By Robert Folsom | September 12, 2012
Bianco Research recently discussed social media in a piece with this headline:
The Power of Twitter — It Is The New Tape
The piece says “Twitter is the new tape” has become the phrase of choice amongst younger financial professionals…
…And New Tape strikes me as a near-perfect analogy regarding social media in financial markets. Here’s why.
The tickertape machine debuted in the 1860s, and it wasn’t long before Thomas Edison improved the technology such that it could print one alphanumeric character per second. Please don’t sneer, because that was the closest thing anyone had ever seen to real time across long distances.
Instead of a once-per-day update delivered by hand, the ticker would quote the continuous change in share prices throughout the trading session.
Tickertape served as the market’s pulse for 100 years. Yes, it was made obsolete by networked computers, but the ticker’s influence endures. When you watch a news/sports/financial TV channel, the headline/score/price “crawl” you see across the bottom of the screen is the direct descendant of the stock ticker.
Bianco’s piece suggested that a Twitter feed can be even more powerful than the ticker was, by describing an 80-point rally within 30 minutes in the Dow on Sept. 4. The rally appeared to begin after a Tweet from Pimco’s Bill Gross called a decision by the ECB “reflationary.” His message went to Gross’ 86,000 followers and was “retweeted” by 150 people, which had a multiplying effect of reaching a million people.
Now, I can’t go along with the idea that one Tweet produced an 80-point Dow rally, but let’s not quibble. Gross reached a million people within minutes and didn’t have to go on TV to do it.
All that said, social media still has detractors — it’s a “fad,” it’s a “distraction,” it’s a “bubble.” This is not unlike the initial skepticism regarding the railroad or the telephone or space travel, but Bianco offered more recent examples of why social media is the latest “Adapt or Die” technology.
- Financial market participants in the 1980s scoffed at their younger colleagues’ interest in Bloomberg terminals.
- Financial market participants in the 1990s scoffed at their younger colleagues’ interest in financial TV (FNN and then CNBC).
- Financial market participants in the 2000s scoffed at their younger colleagues’ interest in the internet and financial blogs.
I personally recall some of that scoffing at the internet, and how the scoffs actually began in the mid 1990s. I loved computers and the Web from the start, but I was younger then. I also confess that I’m not nearly as enthusiastic about social media, but at least I know that scoffing is probably a really bad idea.
That’s why someone half my age manages our Social Mood Watch Twitter community, namely my whip-smart colleague Andrea Dibben. She “gets it” while I struggle to play catch up.
Big data is here, right now — though it was decades ago that Bob Prechter understood the influence it would have. Not signed up for our Twitter community? Click the button below and join in.
Andrea Dibben contributed research.