It’s a Macro World….We Just Live in it….
Mark Cuban had some very interesting thoughts on Friday regarding the changing landscape of the investment world and the way it’s becoming more and more of a macro world:
“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 that I feel increasingly less comfortable playing. It is a game fraught with ever increasing risk.”
He’s right about a much of that. The world is changing in big big ways. It’s becoming a much smaller place as technology and globalization makes global problems everyone’s problems. Companies are becoming increasingly diversified as they adapt to this world. And Wall Street is evolving with it and their products are becoming increasingly representative of this globalized world we live in.
I think the biggest change in my investment approach has been this shift towards an ever more macro understanding of the world. And it’s been a big part of what’s fueled my interest in the monetary system and the institutional design of so many of the world’s monetary systems. I think it’s becoming increasingly difficult to understand the micro if you can’t understand the macro. Now, that doesn’t mean there aren’t opportunities or that the risks have necessarily increased. It just means the game is changing as times goes on. And you either adapt and survive or remain stuck in the past and die.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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16 Comments
Macro dominates everything now. Everything is so connected.
Yes, higher chance of systematic risks-many more points of failure!
So this time is different?
Stocks are trading more like FX. FX is very algo oriented.
I wonder how much of this is down to a real increase in the interconnectedness of business and how much is down to central bank distortion of price and risk.
it’s no different at all from 1992.
anyone notice that SP600 smallcap index hit all time high again!
if you had simply held IJR from it’s inception to now, you’ve made about 120% in 15 or so years, excl: dividends.
Funny thing is, after following MMR, I am quite comfortable investing in today’s market, where I once probably wouldn’t have been. MMR has actually proven pretty lucrative for me as I have tried and succeeded in LT treasury bond timing.
If you don’t want to be entirely macro and do some micro, the trick is to try to find non-correlated assets. This is obviously easier said than done nowadays. You’d probably have to be willing to take the risk of generally more thinly-traded stocks with generally smaller market caps. If it’s something in one of the big indices, you have to deal with the ETFs and futures and such wagging the dog, so to speak.
Personally, I do both. I do the long-term macro in the 401k. The micro and short-term macro goes on in the IRA.
Cuban has always struck me as a very rich guy who “gets it”. We would be better off if we had a lot more Mark Cubans I think.
He’s dead on I think about the mentality of many modern traders. Its not about making an investment IN something, its about skimming whatever you can FROM something.
If there arent enough investors and just skimmers, the whole thing goes away a little at a time.
I agree with both Greg and Tim comments above. I also think Cuban was making a more cynical comment than Cullen’s more benevolent view that, roughly, “technology is bringing the corners of the globe closer together”…..I apologize Cullen if I’ve misinterpreted your view.
My take on Cuban’s commentary……Correlations have never been higher. Central planning has overtaken specific company quality as the overwhelming driver of stock price performance. Central planners now control whether a company thrives or crashes, not the company management and execution. But perhaps my disgust with fed and govt performance, and the way they have sacrificed the middle and lower classes for the sake of a few tbtf banks, is clouding my view. krb
Well krb, the only thing I would change about your comment is the implication that central planners are all governmental. CEOS, bankers and shareholders all have “plans” too” and they each have different ways in which they get to express them. Manipulation is not a “government only” force. EVERYONE who has an ability to alter an outcome they dont like will do their best to do so. The difference is two fold; some people have more opportunities to alter outcomes (or can affect larger institutions) and some people will be less caring of who they affect negatively with their decisions. But anyone with an ability to alter their position for the better likely will, and its silly to expect them not to.
If a lion could build a “gazelle trap” he would, instead of running miles a week to chase him down.
Greg,
I think I understand where you’re coming from. But much of the “manipulation” by the private sector bankers and other CEOs only takes place with a compliant or collaborative govt. There are laws on the books right now to prosecute fantasy balance sheets and p/l statements, high frequency trading and quote submissions without any intention of execution, fraud in mortgage origination, servicing and forclosures, ponzi schemes and violation of customer account protection in financial services, setting aside contract law, securities law and property rights in order to achieve political agendas……to name just a few instances. Our govt just chooses to look the other way, or even aid and abet the criminality.
We now have a govt that best case ignores these activities by the private sector and worst case participates in these illegalities themselves. That’s why I primarily place responsibility with govt. krb
So FB is tanking because of macro, or Apple takes a hit because of macro. Maybe for HFT guys it’s more of a macro thing, but individual value still plays the most important role. Did Libor rigging kill all the banks stocks? Cuban is trying to index card a complex thing
Of course the world is very different now than it was in 2000. What you can do today with money with a few keyboard strokes was not possible in 2000. The ability of the global economy to react in seconds or maybe at most half a day is possible now. It is different now but I continue to sense that Americans just do not get………………
hi,
share market is an idea to how shareing is done with global market .
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