Mark Cuban has an excellent piece out today on why now is the time to avoid the stock market. He has made a number of cautious statements about the market this past decade and it does seem he has been at least as right if not more so than most other people who predict market direction for a living.
The premise of his argument is that capital is so cheap; it is difficult to make any money in the market. Here is a salient excerpt:
When capital is so cheap that everyone with a pulse thinks they can make money once they borrow it, the stock market is in trouble.
Here is more:
I’m not saying you should get out of the stock market. What I am saying is that it is not a bad thing to accumulate cash right now. Retention of capital is a good thing. Don’t go chasing stocks. Something is going to give in this market. Like I said, I don’t know what it is, but I want to have as much capital available as possible for when it happens.
This is the time to start saving for a “bloody day”. There will be a time when capital regains its scarcity. When it becomes more expensive. When it does, what do you want to have in as great an amount as possible? Capital.
Cuban makes very good points and living in Fairfield County, CT where many hedge funds are based it is pretty interesting how many people I meet here who are employed as algorithm tweakers trying to be incrementally better at their job than the people at the next firm. Moreover, the high-frequency trading market has taken the meaning of rapid trading to a new level. The individual investor does not have a fighting chance it seems.
This is especially true in light of hedge fund traders who use massive amounts of capital to influence the markets in order to gain a quick profit and others who invest in satellite imagery to get a scoop on retail sales before the next guy.
In all, technology is being deployed in ways which are new and innovative and if you don’t have the tools, time, energy and resources to compete you are at a major disadvantage.
Many of us grew up in a time when the individual investor became empowered and was able to make a living via day trading and other short-term investment strategies. But now, those day traders need to be microsecond traders as fortunes can be lost and gained thousands of times per second.
Of course Cuban’s advice has interesting timing because the past seven months have seen $33.12 billion being withdrawn from domestic stock market mutual funds. According to Zero Hedge:
If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.
One wonders however if the massive amount of negativity in the markets now shouldn’t be seen as a screaming contrarian indicator to buy.