Bailout

Blogonomics: moving markets

By Felix Salmon

What’s the best way to monetize a blog? I don’t know how much John Hempton has made off this blog entry, but it’s surely up there in the annals of the most lucrative posts of all time.

Hempton found an obscure Chinese travel company which somehow managed to get itself a listing on the NYSE: Universal Travel Group. He tried to book travel through Universal Travel’s website, and failed. And after 5,500 words of explaining exactly why he was doing it, he shorted Universal Travel’s stock. Which turned out to be a great trade: the stock plunged by 20% today, entirely because of Hempton’s blog post.

Universal Travel put out a press release at the close of trade today saying that it “categorically denies all the allegations contained in the blog”, but not getting into specifics; there’s vague but ominous language about “aggressively pursuing all legal remedies against Bronte Capital and John Hempton”, but I very much doubt they’ll come to much.

Historically, short-sellers have been shadowy types; they like to publicize their findings, but they tend to do so behind the scenes, giving journalists information and having very long conversations off the record.

Hempton’s different in that he’s happy, on occasion, to make his allegations in public, under his own name. He doesn’t always publicize his shorts, even when he suspects outright fraud, but his blog does have enough of a following now that he knows he’ll be widely read if and when he chooses to do so. After today’s big payday, I reckon he might try the tactic more often.

The story of Universal Travel is far from over: if Hempton’s right about the company, and I think that he is, then the SEC and the NYSE are both going to have to answer some very pointed questions about how and why they allowed the company to get this prestigious New York listing in the first place.

But I do love the way that the blogosphere is moving markets. Reading a blog entry from someone with real skin in the game is often a lot more fun than ploughing through “objective” journalism from someone who isn’t allowed to invest in or short what they’re writing about.

Full post as published by Macroprudential on September 15, 2010 (boomark / email).