Here's a squirm-inducing testament to the power of blogs. Valleywag reports on yesterday's downward 'blip' in Apple's stock price caused by a blog reporting delays to the iPhone release. The blog note, published on Engadget, was based on a fake internal email that appeared to be leaked from Apple. The incident momentary wiped $4bn off Apple's market cap. Om reports on the impact:
In the volatile 23 minutes of turmoil between the minute the disinformation hit the stock market at 8:55 PST and Apple’s announcement that the initial email “is fake and did not come from Apple,” nearly 15 million shares changed hands. That’s 60% of Apple’s normal volume in well under a half hour. That’s also an awful lot money lost for some investors - and gained for others - all of it because of a lie.
Information velocity does have its downside. I'd like to believe that no one purposely benefited from this event, but that is probably naive. It does not stretch the imagination to see that unscrupulous traders will get the idea that these blips can be replicated and exploited. Two factors conspire to create a real structural problem for the public markets here:
- Rumour moves much faster than anyone's ability to verify or deny (in fact, I'm pretty impressed with Apple's 23-minute reaction)
- Near real-time trading capability is in the hands of millions of people, and -- more importantly -- billions of hedge-fund controlled dollars
I'm a big believer in unfettered markets and perfect stock pricing that reflects all available information, but today's laws and regulations are not really made to cope with this type of situation. What will the SEC make of it?
[Credit: Realtimestockquote.com for the chart]