Last week after the Cyprus story first exploded, we pointed out that Twitter proved to be a far more useful source of serious analysis on the topic than Wall Street, which was fairly slow in producing research on the subject. This was partially due to the fact that it was a weekend as well as the lack of expertise.
SocGen currency strategist Kit Juckes — who is on Twitter and grasps the medium better than most — has written a great post on his blog (who knew he had one?) about just this topic. He explains exactly what it is about Twitter that makes it so disruptive to the traditional model of Wall Street houses providing research and analysis to their trading clients:
The tightening up of standards and rules surrounding research published by investment banks, has left a gap which social media are filling enthusiastically. A traditional research note on the impact of events in Cyprus this weekend can't clear compliance much before 9 a.m on Monday morning, too late for markets in search of instant gratification. But then, what market participants want isn't a traditional research note, with 'buy' and 'sell' recommendations carefully vetted and caveats strewn around like confetti. "What has happened, and what does it mean?" is the first question, followed by a deluge of follow-ups "yes, but what if ..." and so on.
Whether you are a trader, a salesperson, a fund manager, a Master of the Universe to indeed an interested by-stander, what you want is information, opinion and debate and Twitter gives it to you. For the traditional common-or-garden sell-side analyst, this demands a change of approach. The public dissemination of non market-moving information and broad macro-economic views should not be subject to restraint by regulatory authorities. At the same time, the analyst does not necessarily know for sure how markets will react to news. In the instance of Cyprus' woes, we have all known for a long time that a bailout was needed as a result of losses incurred by over-leveraged banks as the Greek crisis deepened. Whether the terms of a bailout will cause further risk aversion and contagion is a matter of opinion, and the best way to establish how the mood in financial markets will evolve, is to express an opinion and open it up to a wider debate.
There's a lot of meat there, but this is something that might not be well understood or appreciated by many people outside of the financial world. Analysts create a lot of value by providing good information and data. Investors managing billions of dollars crave that more than "recommendations" or the analyst's "take," although there are some individuals out there (Kit is one of them) whom people actually want to read due to their unusual intelligence or insight.
In a case like Cyprus, there's just no way to beat the instant access to data, insight, and on-the-ground observations that can be obtained through a well-curated twitter stream. In a fast-moving story that combines lots of moving parts (economics, markets, politics) no research shop could compete.
This story has legs for the industry, in part because regulations and guidelines will clash more and more. Just this week, a bank economist we spoke to expressed some of the same points Kit made above: that communicating through Twitter is just natural given end-user demands for information.
Watch this space.
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