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Five Things You Need to Know: The Internet Knows, Reflexivity, Apartmanhattan, Spin, Smile

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What you need to know (and what it means)!

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Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. The Internet Knows

John Battelle, a founder of Wired magazine, wrote in late 2003 that the Internet was "a place holder for the intentions of humankind - a massive database of desires, needs, wants, and likes that can be discovered, subpoenaed, archived, tracked, and exploited to all sorts of ends." Until recently there was no way for most of us to dig into this data, according to the New York Times' David Leonhardt. Until recently...

  • Google has recently made available Google Trends, which we have featured in Five Things previously.
  • As you know, Google Trends allows users to view the popularity of search terms over time and by region and city.
  • Leonhardt's piece looks at how this may move the Internet's "database of intentions" toward a legitimate "economic phenomenon" that may have serious quantitative applications for marketing.
  • But what about other applications?
  • By typing a keyword into a search engine are we really telegraphing "intentions" as Batelle has asserted?
  • Or are we simply shifting research and curiosity to a different space?
  • The very notion of a "database of intentions" raises serious philosophical questions about both time and space.
  • For example, if an aggregate of intentions may be truly telegraphed (announced) in database format, then it suggests forward expansions of both physical space and time and, ultimately, the potential for quantification of various things which have not yet occurred.
  • This is very different than the way marketers and even financial market participants have viewed prediction, which has often simply been trend extrapolation or mean reversion, i.e. we see a trend and we extrapolate based on given data that it will continue, or undergo mean reversion.
  • This leads us to... Reflexivity.

"Bear Market" viewed through Google Trends:


2. Reflexivity

For most of us, when we hear the word "Reflexivity" we think of George Soros. Soros, after all, has written much about his philosophy of "Reflexivity" as applied to financial markets. However, the concept of "Reflexivity" has far older roots, and as we shall see, is very much related to Batelle's views of the Internet as a "database of intentions."

  • Classical economic and social theory was (and to an extent continues to be) modeled on Newtonian physics and the establishment of an equilibrium position, the underlying assumption being that market participants are in the aggregate capable of perfectly discounting the future.
  • Reflexivity challenges this underlying assumption based on, among other things, the notion that the act of participation by an observer affects the observations made by the actor.
  • A clearer way of stating this problem is through the Heisenberg uncertainty principle, which in its very oversimplified earliest form was originally expressed by Heisenberg this way: "The more precisely the position is determined, the less precisely the momentum is known in this instant, and vice versa."
  • The implication is that the act of determining (measuring) the position of a subatomic particle somehow affects the ability to predict the future behavior of the particle, which is certainly not what one would expect.
  • Away from finance and Soros, the concept of reflexivity is perhaps most often associated with the work of sociologist Anthony Giddens.
  • Among the questions Giddens explored was whether it is individuals or social forces that shape our reality. And this brings us back to the concept of the Internet as a database of intentions and the extension of both time and space.
  • Giddens argues that, as our society has changed, space, previously considered to be the space in which we move, and even time, have both lost boundaries that previously defined them.
  • Moreover, and this is where we find the concept of reflexivity at work, Giddens writes in "A Contemporary Critique of Historical Materialism," that "The reflexivity of modern social life consists in the fact that social practices are constantly examined and reformed in the light of incoming information about those very practices, thus constitutively altering their character."
  • Substitute "social practices" above for micro and macro economic data drawn from financial instruments and you can see where reflexivity may be at work in financial markets.

3. Apartmanhattan Heaven... or Hell.

According to Bloomberg Manhattan has the most apartments for sale since 1994.

  • Manhattan apartment sales fell 15% in the second quarter, according to Bloomberg.
  • While sales fell, the average price rose 5.2% to a record $1.29 million, though that record was the smallest year-on-year gain since 2003.
  • Manhattan apartment prices gained 77% over the past four years, making it the most expensive urban market in the U.S., Bloomberg reported.
  • Sales of condominiums and cooperative apartments declined from a year earlier to 1,934, a five-year low for the second quarter, according to a report released by property
    appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman.
  • Back to Reflexivity...

4. Reflexivity In Action

"'The situations that men define as true, become true for them."
- William Thomas (The Thomas Theorem)


5. Smile

Wal-Mart (WMT) is currently battling for the sole rights to the use of the company's ubiquitous smiley face icon in the United States market.

  • Franklin Loufrani, one of many who claim to have created the image, is suing the company through his London-based company, SmileyWorld.
  • The BBC reports that while SmileyWorld owns the rights to the image in 80 countries, it does not own the rights in the U.S.
  • WMT has been using the smiley face icon for promotions and employee uniforms since 1996.
  • A ruling by the U.S. Trademark and Patent Office is expected in August.
  • Meanwhile, in the worst case, should the company lose the battle over the smiley face, how about an alternative smiley face icon?

The WMT Smiley Mullet Face

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No positions in stocks mentioned.

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