I'm very happy to see someone of Felix Salmon's stature calling out the Zero Hedge crowd for what they are: a bunch of delusional conspiracy theorists. I've held that site at more than an arm's length since I discovered that their posts are actually zero-intelligence back in April and again in June. Felix has it absolutely right when he says, "The Zero Hedgies, in other words, are the 4chan of the financial blogsphere, which is maybe one of the more depressing aspects of the degree to which the financial blogosphere has matured."
Most of Zero Hedge's counterarguments will revolve around the fact that there audience is not solely comprised of "day traders" - and what's so bad about day trading, anyway? - but it doesn't matter. The audience is the symptom, not the cause. It's not as if ZH has brilliant, insightful articles that just happen to draw hundreds of thousands of idiots to their page - ZH is a financial tabloid, pure and simple. The only difference between them and, say, Dealbreaker is that they post incomprehensible stories accompanied by cryptic Bloomberg screens and obscure market jargon. And it works amazingly well - their most egotistical and vocal readers can't admit that they aren't in on the secret, so they don't dare suggest that the emperor has no clothes.
And the rest of us tune in because, well, who can ignore a crowd? I admit I rubberneck on the highway - and the whole time incensed that everyone else was slowing down. Every now and then, yes, there's a nugget of truth amidst the ZH mire. But months ago, I got tired of wading through muck to find it. Felix's suggestion of a disaggregated ZH (with disaggregated RSS feeds) would go some way toward roping me back. But to be honest, at this point it probably wouldn't make a different; I have so little trust in anything ZH posts.
Here's a more complete excerpt from Felix's post:
Who are these people who flock to zerohedge.com and lap up everything they’re served? They clearly love the chart-filled posts about intraday movements in the stock market, which is one clue. I think what we’re dealing with here is, essentially, retail day-traders, as profiled by Hagan back in February. (Hagan told me that even back then, before ZH really took off, the day-traders he was writing about were constantly reading the site.)
You need to be a little bit delusional to be an individual day-trader, paying substantial sums for information, technology, and trading spreads every day and yet somehow reckoning that by zooming in and out of highly-levered ETFs you can not so much beat as utterly obliterate broader market returns. All day-traders think they’re above-average; they have to, otherwise they wouldn’t have the hubris necessary to do it in the first place....
At that point it becomes quite easy to see how they would be attracted to a conspiracy theorist like ZH, who writes dense and often hard-to-decipher posts about the arcana of how the market works. The masses read Dan Brown for fun; the day-traders read Zero Hedge for profit.
And in case that's not enough, here's an excerpt from Felix's followup:
That’s what the wisdom-of-crowds hypothesis says: that if you take a million idiots, all trading with and against each other, yes you’ll get occasional mass delusions, and bubbles and busts, and ad-hoc groupings of vaguely like-minded individuals, like ZH. But somehow, in aggregate, those million idiots will be more right, more often, than any regulatory panjandrum or media pooh-bah. And anybody who’s spent any time with bankers and buy-siders will tell you that there’s precious little correlation between intelligence, on the one hand, and success in the markets, on the other....
So ZH is probably a pretty accurate representation of many people who pay close attention to what the markets are doing on a minute-to-minute or even day-to-day basis. Which is as good a reason as any not to do that.
To Felix: Bravo!