Mark Cuban on the Business of Wall Street

Mark Cuban dishes out a lot of questions in his latest blog post:

The important issue is recognizing that Wall Street is no longer serving the purpose  what it was designed to. 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 5 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.

This was the most important reasoning from Cuban, I thought:

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 (hit every trade on a stock held less than 1 hour with a 10c tax and all these problems go away), 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 1 year or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years. 

Full post here.

Mark Cuban on High Frequency Trading

The Wall Street Journal interviewed the brazen Mavericks owner Mark Cuban about his thoughts on high-frequency trading. His response is gritty:

WSJ: What do you say to the argument that high-speed traders provide liquidity to markets and narrow spreads? The argument is that those benefits outweigh the negative side effects that you’re talking about. If the HFTs are pushed out of the market, they say, regular investors will wind up paying more to buy and sell stocks.

Mark Cuban: That’s a bogus argument. By definition they can’t go into an equity unless there already is liquidity. To say they’re adding liquidity is like saying spitting in a thunderstorm is adding liquidity.

As far as narrowing spreads, that’s absolutely true, but in absolute terms what does it translate into? For the individual investor it might save them a quarter a month. So what? Relative to the risk that’s the worst tradeoff in the history of tradeoffs

And the argument is horrible for another reason. If you’re an investor you shouldn’t care if the spread widened by a penny, nickel dime or quarter. If you’re anything but a trader the change is of no impact to whether or not the company will be successful and create returns for investors. In fact, that anyone even considers this a valid argument is a red flag that the exchanges are more interested in traders than investors.

WSJ: What’s the solution? There have been some calls for a transaction tax recently for instance.

Mark Cuban: Public companies need to figure out what business the exchanges are in. Is the market supposed to be a platform for companies to raise money for growth and to create liquidity and opportunity for shareholders as it has been in the past? Or is the stock market a laissez-faire platform that evolves however it evolves? The missing link in all the discussions is: What is the purpose of the stock market?

Good stuff.

Mark Cuban on Creating Jobs in America

Mark Cuban, the outspoken owner of the 2011 NBA Champions Dallas Mavericks, has an unorthodox view on how to create jobs in America. Forget the proposals by the Republicans and Democrats, he argues, and focus at the source: American corporations. What do they need to create jobs?

How is this for a revolutionary thought: Companies that would create jobs if they had more cash know who they are. Right ? If you own a company and are thinking to yourself “Self, if I could borrow or get an investment into my company I could hire X more people to grow the company/meet demand/release a new product/whatever”  So rather than guessing and hoping what might happen, why don’t we let companies self identify themselves ?

And not only should they self-identify themselves as companies, they should be able to bid on Government Loans or even actual equity investments. Call me crazy, but I think we should be playing a game of “I Can Name that Tune in X Notes” re-named and reformatted as “I Can Create X Jobs for Y Amount of Money”

Would this system be open to everyone? No, says Mark Cuban:

Of course you will have to set some minimum parameters in order to prevent the dreamers, crazies and who knows whats from clogging up the system. I would set those minimums including: The company must be in business for at least 10 years. They must be have at least 100 full time employees. They must do 100mm in revenues.  And of course they must be up to date on their taxes and I’m sure there are other things to think of as well.

Ten years seems an awfully long time for a company to be considered established, but Cuban’s idea is certainly an interesting one. Especially if you believe Cuban’s argument that tax cuts are only going to help Americans to pay off their massive debt (credit card, mortgage, student loans) rather than go out and buy consumer goods…

What do you think?