August 16, 2023

Wahoo

Karen and I both have Wahoo Element Roam bike computers.

We finish a ride and rush to check the data analytics.  Feet climbed, average cadence, average heart rate, distance, peak cycles.

It’s how you learn what drives your performance.  What cadence can you maintain, what heartbeat zones burn and build, how do you ride efficiently?

Illustration 92403662 © Doozydo | Dreamstime.com

No surprise that we love data. We’re in the data business. ModernIR analytics are Wahoo bike computers for stocks, in effect.  We meter performance metrics.

They’re how you understand what drives shareholder value, why you soar and swoon with results, what you can control, mitigate, to reduce volatility and stay in Passive models – the most important objective with earnings now.

If you want to know more about using data science to radically redesign your earnings cycle, ask me. Timquast@modernir.com. You can save money, improve outcomes, add value, help shareholders.

Speaking of data, China dropped some offal – cough, cough – numbers on the stock market yesterday.  Stocks splatted.

Everybody said, “China is a mess.”

Let’s use data analytics to understand the real ramifications here.

And first, this was no accident.  Stocks didn’t just – shazam! – implode. We’ve been seeing China distress for awhile. Sure, there were kickers yesterday, with youth unemployment numbers vanishing and China’s central bank cutting rates, bucking the global trend.

But volatility expirations are TODAY. Had these data dumped from the Chinese Wahoo two weeks ago, it probably wouldn’t have been destabilizing.

Plop that brick as volatility hedges renew and it’s a problem. It could be that hundreds of billions, even trillions, of dollars of hedges recalibrated.  Volatility as an asset class is massive.  Not as big as long trades as an asset class but probably as big as short trades as an asset class.

Say a bunch of banks – which came under ratings warnings from Fitch, including JP Morgan, the world’s largest counterparty – saw a drop in demand for volatility hedges.

Say the banks sold the equities they were holding as proportionate assets against counterparty obligations. If a customer doesn’t renew a hedge, the stocks held as assets against the hedge are a liability, not an asset.

You dump them.

There were no data anomalies in the market’s swoon yesterday. It was proportionate.  That suggests it’s counterparties, not investors.  Risk management, not investment.

Shift to China. It’s our manufacturer.  If things are bad at the factory, what’s it say about the people buying the things the factory makes?

Now we’re reading the Wahoo economic data.

The most recent GDP data from the US Bureau of Economic Analysis shows that our imports – the stuff we buy from abroad, especially from China – have fallen the last four straight quarters by an average of 4%.

That adds up.  We’re big buyers.

What if the big buyers don’t buy? In China it means callow youths listing about in their parents’ homes. Falling income. Declining consumption.

And the Wahoo economic data show our exports – stuff we sell to others – fell 11% last quarter – over 16% if one considers just goods shipped.

So our customers aren’t spending as much either.

Let’s get to some performance summaries here.  We stop buying goods from China. China’s economy stalls, the central bank cuts rates. The government stops telling us how many young Chinese are sitting around in the doom scroll, jobless.

And we’re selling less stuff abroad.

But our economy is picking up steam, we’re told, and now we’re talking not about a “soft landing” or a “recession” but now the No Landing.

Yup, we just keep right on growing. Really?

The data from the US Bureau of Economic Analysis shows that the core driver behind US economic growth is government spending. It’s grown 3.8% annually for the last four quarters.

It’s like adding your homeowners’ association’s spending to the dues and assessments you pay and calling it “growth.” It’s double-counting.

But it’s an orthodox part of the calculation of Gross Domestic Product, is government spending. It’s the only thing growing. Without government spending we’re in recession (as I wrote last week).

So we’re in recession.

I don’t know if it gets better or worse.  We don’t worry about that. We focus on delivering value to customers and the rest is what it is.

But all this talk about what the economy will or won’t do seems to me oftentimes to need a Wahoo.  The picture would be clear.

Now, if you’ll excuse me, I need to go check on the status of my new Moots RSL gravel bike. There’ll be a Wahoo mounted at true north.  It’s all about the data.

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