, banks, etc worried about their little salaries and bonuses that flock over to the bucket houses for bottles of toxic instruments of destruction aka ‘investments’.

    No amount of regulation or tax fiddling will solve the Wall Street problem. It will be solved by new entrepreneurs who start new businesses and new jobs and create new wealth; outside of Wall Street.

    As for a company getting funds out of the market? It only happens at the IPO, where the listing bank(s) often make more than the IPO company, and then later if the company issues more stock for sale and doesn’t worry about risking the ire of existing shareholders being diluted (‘we issued so many new shares that you loyal stockholders that have been keeping with us will find your dividend check will be cut in half next year). Or a lesser advantage is a successful company can grant stock options to employees instead of paying real cash – letting the market set their wage.

    Comment by jvin248 -

  30. Mr. Cuban…consider your goal met of stimulating discussion. I did notice only 15 comments, so one has to wonder if it reaching as far an audience as you would like. I’ve read the comments of the last posts and they have salient points.

    The discussions are thought-provoking and merit more exposure.

    I recommend some new technology that will…maybe a “Debate it” app. That way you can see both ends of the argument and and then have people vote online as to who is winning.

    If I invented something like that someone probably has a patent on it and I would get sued before it ever came out.

    How about an app to predict the “probability of a lawsuit” and simulate new technology coming out? It could be called the “Simulator” I write that tongue and cheek, but seriously….what do you think of those ideas. If you need me on your payroll…..hit me up!

    Comment by jtamoe46 -

  31. As Alexyackery said, we have created a long term problem that cannot be easily corrected in the short term without signficant pain. This will turn into a diatribe and a risky forecast but I promise logic, if not common sense. Obviously theoretical but here it goes…

    Banks have no incentive to lend for several reasons:

    Firstly, they have learned that our government will allow, with bailouts, the weak (JPMorgan, Bank of America, and any other TARP recipient) to regain a mega-power foothold because they are “too big to fail.” Remember, the banks don’t have to do anything in particular with the taxpayers’ money the government gave to them. Everyone on Wall St is already whispering “QE3,” testing the Bernanke’s stomach.

    Secondly, they can wait and sit on cash until interest rates go up before they lend again (and create for themselves a nice, fat margin). Wait they will while growth businesses and the American consumer suffer because extreme emotions as a result of uncertainty means big swings, big volumes, and big brokerage commissions with very little risk taken on the banks’ behalf. They don’t have to take risk to make money during periods like this, and they don’t. They can watch everyone else blow themselves up. Equities become distressed and mom and pop puke their 401 K’s. (Good hedge funds know this too, as those still around hold 50% cash.) That is what bulge brackets and the big boys are waiting for.

    Thirdly, they can now control where interest rates go because the government has shown its hand. We cannot keep inflating our way out of debt (the rest of the world has caught up by now). Without proper regulation as Mark cited, banks can do what they wish. They will wait until everyone needs their cash. This happens right before elections. Politicians will continue to dance to Wall St’s music and when a free-market Republican President is elected, banks will then find it convenient to lend again…at rates to rip everyone’s faces off. By then, we will all need that capital to operate our businesses or start new ones. I shouldn’t have said music. Symphony is more fitting. Thoughts?

    Comment by jloperfido -

  32. The regulations you desire would only shut down the individual day traders as the big money always finds a way around the regulations. Aren’t your individual investors the ones more likely to reinvest the money they’ve made into the economy by buying real goods and services? I like your ideas, but I like them applied to the likes of the big institutions, not the individuals who were smart enough to buy Puts this morning.

    Comment by zernick -

  33. Nice post. It’s sad that Washington is so loyal to campaign contributions, it doesn’t do anything about Wall Street & the big banks, even after they ruined the economy. Why not break up the banks, like the govt did with AT&T back in the day? Or put a stop to these ridiculous mergers and acquisitions that do nothing but make a few executives rich? Or at least force hedge funds to disclose their activities? Do something.
    Congrats on the title, Mark…

    Comment by mcmanwich -

  34. I think you have a really good point about the function of traders in the markets today. This is one of the main things that drives me away from the finance industry.

    Are you familiar with Austrian economics? It would give you a good understanding of the macro forces that have brought us to the current economic climate. A quick rundown:

    The Fed artificially holds interest rates low to free up credit and encourage borrowing (forgoing future consumption for current consumption to think of what is really going on). This encourages consumers to borrow from the future to spend now. At the same time, companies are making long term investments in infrastructure to grow their businesses. The problem is the mis-allocation of assets along the stages of production. Eventually, as these long term projects begin to be completed consumers have spent their would be savings and are actually in debt. So businesses lose and people lose their jobs.

    This is why our economy is really just being held up on stilts. The only thing that gets us going again is more Government intervention via pumping of the money supply and quantitative easing, which is just a fancy way of saying printing money to pay for debt. Its no wonder gold traded over $1700 per ounce today as our credit rating is downgraded- it speaks to the devalued nature of our dollar and the unwillingness of nations to accept our debt as the uncertainty of our ability to pay back decreases the more we devalue our dollar. It is an endless cycle that can only end with a harsh and painful correction, and we need more prominent individuals such as yourself along with political figures to get on board to solve the problem instead of perpetuating it.

    After that tangent, great blog!

    Comment by alexyackery -

  35. Mark:

    Provocative post, and just as true and relevant today as it was last year.

    Some of what you describe is a reenactment of Glass-Steagall — separating low-risk banks from high-risk investment banking. I remember wondering when it was repealed how that was a good thing. The answer: it wasn’t. It gave us banks that were too big to fail because they were so deeply wired into so many pieces of the economy.

    I also like the idea of eliminating capital gains on instruments held 5+ years. If you can’t tax volatility, you can at least advantage stability.

    Comment by drosenba -

  36. Pingback: Insightful: “What Business is Wall Street In?”, by Mark Cuban | Alexander Hugo Pagliaro

  37. The game I was refering to is called Jenga, not Chenga. “Yet day by day, we allow satellite technology to continually “jenga” our brick and mortar world.”

    Comment by alexlogic -

  38. Mark, I did not mean to imply you owned Apple, sorry about that. In general, it seems like the more popular stocks don’t have dividends, and Apple is at the top of that heap.

    Comment by alexlogic -

  39. Very interesting…thank you for this post. As you know it’s very difficult to get transparency these days… I have always wondered about these “hackers” and how they work.

    Comment by Felipe -

  40. Yep pretty much in the mark. I started a BLOG about this topic three years ago when Hackers told me I did not know what I was talking about and then published a book. aivarslode.blogspot.com for more details and specifics that show that Mark is correct.
    Aivars Lode

    Comment by alode -

  41. Mark’s quote…”The only thing that keeps me in the market is that most of the stocks (not all) pay dividends or some other sort of cash payout.” Is that true? Is it “most”, or just some?

    As far as I know, Apple doesn’t pay out anything, talk about the ultimate gambling stock.

    I would like to see a “satellite” stock exchange, and a “brick and mortar” stock exchange. When the two are combined onto the same stock market, the satellite stocks win hands down.

    Satellite stocks are suffocating brick and mortar stocks, yet if a solar flare came along and knocked out the world’s satellites, it would be brick and mortar that would save us all. Yet day by day, we allow satellite technology to continually “chenga” our brick and mortar world.

    Comment by alexlogic -

  42. If the political environment wasn’t so toxic, I would strongly suggest that you run for President. On second thought, maybe you should because maybe then, just maybe then – and because of your celebrity, your could spur the “average American” to start thinking about what you just articulated and demand change. In other words, people would begin to elevate their level of conversation about Wall Street in the aisles of their neighborhood grocery, at the kid’s soccer games, over a latte, during the ball game (when watching on TV of course) and at the proverbial “water cooler at work. If the masses started talking about (and understanding) this stuff instead of the wasting time on so many other diversions and distractions, maybe positive change could occur.

    Comment by koolkrowd -

  43. Nice. Maybe you should run for office ;)

    Comment by erichcervantez -

  44. Mr. Cuban Great Stuff!!!!

    Comment by iwanttogetrippedup -

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