September 6, 2023

Wireframe

Everybody else is seeing Barbie and Oppenheimer and we’re just getting around to Avatar: The Way of Water.

The sequel to James Cameron’s 2009 film Avatar has made over $2 billion at the box office, equal to NVDA Q1 2023 net income. I don’t remember the plot or characters from the first movie. Do you?

Photo 264132485 | Avatar © Vadimrysev | Dreamstime.com

Look, it’s compelling. It’s a stunning achievement to visualize one world that doesn’t exist, let alone two.  I was riveted by the characters, the scenery, the ocean (as an avid snorkeler), the critters – all from Mr. Cameron’s fantastical imagination.

The only trouble to us is that the wireframe of the story supporting the gorgeous costuming didn’t make sense.  Why is everybody out to kill one family?  I mean, it’s a big planet. Couldn’t they all just get along?

Investor relations now is like Avatar: The Way of Water. No, we don’t have gorgeous scenery and talking whales.  We have a weak wireframe that doesn’t jive with the scene-setting anymore.

CNBC drives me nuts (and I’m on it periodically). All the talk about analyst estimates and earnings and this stock and that stock, and blah blah.  Like the CNBC wireframe reflects the market’s scenery.

Quast, what the hell is a wireframe?

We’re doing a website refresh and so it’s on my mind.  Wireframe is like the skeleton. The bones on which you hang the flesh, the meat, of your site.

I could probably use a more salubrious analogy. It’s the structure.  Get it?

In the Way of Water, the structure is let’s kill Jack Sully and his family.

But why?  It’s never clear.  In some ways the movie would be better as a National Geographic series about a planet, narrated by David Attenborough.  It’s richly, luxuriously, sensually, vivid.  I want to be blue, have a tail, and dive into water on a dinosaur. Who wouldn’t?

So are our earnings call transcripts, public companies.

No, not sensual and vivid. Wireframes that don’t match reality. Follow me here. We paint glorious scenes with our calls, our earnings releases.

But the wireframe doesn’t support those.

The real story line in the stock market is everybody buys quant data and arbitrages price-changes, and the investors are all following models and buying swaths of products, not individual stories.

But the wireframe is we’re unique, we’re better, buy us.

Not gonna happen.  And that’s not bad, just a fact, like killing the Sully family isn’t a great wireframe for the Way of Water.

It’s like form following function. The function of the stock market does not match the narrative of CNBC or your earnings calls.  You should strip it all down.  Get rid of those long releases, jettison tables from machine-readable XML press releases gobbled up by machines and turned into trading sawdust.  Track the DATA.

We are not living in some Avatar fantasy world. If you want help, go to the ModernIR website (soon to look different!) and request a demo.  We’ll teach you how to wireframe into reality.

Which brings me to the other avatar that drives me batty. 

Avatar. Definition, American Heritage Dictionary: An embodiment or manifestation, as of a quality or concept.

The Federal Reserve says it must slow the economy to slow inflation.  And the data bend into a wireframe showing slowing consumption, slowing jobs, blah blah. (The economy doesn’t cause inflation. The Federal Reserve does.)

What’s believable?

People. Listen.

Discretionary consumer debt – credit cards, student loans, autos – are approaching $4 trillion. Delinquency rates in two of those three – student loans are still on official hiatus till Oct 1 – are the highest in a decade, back to the FINANCIAL CRISIS.

If the data are the same as they were when we were in a financial crisis, we’re in a financial crisis.

US GDP declined in Q1 and Q2 of 2022. The definition of a “recession” has long been “two consecutive quarters of economic contraction.”

Yet this time, we did not call it a recession. Why?

The Fed said jobs needed to slow. Kaboom! Last week, assumptions changed, jobs data in the trailing three months were revised, and presto-chango, jobs are slowing.

What did the Federal Reserve want?  Slowing jobs.

I’m not saying it’s manufactured. I’m saying that Amos Tversky and Daniel Kahneman wrote a book about confirmation bias. Kahneman won a Nobel Prize for it (Tversky had passed on).

Heck, Michael Lewis wrote a book about them.

You can call it Prospect Theory, but it’s the human inclination to believe what we want to believe. No matter what the evidence suggests.

Avatar: The Way of Water is about swimming avatars. And it’s glorious. But the story is just confirmation bias, a justification.  It’s the film’s only weakness.

Investor Relations holds an inherent belief that all companies are unique and different and that investors care. That wireframe should be wadded up and tossed in the trash. You’re beta. If you don’t know what I mean, read this

And the Federal Reserve confirms its policies.  And yes, there is BIAS in the data. Because the government always, always, always, supports the government. Confirmation bias.

The only way to be clear-headed in the capital markets, economics, monetary policy – and life frankly – is to recognize wireframes. Things that support a narrative that may be flawed. And to recognize confirmation bias pervades everything.

Get rid of the wireframe. Study the data and question it. And you’ll be okay.

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