Tuesday, December 14, 2010

The Internet is Like The Game of Telephone on Speed

Do you guys remember playing "telephone" as a kid?  10 kids would line up, and the first one would whisper a word into the ear of the person next to him.  Maybe, "Hippopotamus."  That kid would in turn turn to her right and whisper what she heard into the ear of the child next to her.  Maybe she mishears it, and repeats "There's a lot of us."  Each kid hears the word a little bit different, until by the time the word is passed down the line, it comes out the other end as something completely different, like "Let's go mop with Russ."

Well, on the internet, the phenomenon goes viral, and can get bastardized much more quickly, and the very repetition of the accumulated mistakes results in a "truthification" phenomenon where people assume it's true just because they read it and someone else repeated it.   This is kinda what I was trying to get at last night in the postscript of my "Silver is going to $475Trillion an ounce," post.  Not that I wanted to convince people that silver was going to $475T, but rather, how the mania spread like wildfire from what was probably a non-story.  Let me explain.

The Financial Times went out with a story that, according to "a person familiar with the matter," JP Morgan would be reducing it's silver position to deflect public criticism.  However, a few paragraphs later, they also informed the reader that JP Morgan had "no comment on whether it had reduced its position in the silver market."

Perhaps the "person familiar with the matter" was a trader on the COMEX, who pointed out, as did an anonymous commenter from one of my prior threads, that the % of silver futures short positions held by US Banks declined slightly in the most recent month's data.  Combine that with the knowledge that JP Morgan is a large participant in the COMEX silver market (we know that from the Commitment of Trader reports and the OCC data), and one might draw the reasonable conclusion that JP Morgan was not short as many COMEX silver futures as of early December as they were in early November.

Then we add the shot of adrenaline and the manic mob to the story:  aka, Zero Hedge.  Zero Hedge takes this Financial Times story, and "telephones" it into the headline, and I'm not making this up, this is from ZeroHedge, not The Onion: "JP Morgan Admits To, Reduces, Massive Silver Position, Proving Millions of Conspiracy Theorists Correct."  Immediately, Business Insider gets wind, and retorts with their headline: "JP Morgan Caves and Unwinds Massive Controversial Short Position."

By this time, forget about it - it's already become "truth," despite the fact that there is no evidence anywhere that JP Morgan did anything of the sort.   

There are few things less rewarding in life than trying to discuss things like this with the ZeroHedge audience, or even the BusinessInsider audience.  Combine that with the precious metals cult, and forget it - I'm throwing rocks at a hornets nest.  What makes me most sad, though, is when people write comments like this one on Business Insider's post: "Hey Kid, please advise which other "conspiracy" theory you are refuting next, days ahead of its official admission," referring of course to my post questioning the existence of a massive JP Morgan net short position.

It makes me sad because I know that the internet misinformation terrorists have won.  They've turned this story, somehow, into the Official Admission, by merely shouting it loudly to a rabid fanbase.  If anyone actually has a copy of JP Morgan's official admission that they have and are reducing a sizable net silver short, please forward it to me ASAP, and I will post a correction.

There's a quote in the movie A Few Good Men where Tom Cruise's character is asked if he believes his client is guilty.  He responds loudly: "It doesn't matter what I believe, it only matters what I can prove!"  On the internet, sadly, it's the opposite.  It doesn't matter what you can prove, it only matters what you believe.



Anonymous said...

I read somewhere that you admitted you are on JP Morgan's payroll. And your little dog, too!

Would love to read your take on PHYS and PSLV sometime. (Their premiums to NAV are a pretty good conspiracy theory index, IMO.)

Kid Dynamite said...

yeah - I'm on JPM and GS's payroll. and GLD pays me extra too. (sarcasm, for the monkeys out there)

I think you coined a great concept with the PHYS/PSLV conspiracy theory index. I have tried to short them multiple times, but no borrow.

the minions will never understand that with these closed end funds, it's only Sprott himself who can arb it. notice how the PHYS premiums aren't as big as they used to be? because he did a bunch of secondaries, and sopped up all the demand from people who were willing to pay 10% extra... there's not an unlimited supply of such people, hopefully.

nothing against Sprott - I just wouldn't pay a hefty premium to NAV for his fund.

Anonymous said...

If it is any consolation to you, I stopped reading ZeroHedge and Business Insider long ago, after realizing they are just a bit too shrill and crazy (in a bad way). Keep up the debunking though and don't lose heart. The truth wins --- eventually.

Pat Shuff said...

A man hears what he wants to hear and disregards the rest.

Lie la lie. Lie la lie lie lie la lie lie la lie la lie.

Anonymous said...

K.D.... You must know by now, The gold buggers are a strange lot.

Forever suspicious of the words of government, of analysts, and the main stream media.

Always on guard for the end of fiat money. The end of finance.... The end of the world.

But always easily swept off their feet by a mining man, and a good story.


-HR Dobbs

Anonymous said...

I don't know if we as a society have figured out how to handle the massive amounts of information the internet makes accessible to anyone and everyone. Until we do, information in the wrong hangs will remain as dangerous as any weapon.

ZH exists to prove validate their own wild theories and BI, by letting Carney go, basically admitted that page views were more important than actual content (as that was the argument between Henry and John).

Anonymous said...

KD -

Any thoughts on the Bellagio chip heist?

Kid Dynamite said...

re: bellagio chip heist

- I was just discussing that with my friends. Bellagio claims they can individually track those chips... a bluff? I don't know - i didn't think they had that capacity. I thought that the RFIDs just tracked denomination.

that aside, I find a theft at Bellagio pretty amazing. I guess that kind of thing can happen at 3:50am - but I'd expect a lot of security changes now!

Anonymous said...

Great post.

Anonymous said...

Regarding RFID embedded in casino chips, this is not crazy. I know some casinos (rhymes with win) experimented with such things at least with large denomination chips. But I am not in the industry and I cannot tell you the status of the deployment. I just know people who do IT projects at the casinos.

Even with RFID embedded, chips can only be tracked when the RFID readers are around. Once the chips leave the buildings, they cannot be tracked. The casinos can make the chips not cashable, however, if they know the ids of the stolen chips.

Anonymous said...


While I don't work in the finance sector I do chat with some folks about related topics quite a bit. When the Zero Hedge people show up, it becomes a circus. I know I'm not an expert in the field, but it just seems obvious to me that most of what is published there is laden with misinterpretations of reality. When everything's a conspiracy, your definition of conspiracy is incorrect. When CNBC did a report on ETFs today, the first comment was "ETFs are just another way to steal money from the public". I don't even know how to respond to such things.

In any case, I have been reading your blog for several months now and I appreciate your insights into the markets. As an observer on the sidelines, it's very interesting to get a glimpse of the machinery at work. Thank-you for spending the time to share it.

- Hord

Bron Suchecki said...

Zero Hedge obviously does not have any editor with knowledge about the precious metal markets.

My first encounter with their uncritical hype was with SLV bar list anomalies

Or this where it was just a website change and the data was not "blocked" by LBMA.

Anonymous said...

Thanks for presenting a more rational view on the markets. ZH used to present some useful and interesting stories and info that I wouldn't readily find elsewhere.

However, there has been a gradual rabidization of both content and commentary over the past half year plus, and hype supercedes substance.

Looking forward to seeing how the Kid sees the world.