SWF Radar moneytech

O’Reilly’s first Tech:Money conference kicked off at the Waldorf-Astoria in New York yesterday. Following on from my report on the first day’s highlights, here is a report on some of the highlights of the second of the two days of this conference.

> Devin Wenig of Reuters

The first main session of the day was a chat between Tim O’Reilly and Devin Wenig of Reuters. Wenig talked of getting ready for the big wave that is about to sweep through the financial media. He talked of two trends Reuters believes will determine the shape of financial media for decades to come, these being what is happening in consumer media at the moment, namely the rise of Web 2.0-type technologies and models, and a move toward supplying predictive data.

From what Wenig had to say, it sounds like Reuters is feeling the pressure to adapt to the new environment. Wenig said that Reuters is changing from the inside out, for example by hiring over 100 people to work on search alone. He said that everything at Reuters will be moving in the direction of multimedia, with terminals in five years looking like nothing anyone would currently expect. He said that business school graduates who have grown up with the Web expect more than is currently on offer from Reuters (or Bloomberg), and that the Reuters interface could even end up being no more than a search bar, if that is what the coming waves of young professionals want.

Wenig’s talk of creative destruction and of his being more worried about potentially disruptive companies yet to appear on the horizon than about Google suggested that Reuters is experiencing some healthy paranoia about its future. Yet his dismissal of Google as not being a useful tool for financial or media professionals could be taken either as an expression of confidence that Reuters can do better or as indicating denial of quite how powerful a competitor Google could end up being in this space.

Wenig’s openness about the challenges Reuters sees itself as facing and his talk of the major changes it is looking to undertake are reasons to have more confidence in the company than Jim Cramer’s scathing comments about it on the first day of the conference might have suggested.

> Richard Bookstaber, Author of A Demon of Our Own Design

Richard Bookstaber was up next, talking with William H. Janeway of Warburg Pincus. Bookstaber talked about the themes of his book, which, given their applicability to some recent events in the financial markets and the success of the book itself, were probably quite familiar to most people in the room.

At the end of the chat, Nouriel Roubini of RGE Monitor asked Bookstaber from the floor whether he thought we are heading for the kind of financial meltdown that Roubini himself has been predicting for some time now. Bookstaber’s reply was off the record.

> Martin Wattenberg of IBM Research

After a session on collective money management involving some startup consumer trading site companies and the first of various presentations today of a variety of financial information interfaces, Martin Wallenberg of IBM Research demonstrated the basic techniques for visualizing text he is exploring with his Many Eyes project. It was interesting, but not necessarily connected with the themes of the conference. His message that humans are better than computers at understanding text, however, is surely an important one for anyone thinking about how the Internet and Web can be used to deliver next-generation financial news services.

> Bill Tancer of Hitwise

Bill Tancer of Hitwise took the stage in the last session before lunch to talk about his company’s use of anonymous search data, culled (the Hitwise Website explains) from ISPs, to try to predict future events and data, such as the unemployment figures to be announced on Thursday using data about the number of visits on Monday to a government site for those claiming unemployment benefits. He said that the important factors to be considered are the intent of the searcher and who is conducting the search, with the search volume discounted on these.

Rather gamely, Tancer also talked about the predictions that went wrong, like the prediction about house sales that was found to be wrong moments before he was to go on air on CNBC to discuss his success with the search term “homes for sale.” Apparently searchers had gone from checking out home sales sites with a view to buying or selling a house, which had enabled Tancer to make correct predictions, to checking out the sites out of a voyeuristic sense of curiosity, rendering his predictions false.

> Blogs panel

The one session I stayed for in the afternoon was the panel discussion on blogs, analysts and the future of equity research. The discussion was moderated by Paul Kedrosky and featured Henry Blodget, Barry L. Ritholtz of Fusion IQ, Nouriel Roubini of RGE Monitor and Jonathan Glick of Gerson Lehrman Group, a stellar group of panellists given the topic under discussion.

Nouriel Roubini began the discussion by suggesting that there is a huge demand for independent research.

Barry Ritholtz said that where you get your information from is a question of trust and of how well you feel you “know this person.” With trust in financial institutions and media outlets declining, he said, a space has opened up for bloggers. Later in the discussion he suggested that people simply no longer care where information comes from, and put this down to the abandonment of the corporate jobs-for-life model in the 1980s and the resultant loss of respect for traditional authority.

Henry Blodget suggested that there are brilliant institutional sell-side analysts, but that pertinent information can usually only be gleaned in the context of a client relationship. He said that banks never know how to distribute the information once they have it anyway. He said that people will not pay for equity research and gave the reason for this as the fact that there is so much free information out there. “But our researchers are smarter,” he said, is just not good enough.

Jonathan Glick of Gerson Lehrman Group talked about his company’s model of matching experts with clients within a closed online environment. Not quite blogging, but definitely related. He said that GLG starts with investors’ questions and finds the experts to answer them, an improvement, he suggested, on research driven by analysts’ interests. He said that consulting is the business model for expert bloggers, with advertising a non-starter for smaller sites - and potentially credibility-harming. Nouriel Roubini agreed that the consulting model is a good one, but with 99 percent of RGE Monitor’s content now behind a paywall, he also said that there is a whole spectrum of models.

The discussion ended with the question of why financial bloggers do it. It was particularly interesting for me to hear what Roubini had to say on this, as RGE Monitor is a consumer of the Sovereign Wealth Fund Radar feed and includes its posts in RGE’s Macroeconomic Blog Aggregator. He said that RGE adds value by filtering and aggregating content that is available for free on the Internet. RGE can charge for this, he said, because time is money and RGE’s clients appreciate the service. Google, he added, does a lousy job of delivering relevant streams of information. RGE’s status as a trusted source, he said, is based on its proven track record in the area of information filtering.

When asked by a member of the audience how he could justify (I think she meant morally) charging clients for information produced for free by bloggers, he said that bloggers appreciate having their content included on the RGE Monitor site, even if RGE makes money off it, since this raises their profile and credibility. This is very true and very similar to the open source model of software development, which often sees businesses built upon free software, the reputation of the developers of which is thereby enhanced.

Tim O’Reilly, himself a major advocate of open source software, at one point during the conference said that Money:Tech is not about code or algorithms, but about meaning. Considering how much of the software of blogging is open source - the Sovereign Wealth Fund Radar site, the database it uses and the server software that runs it included - it surely cannot come as too much of a surprise that the commenting, filtering, aggregating and essentially meaning-related work that this free, open source technology supports is itself increasingly placing itself within a free, open source model.

The best moment of this panel discussion was Henry Blodget’s line that, “Before my reputation was destroyed, it was actually quite good.” That got a loud laugh from the audience. He said that, for him, blogging is about earning his reputation back, “one post at a time.” It’ll be interesting to see how he and his fellow star financial bloggers progress in the next few years as the Web collides ever more forcefully with the old ways of producing and distributing financial information.

O’Reilly Media’s first Money:Tech conference kicked off at the Waldorf-Astoria in New York today. Several presentations threw some interesting light on where financial research is going in the world of Web 2.0 and RSS feeds.

I am attending the conference. Here is a report on the highlights of the first day. (My report on the second day is here.)

> Jim Cramer of TheStreet.com

After the opening salvo by Tim O’Reilly and Paul Kedrosky, the first presentation was made by Mad Money’s Jim Cramer, introduced by Kedrosky as the “first professional blogger” (on account of his founding TheStreet.com in 1996).

Before falling into his Mad Money persona toward the end of the presentation, Cramer had something interesting to say about sell-side research, namely that it’s dead, killed by Google. Ad hoc research calls, he gave as an example, produce no useful information.

He’s a big fan of blogs, though: “If Implodometer is here,” he said, “God love you, you made us a fortune.”

He only had good things to say about Bloomberg and its information services.

He added that, “Everyone is in the business of denial on Wall Street.”

> Larry Tabb of TABB Group

TABB Group’s Larry Tabb gave a presentation focused not on the Web but on the shift from high-touch trading channels (phones and brokers) to low-touch channels (computers). This shift, he showed, is happening quickly: 79 percent high-touch in 2004 compared with 37 percent now. At the same time, he said, commission rates and broker revenues are plummeting.

This is leading to the creation of “dark pools” and “crossing networks” in which brokers attempt to match order flow on its way to the exchange. He said that 37 of these are currently being developed in the US, and that stock markets are already starting to lose market share to them.

Tim O’Reilly asked him whether dark pools could one day end up analogous to the Colorado river, siphoning off all potential trades before they reach the exchanges just like water in the Colorado river apparently never reaches the sea.

Tabb answered that the SEC would certainly step in as early as at the 15 percent mark to make sure such a situation did not arise, since price discovery would end up being impacted and mom-and-pop order flow would end if crossing networks took over completely.

> David Leinweber of Berkeley

In the final session before lunch, David Leinweber, now of the University of California, Berkeley, gave an overview of the impact of technology on financial markets. He presented a graph showing how, “after the introduction of the Netscape browser” in the mid-Nineties, reaction time to bad corporate news (reflected in a completed fall in the share price) dropped from around two weeks to a few minutes.

He said that by looking in the right places on the Web, you can gather better information than that presented in the mainstream media.

> Steve G. Steinberg of Steinberg Consulting

Steve G. Steinberg, a computer programmer, described some of the clever ways he has been producing actionable intelligence for his Wall Street clients over the past decade. I write “actionable intelligence,” as Wall Street’s gain was clearly the NSA’s loss: The techniques he described include setting up hundreds of vendor accounts on eBay to monitor pricing trends, tracking serial numbers of iPods and their parts to work out how many have been manufactured (a technique the Allies apparently used on German weapon parts in World War Two for the same purpose), making leftfield second-order inferences such as attempting to estimate Chinese Internet penetration by creating filters to monitor the level of spam emanating from China, and black-hat methods, such as cookie manipulation and the like.

> Eric Christiansen of Barclays Global Investors

Eric Christiansen of Barclays Global Investors (BGI) said that analysts are already drowning in data, but that we’re still seeing only the core of all possible data. He suggested that, furthermore, only a small subset of visible data “gives us alpha,” with the rest merely enabling us to stay competitive.

He said that if you find something that really works in terms of delivering particularly valuable information, it won’t last. And he said that you’ve always got to look for new sources.

> Robert Pessarella of Bear Stearns

Robert Pessarella of Bear Stearns then gave a presentation describing how his chosen premier sources of financial information have changed over the recent past. A few years ago he would read the Wall Street Journal and maybe the Financial Times on the train to work, then check Bloomberg.com, Dow Jones and Reuters when in the office, with perhaps a glance at CNBC. Now, he said, everything revolves around RSS and Web 2.0 (a term, incidentally, that the conference organizers, O’Reilly Media, invented), with Google, Yahoo, Technorati, Wikipedia and even Amazon and eBay being the first ports of call in his search for information, with the service providers Connotate, Capital IQ, Gerson Lehrman and Majestic Research (all conference sponsors) helping clean and sort the information.

He seemed a little more sceptical about these companies, though, when he then chaired a panel discussion featuring some of them. He wondered how they hope to compete with free-service providers and issued what looked like a light warning that if their services did not open up more, he’d look elsewhere for his information. Two of the panelists suggested they could compete with free by employing lots of people.

Pessarella finished the session by stressing how important it is “to live in the news flow.”

> Bo Cowgill of Google

Bo Cowgill of Google gave an interesting talk about how the company has for the last two and a half years been running internal prediction markets, using play money, in such areas as demand forecasting, performance and industry news.

It turns out that newer employees tend to be more optimistic than old-hands, that people tend to be influenced by those who sit near them, that the percentage of optimistic forecasts tends to increase the day after the share price rises and vice versa, that things good for Google tend to be overpriced, with bad things underpriced, that the forecasts tend to be around 90 percent accurate, and that those on the periphery tend to be more accurate in their predictions than those nearer the center.

Optimists, he added, tended to lose money, while, in Google play-money terms at least, pessimists tended to get rich.

More on the second day of the conference tomorrow…