There's a New Normal on Wall Street

  • A trader on the floor of the New York Stock Exchange October 6, 2008.The Find: When it comes to the stock market, many commentators have struck a reassuring tone arguing that historically the market always goes back up, but Mark Cuban recently used his blog to suggest that this crisis may be something new under the sun.
  • The Source: Blog Maverick written by billionaire Cuban, owner of the Dallas Mavericks and Chairman of HDNet.
The Takeaway: Every investment comes with a disclaimer: past performance is not an indication of future results. Cuban's issue is that currently no one really seems to be taking this to heart. Across the news networks, experts are assuring jittery investors with historical examples and trends, but Cuban feels that such optimism is misplaced. "Folks, it is different this time," he says, before listing at least eight reasons conclusions about the current situation cannot be extrapolated from the past. Among them:
  • At no other time has there been 17,000 mutual funds and more than 10,000 hedge funds all competing with each other to make money off of your money.
  • At no other time in the history of this country did savings fall as far below zero percent of income.
  • At no other time in the history of this country were net effective interest rates as far below zero.
  • At no other time have the words 'blue chip' completely lost their meaning.
  • At no other time has the money of consumers been so portable between hedge funds and mutual funds, which means that at no other time have mutual funds and hedge funds been so susceptible to redemption runs.
  • At no other time have there been three financial news networks and thousands of websites providing so much financial information and opinion - the sum of which has lead us to suffer 'Paralysis by Bullshitalysis.'
What is Cuban's response to what he sees as a new normal? "Personally, I am completely hedged," he writes. "I bought puts, sold them. Sold puts, bought them back, then decided to hedge every long dollar and then some with big puts on the market. This allowed me to be protected on the down side, and tip toe on the long side." Will this strategy pay off? Cuban concedes he has no idea, but he is pretty sure that "the last five years, that wasn't a stock market. THIS is a stock market. This time it is different. This may just be the new normal."

Fans of Cuban may want to check out his new site BailoutSleuth, which is dedicated to monitoring the bail-out of financial institutions.

The Question: Cuban's post went live last week; since then the Dow has risen modestly. Is the market already proving him wrong?

(Image of troubled trader by artemuestra, CC 2.0)