Apple Gate: Who Sold? And Fomenting

May 17, 2007

Yesterday, Apple’s stock took a hit around noon because Engadget, a tech blog, posted a rumor that the iPhone was delayed until October and OS X was delayed until January. I read the article on Techmeme and wondered, no, that can’t be right, as my heart skipped a beat. Not less than an hour later, the stock had recovered.

Engadget rightly corrected their post with scads of strikethroughs. For more details, read this post.

So when TechCrunch says “many investors had lost a staggering amount of money” I’m wondering if that means during noon and one in the afternoon? I guess that’s true, but if you didn’t sell, that loss wasn’t realized, as Mathew Ingram also points out.

Anyhow, it does show how blogs have a heck of a lot of power if they can influence the markets to that degree, but also raises the possibility that they may be targets for manipulation.

Does anybody else remember this video of James Kramer, talking about how it’s possible to manipulate the market by spreading rumors (fomenting)?

Here’s how fomenting works, according to Mr. Cramer: Say a hedge fund manager is holding a short position – a bet that a stock will decline – in Research in Motion, which has just announced blockbuster quarterly earnings results. An enterprising fund manager might call several brokerage houses and either feed them bad information or order a slew of short sales. Then he or she could call up a “bozo reporter” with a fake news tip about Resarch in Motion rival Palm.

The result, he says, is a perfect storm of bad news that temporarily lowers R.I.M.’s stock price, long enough for the manager to reap a tidy profit. He recommends a similar procedure with Apple (the video was filmed before the company introduced its iPhone at its annual Macworld convention in January).

Yeah, he does mentions Apple by name. Hmmm.

Additional Reading: Blackfriars’ Marketing, Daily Tech