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Dixon's Take: Traders Beware, 'News' Ain't What It Used to Be

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The media's botched reports on the Boston bombings and yesterday's AP Twitter hack prove that information can't be processed in the same ways anymore.

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Yesterday was a big deal. The market traded down in a mini flash crash caused by a tweet describing explosions at the White House and an injured president, and then bounced back when the AP acknowledged their Twitter feed had been hacked. Occurring shortly after a week where the old world media had abrogated its responsibility to check sources before reporting the latest events in Boston, and the FBI had turned to crowd sourcing to identify the culprits behind the Marathon bombing, yesterday's tweet debacle put those of us looking to process information to help make trading decisions into the twilight zone. The rules have changed.

A couple of weeks ago, one assumed the role of the fourth estate was to report information that had a reasonable chance of being an accurate description of what had occurred. Editors were presumed to make sure reporters had checked their sources and indeed multi-sourced a story before publishing it. The New York Times prides itself on publishing "all the news that's fit to print" and maintained its internal process of multi-sourcing a story before going live throughout its coverage of the Boston tragedy. Yet, as evidenced by CNN, and most notably the New York Post, in the heat of the hunt for the Marathon bombers in Boston, traditional journalistic integrity was thrown out the window at many news organizations. In each case the media went out with stories that were clearly wrong, and despite all the backpedaling and excuse-making, the mistakes underscored that editors didn't care as much about getting it right as getting it first.

At the same time, the FBI reached out to the public to help provide information about what had happened at the Marathon. Developers at Fbi.gov created a way to upload info and photos and use crowd-sourcing as a detection tool. It worked. What no one seems to notice is that the combination of police and federal efforts to include the public in providing information about a horrendous event actually resulted in the identification and apprehension of suspects in less than four days!

Which leads to consideration of how one values the role of information and the quality of information in a digital world. A trader going into last night's Apple (NASDAQ:AAPL) earnings with a long position in the company, and with a stop in place should the stock sell off, could well have found his or her position liquidated at 1:10 p.m. yesterday. So, too, a program that was looking to rebalance a portfolio if the S&P (INDEXSP:.INX) traded to 1565 could have seen the position reversed twice in 15 minutes. In each case this was outside the control of the trader, but more importantly reflects a change in the kind of information coming into the market, and from a secondary point of view, raises real questions about how media responsibly distributes information in the digital age.

The jury is still out, and we may soon see filters or other procedures put in place to assure the veracity of tweets or other social media posts, but for now -- traders beware. Don't believe everything you read online. As Chicken Little found out, losing credibility can cost a great deal, and editors and organizations seeing to get there first can find themselves in the wilderness very quickly.
No positions in stocks mentioned.

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