azizonomics.com / by John Aziz / July 8, 2012
I especially enjoy reading things that I disagree with, and that challenge my own beliefs. Strong ideas are made stronger, and weak ideas dissolve in the spotlight of scrutiny. People who are unhappy to read criticisms of their own ideas are opening the floodgates to ignorance and dogmatism. Yet sometimes my own open-minded contrarianism leads me to something unbelievably shitty.
Zero Hedge is a financial news website. The writers all write under the pseudonym of “Tyler Durden”, Brad Pitt’s character from Fight Club. Each post comes with a little black and white icon of Brad Pitt’s head. On Zero Hedge you can read news, rumors, facts, figures, off-the-cuff analysis, and political screeds (usually anti-Obama, anti-government, and pro-hard money). On the sidebars, you can click on ads for online brokerages, gold collectibles, and The Economist.
The site is a big fat hoax. And if you read it for anything other than amusement, you’re almost certainly a big fat sucker.
That’s a bold claim! Why do I make this claim? Well, in one sense, all financial news is a hoax. Financial news, by definition, is public information — if you’ve read it, you can bet that thousands of other people have too. That means that if the market is anywhere close to being efficient, any information in any article you read will already have been incorporated into the price of financial assets. Reading or watching public information should not, in theory, give you any “alpha”.
If the writers of Zero Hedge really knew some information that could allow them to beat the market,why in God’s name would they tell it to you? If they had half a brain, they’d just keep the info to themselves, trade on it, and make a profit! Maybe then, after they had made their profit, they’d release the news to the public (and collect ad revenue), but by then the news would be worthless. Financial news sites, you should realize, are not in the business of giving you insider tips out of the goodness of their hearts.
As you might expect, it’s not hard to look back at Zero Hedge’s predictions and see that a large number of them are junk. For example, here’s a bunch of posts from 2009 predicting imminent hyperinflation. Hope you didn’t make any trades based on that bit of wisdom!
So how does Zero Hedge get away with this hoax? Barber & Odean (2001) give a big hint. Tyler Durden, whose name and image grace every Zero Hedge Post, is a symbol of masculinity. More specifically, he is a nerd’s imagined vision of what a really masculine nerd would be like. In Fight Club, Durden says: “All the ways you wish you could be, that’s me. I look like you wanna look, I fuck like you wanna fuck, I am smart, capable, and most importantly, I am free in all the ways that you are not.”
In other words, you are a young smart (i.e. nerdy) guy sitting at your computer with rivers of testosterone coursing through your veins. And now here comes Tyler Durden, your generation’s Platonic ideal of pure masculinity, telling you that Real Men Take Risks. At the top of the site, there is a Tyler Durden quote: “On a long enough timeline the survival rate for everyone drops to zero.” In other words, gamble. Bet that you’re the smart guy and not the sucker. Because hey, you’re going to die anyway, so there’s no use hedging your bets. Zero hedge, right?
I wouldn’t be surprised if “Tyler Durden” were actually a bunch of behavioral finance grad students, snickering behind their hands at everyone who takes their site seriously.
This is what passes for financial analysis today? Let’s ignore the obvious fact that Zero Hedge has never pretended to offer investment advice. We should take all financial news with a large grain of salt (anyone who has read the latest uber-bailout rumours out of Europe should know that). Anyone who bases their trading activity on blindly following the pronouncements of one site, or one trader deserves to lose their coat. Blindly following a messiah-figure or (even worse) the herd is a surefire recipe for disaster.
But Smith has got his facts wrong. While there has been no hyperinflation, those who traded their hunch and bought gold — pretty much the archetypal Zero Hedge trade — have not done badly. Here’s the price of gold — contrasted against the S&P500 — since Zero Hedge was born in January 2009: