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“One day we had a conversation where we figured we could just try to predict the stock market. And then we decided it was illegal. So we stopped doing that.”

I doubt that - maybe they could build a reliable sentiment indicator (paired with twitter data), but even that would have a lag. How would that be illegal anyways?

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If it isn't currently illegal it would be quickly made illegal.

I imagine this could be accomplished with similar techniques they use to track health epidemics[1]?

1: http://www.google.org/flutrends/about/how.html

My guess is that they're not talking so much about the broad market as about being able to predict individual stock returns relative to the market. Having access to search-, browsing-, and click-streams of most people doing research on stocks could give them a strong indication of the realtime supply of and demand for stocks before individual and institutional investors execute transactions. My search history is probably the single best record of what I've been thinking about, and any competitor with access to it would have an excellent idea of what trades I have planned. If all Goldman Sachs traders were even stochastically telepathic, they'd have an unbeatable edge in the market.

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