ZOMG, Justin Bieber is trending! How can we short the Jonas Brothers?? That, apparently, is the sort of conversation that's becoming more and more plausible on Wall Street; hedge funds are increasingly turning to Twitter, Facebook and YouTube trends to place social media driven bets in the "tens of billions of dollars," according to a company that sells them data.
Social media aggregator Gnip tells the Wall Street Journal that a handful of unnamed "macro quantitative funds" are using its data, along with complex computer models, to make bets on which way markets are moving. Assuming they're real and not an invention of Gnip's marketing department, these social-network-driven hedge funds join Derwent Capital, which made its name earlier this year as "the Twitter hedge fund." There is actually a credible if unproven mechanism for how this might work: Twitter delivers the first word of Osama bin Laden's death, a trader makes an early and/or after-hours long bet on the overall stock market, which promptly spikes. Or, a Twitter rumor drives Latvians to pull money out of Swedish banks (true story!), which a trader already shorted when the rumor started trending.
Sure, it sounds like a fairly insane way to invest. But then you have to ask yourself: Did Goldman Sachs really funnel $1.5 billion into Facebook and not get any special data out of the deal? Always one step ahead of the pack, those guys.