Does Blogging Enable Market Manipulation?

The greatest strength of financial blogs is also a potential weakness.  There is so much information that readers frequently rely upon the interpretation of the writer.  Most people do not click through to the supporting links.  They go to their favorite sources for information, and generally rely upon the interpretation of the writer.

We know this is true from our own stats, even when we strongly encourage readers to check out an entire article.  Readers rely upon us to make accurate representations of source material.  We are expected to provide a fair summary and accurate illustrative quotations.

Fair enough.  No one has time to check out all of the sources, no matter how carefully we try to document.

This is in sharp contrast with mainstream print sources, where editorial procedures review material before it is published.  Not so in the blogosphere.

The issue can be simply stated:

Blogs with a wide following have a special responsibility to check and re-check accuracy before posting.  If the authors do not do so, there is an easy means of manipulation.

Step one:  Get a dubious story out there somewhere — anywhere.

Step two:  Get a noted blogger or pundit to mention the story.

Step three:  Mainstream media sources race each other to be first with this news.

Trust in link sources is vital.

Strong Sources

We feature several blogs where the authors provide plenty of links and summaries.  Some of the sources are anonymous bloggers.  We believe this conveys a special responsibility, since the reader does not know the background or skill of the writer.  It takes more evidence to be convinced of these sources, but the proof is evident in the work.  If one checks out the links, the accuracy proves out.

Here are examples of sources where the links are fairly interpreted with very high reliability:

  • Abnormal Returns.  The summary tells you what you will see.  You can choose whether to read it.
  • Charles Kirk.  Always interesting, always accurate.  Many interesting links.
  • Alea.  Anonymous, but with special insight on credit markets.
  • Calculated Risk.  Respected by everyone — earned through accuracy.
  • Paul Kedrosky.  Especially useful in finding interesting academic papers.
  • The Big Picture.  Barry has a viewpoint, but his sources are always carefully documented and accurate.
  • Muckdog.  We like the "everyman" viewpoint, which often captures the spirit of the market.  The links support his statements.
  • Dr. Brett.  Unchallenged authenticity, with widely varying interests.
  • David Merkel.  What you see is what you get in links at The Aleph Blog.
  • Adam Warner.  The quotes are always representative.

We are leaving out many, of course, but this is designed to illustrate.  The WSJ blogs, for example, are carefully sourced.

The Jury is Out for Some

Like many others we follow the work of the anonymous blogger "Tyler Durden."  Seeking Alpha assures us that this person is an authority. He has rocketed to a high level in the new Seeking Alpha rankings — a position of influence and responsibility.   Many of the articles display interesting and informative insight concerning the inner workings of big firms and hedge funds.

Since there does seem to be a viewpoint in the Durden work, we have great interest in the sourcing and evidence.  Let us look at an example of links from the prolific Durden.

Must read on CNBC propaganda: "Immelt
and NBC Uni CEO Jeff Zucker supposedly told top CNBC executives and
talent to be less critical of President Obama and his policies"
This explains why nobody with half a brain watches CNBC anymore (THR hat tip Guest)

Since we have opined on CNBC politics, this was of great interest.  Our viewpoint is that opinion shows like Kudlow's in the evening are interesting and informative.  Viewers know what they are getting, and it is a lively debate.  We do not like the intermingling of politics and journalism during the business day, when CNBC anchors get to interview authoritative guests.  We are not very interested in the opinions of the journalists, and viewers should not be either.

If one reads the link, one can readily see that the quoted section does not accurately represent the article.

First up was a woman asking about a reported meeting in which
Immelt and NBC Uni CEO Jeff Zucker supposedly told top CNBC
executives and talent to be less critical of President Obama and
his policies.

Immelt acknowledged a meeting took place but said no one at CNBC
was told what to say or not say about politics.

During the woman's follow-up question, her microphone was cut off.

The key point is that Immelt denied the charge in the Durden quote.  Perhaps he suggested that journalists should be journalists in non-opinion shows.  We do not know, of course, but that would be a good thing.  Helping investors to separate political decisions from their finances is good advice, as we have frequently suggested.

Even more telling is this section from the rest of the article:

Later, during the umpteenth question about MSNBC, another
shareholder's microphone was cut, according to multiple

"The crowd was very upset with MSNBC because of its leftward tilt,"
one attendee said. "Some former employees said they were
embarrassed by it."

One specific complaint about MSNBC concerned Keith Olbermann's
interview of actress Janeane Garofalo, who likened conservatives to
racists and spoke of "the limbic brain inside a

We spend very little time on MSNBC, but from what we have seen, we can understand the criticism.  Once again, the key is whether the program purports to be journalism or opinion.  This part of the article is exactly the opposite of the theme of the Durden quote.

Briefly put, we do not think that the Durden summary of the link is a fair and accurate representation of the article.

Another recent  example is the unsourced claim that SPY is hard to borrow.  This was challenged by Doug Kass (full disclosure — Kass is a valued colleague at  Kass checked this out and found no problem with a borrow.  Here is the Durden response:

Update 4: Doug Kass disagrees:

have received emails from several trading sources, stating that the
market is rising because the SPDRs (SPY) are hard to borrow now and
arbs are being squeezed.

This story is hogwash, as I just tried to borrow 500,000 SPDRs and had no problem doing so!

Position: Long SPY; short SPY puts and short SPY calls

Maybe Doug can disclose at what term and rate he got the borrow. Doug – I am dead serious – can I borrow 5 million SPY right now at 0% from you? Hell, will give you 1%

We expect to hear more about this dispute.  Meanwhile, anyone wanting to short the market can do so through a futures account.  There is no problem in "borrowing" e-mini's to go short, the method favored by those of us in Chicago.  There is an arbitrage opportunity with SPY.  The claim of a problem in shorting does not have face validity, so we look forward to some evidence.

Our Take

It is easy for investment readers to be swept up by apparent authenticity, especially from a source that everyone seems to follow.

We hope that "Tyler Durden" will balance frequency of posting with accuracy in representing links.

We have a continuing concern about the "leaked stress test" story, where he is a supporter of a dubious source.  That is a question for another day.

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  • REIT Wrecks April 28, 2009  

    I just happened to come across your blog and this post. The Tyler Durden story is an interesting one. When they first started, the anonymous Tyler actually emailed me to say hello (though the exchange was, shall we say, interesting). I read some of the posts on their site and was impressed. Now, I am no longer as impressed, and I believe the criticism here is well deserved (though I admit that it is far easier to be a critic than a creator).
    In a recent post on commercial real estate debt, they properly attributed some of their source data as coming from the FDIC, but they misrepresented the data itself. The main story in and of itself was not inaccurate, but if they they had bothered to examine the data itself, rather than just flog the headline, they would not have recognized that the FDIC data was actually not supportive. That sounds like a simple error, but “Tyler” is not a dumb guy and in this case error by omission happened to be most convenient – the FDIC headline was better suited their thesis.
    Some of their conclusions were also either naive or intentionally misleading (assuming, for example, that 100% of maturing CRE loans are or will be in some form of distress).
    They have definitely made a splash, and I wish them the best of luck. They are clearly very talented and resourceful, and sometimes a really entertaining read. But it looks to me like they are big media refugees masquerading as ground-breaking bloggers, and they are leveraging the wild west atmosphere that prevails here to pull tricks they could never have pulled at their old day jobs.
    Thanks for the post!

  • muckdog April 28, 2009  

    Links *and* Lakers girls.
    Thanks for the kind words, Dr. Jeff.

  • VennData April 28, 2009  

    Zero Hedge is fraught with sophistry.

  • Eclectic Investor April 28, 2009  

    You are half right. You are assuming that newspapers do their research on each and every article. In India, you have a newspaper called the Times of India, where they have a division called Medianet. You can pay Medianet and take “editorial” space anywhere in the newspaper and the rates are lower than advertising. What I am saying is not about some tabloid, but India’s No. 1 and most-read newspaper. When the leader does this, why blame poor bloggers, who may be writing because their employers would not accept the truth. I beleive there may be less talent but their is stronger conviction in the blogs. Finally, what are journos but people employed as bloggers.

  • Jeff Miller April 29, 2009  

    Reit Wrecks — I read the same article and shared your concern. I had the same problem in squaring the evidence cited with the conclusion.
    Meanwhile, this was a Seeking Alpha editor’s choice, but they did not run this post from me.
    The ZH site has an interesting mixture of inside information, analysis of the big players, and analysis of hedge funds.
    Meanwhile, there is a clear viewpoint. It bears watching.
    Thanks for taking the time to make a helpful comment.

  • Jeff Miller April 29, 2009  

    Eclectic– Good points. Part of my argument is that MSM is trying to compete with blogs, rushing to publish questionable information.
    Bloggers are free to state opinions and to cite evidence. We must all try to evaluate what is written. This means checking the links to see if they have been properly summarized.
    I am trying to highlight the differences between various sources.
    Thanks for a helpful comment.

  • Jeff Miller April 29, 2009  

    How could I have missed your “value added” pics!
    My marketing department has much to learn from you.

  • Jr Accountant April 29, 2009  

    As a participant in this game of “catch me if you can” with the financial bloggers on one side and the market on the other, I have to admit that I do it all the time. Not intentional errors or omissions but…
    It’s all about the spin.
    Think about it. You, as the researcher, writer, and editor, decide that you want to write a story on Ben Bernanke’s ineptitude or Goldman Sachs manipulating the market or… whatever it is you want to write. So unless you have a starting point (a particular article or something that was emailed to you), what do you do? You type your query into Google – and bam, there’s your opinion right there before you.
    The “news” can be skewed however the writer chooses. And yes, I agree with you (knowing from stats) that readers generally don’t click through links – I’m honored that my readers find me to be that much of an “authority” if that’s the case but wish there would be more skepticism sometimes.
    I often blog before work and on my lunch hour so truth be told, I don’t have the time to comb through sources as much as I’d like to. Certainly I am not alone. We are not as prolific as ZH, nor do we have time to be as such.
    I’m torn on ZH. Sometimes the analysis is very vague – “you know what this chart means” and sometimes it is brutally dead-on. I imagine there is more than one Tyler Durden at work.
    Who can say?
    Great points on blogger responsibility. No matter how many times one says “this information is based on author interpretation of events and should not be construed as investment advice,” people are still going to take what is said at face value without doing their own homework.
    How can we change that?

  • REIT Wrecks April 30, 2009  

    Apologies in advance, but that’s why you are a “Jr Deputy Accountant, perfectly hedged against BS”

  • Jason May 6, 2009  

    Just wanted to add to this:
    Tyler had an article yesterday on how all of GS’s profits are because of a NYSE program called SLP. GS profits were mostly claimed in FICC so its unlikely that its true.
    He did not even allow my comment to be posted in which I was politely and respectfully pointing this out.
    The sad thing is that the “mob” follows such sensationalists without thinking. 🙁

  • Jeff Miller May 7, 2009  

    Jason — Each blogger has a policy. We entertain dissent as long as it is on the merits. Others choose a different approach.
    One thing you might try is going to Seeking Alpha and making your comment there. SA will not delete your comment.
    Unfortunately, you will probably not reach the right readers. Even on SA, those reading a particular source are already on board with the political and market viewpoint.
    I wonder how many thoughtful readers there really are!
    I very much appreciate that you took the time to point this out. I would also note that SA chose not to run this article, since it challenged the methods of “Durden” who is entitled to “take his own riff” on the information. If the source had not been a SA contributor, they would have run my comments.
    I am still trying to figure that out.

  • Guru May 10, 2009  

    The readers of my blog (Stock Chartist)give me kudos for objectivity. But I share your concern with the points of view of some blogs, especially with those that do a lot of linking or are frequently linked to.
    I have an even greater concern with StockTwit. If you spend any time reading the flow of Tweets it looks like nothing more than one big rumor mill, boiler room, tout message board.
    Some of the Tweets are blatantly without foundation, whether fundamental or technical, and are clearly aimed at very short run stock pumping. A given that any number of user aliases can be created, anyone can give the appearance of a stampeding support.

  • ZeroHelp May 10, 2009  

    If ZeroHedge has been trading in line with his posts he should be broke by now.

  • Jeff Miller May 13, 2009  

    Guru — You are absolutely on target with this comment.
    The tweets and the bulletin boards are rampant with this kind of information.
    For me, the question is how to guide investors, who start looking to the Internet as a source of information.
    Thanks again for a helpful and insightful comment.

  • Jonathan November 15, 2009  

    I though Tyler Durden was in a movie?