Apple’s new TV is rumored to have voice recognition from Siri. What will make this TV cool is not voice recognition, but the ability to know what the person is saying contextually.

The end benefits are easy to describe, but hard to deliver consistently or reliably.

I am heading to CES and will use this blog as a set of notes around interesting ideas and my notes.

Stepping outside the norm on marketing, a couple thoughts on short selling and the furthering risks of being a public company.

Fred on shorting:

I’ve been uncomfortable with the “no shorting” rules that the gov’t put in place thursday night. I couldn’t really articulate my discomfort with them, but my buddies Howard and Roger have done it for me.A VC, Sep 2008

Even more, Fred today questioned why companies with cash reserves aren’t buying up their own stock.
While I am a fan of using securities to enhance transparency in the markets, I have to say I’m out of sorts on shorting.

I’ll be honest, from an economic POV, I’m trying to understand how shorts add value (beyond the shorter) to a share’s liquidity or accuracy in share price.  To be clear, the options market does a lot of good in terms of future expectations, but shorting has a direct impact on the stock in its market.

Due to borrowing the share and reselling it, the share’s count in the market gets increased with this derivative in a way that will inherently decrease price (the share is owned, borrowed and resold).  In theory, any shorted stock will see a price decline due to a breaking of the control of the supply of the stock which was traditionally held by a company.  The underlying potential of a stock has to not only meet growth expectations assuming the company’s plans for share dilution or buy backs, but now has to exceed expected growth + dilution created by this financial instrument.

When the short market moves strongly against a stock, then the base # of shares increases dramatically more than a company can move to respond to which would seem to create a death spiral.  In essence, excessive shorting can create a real problem in that this death spiral impairs a company’s ability to raise further capital and has taken the ability for it to control its share base out of its hands.

In terms of incentives, like the mortgage broker issue before it, the disintermediation of the brokerage market has created a problem noted by NPR recently that many brokerages make more money on the commissions from shorting than they do on trades.  If shorting is so lucrative, and no controls exist to bind together the supply of a company’s stock, then well capitalized players can pile onto one side of the table and do a lot of harm quite quickly.

Given a short’s incentive is to get the stock to zero, and with each added short position an added share is put into the market that was borrowed to do so, I’d be quite interested in seeing something quant on the impact of shorts in the market as they’ve bloomed to see where this derivative has added value to the market and not just to the shorter and brokerage house.

My hunch is that shorting is the new bubble. If so, we’re in for some major value destruction.