In Defense of the Financial Blogosphere

Making its way around the blogosphere this morning is a moderately entertaining and possibly horrifying video of SocGen’s Todd Martin’s media appearance and tirade against the financial blogosphere. You should watch this (just skip to the 4 minute mark).

Now, much of this criticism targets anonymous and influential bloggers, like Zerohedge. We’ll admit these folks exist, but generally speaking, find the bulk of his complaints to be off-base or inaccurate. To us, it sounds like, “We can’t control the flow of information anymore- woe is us.” But, because we enjoy shooting down bad arguments, let’s talk about some of the specific points he makes, and why that doesn’t mean we need to regulate the financial blogosphere.

His general position is that there is zero regulation of the blogopshere. Either he’s been living under a rock or this is wishful thinking. The past ten years have witnessed a plethora of communication from regulators regarding the use of social media (and yes, a blog is considered a component of social media) by financial professionals. If we’re any indication, we can say without a shred of doubt that the blogosphere is regulated- heavily.

What about the amateurs he goes on to rail against? Or could it be, as he highlights, that because of the pseudonyms used, it’s entirely possible that the people posting the information happen to be the head of a hedge fund or prop desk somewhere? The fact of the matter is, if they are not deriving profit from their “advice,” then these bloggers are no more subject to financial regulation than anyone else on the street. At that point, it comes down to common sense. You could invest based on the ramblings of a random anonymous person, but odds are, if you’re not vetting your information before you make investments based upon it, you were going to lose a lot of money anyway- whether you get your information from listening to a blogger or a friend of a friend of a friend.

If these bloggers are deriving profit from their advice, then they are subject to regulation, and if that’s not being enforced, then that’s a problem with the regulators- not the blogosphere’s existence or operations. It doesn’t mean that we should be eliminating the financial blogosphere- just that the way the blogosphere is being regulated is inefficient.

There’s another “regulatory” force in play that he doesn’t seem to recognize, either- the bloggers themselves. We are each others’ biggest critics. If someone does nothing but spout off inaccurate information or poor advice, they tend to get called out… or get little to no traffic. In order to rank highly in search results, a blog has to establish a certain level of authority via traffic, inbound links and a variety of other components- which becomes difficult to do if you’re doling out terrible advice. If you’re not ranking highly in search results, your reach is limited. If your reach is limited, diminishing returns will usually necessitate cessation of posting. With this in mind, how likely is it that the problem he discusses is as impactful as he asserts? Not very, we’d wager.

We’ll be honest, though. Even in a world where we agreed that we might need to improve regulation of the financial blogosphere (and we aren’t agreeing to anything), his solution is terrible- let Wall Street control the flow of information about itself? Tell us- how well has that worked for serving public interest in the past?

You are proposing that you allow a group of individuals with demonstrated vested interests in what knowledge is distributed to the public control the flow of information over a potentially biased and potentially uninformed chorus of voices in the public sphere with a passion for open communication. You are asking to put a corporate filter on what gets released, essentially eliminating a flow of informaiton which is treasured by tens of thousands (have you seen StockTwits?) in the name of protecting a handful of investors who fail to do their own research and rely solely on this information. That, in our minds, is akin to amputating your arm because have a paper cut on your finger… and not bandaging the operation site afterward. Unnecessary and dangerous.

But even in a world where we assume Mr. Martin is correct and all this extra regulation is necessary, it seems like a slippery slope to us. Let’s assume we can’t give financial advice on blogs anymore. What about information about publicly-listed companies and what’s going on internally there? Is that off-limits as well? Because that sounds like an introduction to Chinese-style censorship or a ban on short-sales. Where do you draw the line in the sand? Frankly, this seems like an overly punitive reaction to bad press (who complains when the blogosphere writes glowing pieces about these companies?), and shutting up those who are critical has been a goal of those being criticized for as long as there has been criticism.

So, apologies, Mr. Martin, but we could not disagree more.

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The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

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