Monday, June 23, 2008

Eric Savitz is clueless

There's a news item from today that isn't strictly baseball or politics related, but I'm going to write about it anyway because it's interesting and I have pretty broad editorial freedom.

There's a company called Microvision (ticker: MVIS) which makes, or rather is planning to make, little projectors that go into cell phones, allowing them to work like little projection TVs. Cool? Possibly, but that's neither here nor there.

What's interesting is that today someone wrote a post at finance blog aggregator SeekingAlpha which argued that (and I haven't done any fact checking here) Microvision is going to get crushed by a much bigger company (Texas Instruments) which is working on a similar product and is closer than Microvision to having it ready for mass production. Apparently a lot of people found it convincing, because the stock was down almost 12 percent today.

Despite the fact that the author, a Mr. Liam Mulcahy, disclosed at the end of the post that he worked for a hedge fund that is short (i.e. betting against) Microvision, the in-house tech blogger at Barron's, Eric Savitz, decided it was worth having a little hissyfit over.

"[Mulcahy's assertions] may well be true, but the fuzzy ID for Mulcahy - and the willingness of Seeking Alpha to post material of unclear origin - makes me a little queasy."

Anybody with an even passing familiarity with Seeking Alpha knows that the vast majority of the content there is "material of unclear origin." They'll publish just about anybody, and nobody complains until someone makes a short case convincing enough to send the stock down 12 percent.

I have no idea whether the guy is right or wrong, but this is a prime example of the business media's incredible bias against short sellers. If some guy writes something hyping the bejesus out of some crummy stock, no one cares. And if he's convincing enough to move the stock, nobody at Barron's gets all huffy about the author's murky origins. But short sellers are presumed to be so nefarious and all powerful that some shmoe at a hedge fund will probably get investigated by the SEC for market manipulation because he wrote something negative on a website... even though he disclosed his position!

What should make Eric Savitz queasy is that this no-name is providing market-moving analysis for free while Savitz gets paid by the country's most hallowed financial magazine to write blog posts that consist of mostly, and I'm not kidding here: "What's up with [Tech Stock X]? It's down a lot today and I don't see any news!"

When Savitz does track down this evildoer, maybe he can get some research tips.


Anonymous said...

You are way off base and miss the point.

1. You talk about Mr. Mulcahy--but what if there is no such person. He didn't seem to be suggesting that his posting name was a pen name. As such, by posting under the name of Liam Mulcahy the poster gave himself added credibility.
2. As you noted, he said he was a short seller at the tag of the article. Okay, so now we know that this Mr. Mulcahy is shorting and that too adds more credibility to him because his comments fairly match up with the sell bias.
3. The icing on the cake is that this shorter Mr. Mulcahy now makes a very important disclosure. He's not just some joe who trades once a month or screws around with an online discount account. To the contrary, this guy is a professional who works at a hedge fund.

Add up points 1, 2, and 3 and the bashing commentary gains far more credibility than something posted by Mr. Chuckles or Sammy the Fox or ChampionPicker. We are lead to believe that the poster is a real human being named Mulcahy who shorts stocks for a living at a real hedge fund.

Why do all those points matter? Because under the federal securities law any material misrepresentation in connection with an effort to move a stock for profit may be deemed fraudulent market manipulation. Add to the fact that Mulcahy's post didn't just express an opinion but suggested verifiable facts about MVIS' likely demise, cash on hand, and failure to meet a critical OEM deadline (none of which the company would confirm and none of which seem clearly true), and you have something that could negatively impact the stock and did. Just read the commentary from other blogs and news services that attribute the stock's drop on Monday solely to the Seeking Alpha article.

You may disagree with how much of Mulcahy's commentary is just lawful "opinion," and I will respect that, but you cannot argue that this poster loaded the issue with so many additional attributes rarely seen in a SA post, that it strongly suggest a fabrication whose sole motive was to manipulate the market. Also, look at the virulent neo-Nazi postings on MVIS' Yahoo forum and how they just always happen to coincide with favorable news (and were they coordinated by the supposed Mr. Mulcahy?)

Doyle said...

I defer to you on the letter of the securities law. If this guy (or whatever entity generated the SA post) was just making stuff up, I concede that he's exposed himself to legal liability.

My point is that anyone who finds apparently non-public information on SeekingAlpha should be extremely suspicious of it. I don't believe the people that sold MVIS after reading that were so unsophisticated as to just act on the information without questioning it.

This leads me to suspect that the guy's argument really hinged on widely accessible (and correct) public information. That TXN announcement was last week, apparently.

My point is that people who sold thinking they had just been given material non-public information by some random dude are total morons and the SEC shouldn't waste any time or money protecting them.