Data, Signal, and Our Lyin' Eyes
What good is having all of this data if our interpretations of that data lead to the wrong course of action?
Something happened last night that I can’t recall ever happening before. After a quick 24 hour trip to Louisville, Kentucky, my wife and I sat down with a couple glasses of Malbec and some Sunday Night Football. That’s not the abnormal part. After scrolling instaface META 0.00%↑, she came across a friend’s post that made anecdotal mention of what appears to be an increasing level of layoffs and job losses. That insight led to this exchange:
The Queen: How could the employment numbers still be good if more and more people appear to be losing their jobs?
My brain: Is she messing with me right now?
My mouth: Well, a lot of official data is just not very good and relies on flawed models and assumptions to build what are essentially just guesses.
On a scale of 1 to 10 with 1 being “no interest whatsoever” and 10 being “economist,” my wife might legitimately be a 1 pertaining to nerding out with economic data. So to say I was surprised when she unironically asked me a question about employment data would be an understatement.
In my answer, I gave some examples. For instance, I’m running a small business and the BLS may assume I’ve already hired employees even though I haven’t. Also, I fired myself in November 2021 but that job loss never actually showed up in the unemployment numbers. The point is, these economic data models and surveys are often flawed and sometimes we’re simply not even looking at the right information.
When you factor in that market participants may be taking iffy data at face value, it’s easy to go down a path where we can assume those participants might be making poor decisions without realizing it. Here’s an interesting question though; what happens when decision makers actually have truthful data and still get the insight wrong?
Let me tell you another story.
The Need For Speed
About eight or nine years ago I was working in the marketing department for the same local TV station that I left in November 2021. But back then, the station liked to do this “fun” exercise where it would hire a third party consulting firm to study the market and then show us the findings. Invariably, the station would take this data essentially as Gospel and prioritize implementing whatever the improvement recommendations were from the consultants.
I detested these consultant meetings for a variety of different reasons. These guys would basically come in and crap on our work. I always felt the process was really stupid. For instance, we would look at our work from when the consultants were in town and then compare it to some of the best work coming out of top markets like Houston, Texas or Seattle, Washington. It’s just a preposterous comparison but this is what we had to deal with.
In hindsight, I get it. It was never personal, just business. Both parties have to justify the relationship. That means the consultants felt they were being paid to find problems and the station felt it had to implement the recommended strategy tweaks to justify the investment. But it was still a generally crumby endeavor and we fortunately stopped doing this after a particularly soul-crushing experience with “the Bobs.”
But there were occasionally some really interesting nuggets in these market studies that the consultants put together. One day, we were getting pelted because our promotional messaging wasn’t sensational attention-grabbing and this doozy of an insight emerged; in a list of things that TV viewers wanted from their local news, the most important thing was “being first.” This is why weather branding is often called “first alert” or “first warning.” It doesn’t matter if they actually are first, they just want credit for being first.
For news viewer survey respondents, being first was literally more important than being accurate based on preference scores. This isn’t really a surprise in 2023 and there’s a chance many of you have seen blogs or articles about this very problem more recently. But back in 2014, I was blown away by this. Now think about how damaging this has likely been to the long term sustainability of trust in traditional news sources.
Because everyone inherently understands that being accurate is actually more important than being first. But because being first has been such a large driver for branding and web traffic, prioritizing speed over accuracy has been a priority even if it has been subconsciously. This has directly led to many of these news operations becoming sloppy and losing trust with the audience. Some, if not many, of these legacy media brands will die and the prioritization of content optimization over content quality is without a shred of doubt a reason why to some degree.
We can debate inputs and survey construction if we want to get granular, but in aggregate, I don’t think there was anything inherently wrong with the survey response data. However, the takeaway that accuracy is less important than “being first” was philosophically incorrect even if the figures supported the opposite. Thus, data in the hands of a decision maker who can’t interpret it properly has the potential to be dangerous.
Let’s bring these stories full circle and wrap it up for the day…
Is The Market Truly Forward Looking?
I asked Max Wiethe that question over three years ago for my old podcast The Trend is Your Friend. He said yes. I’m much less convinced. Take, for instance, what just happened following the Bitcoin ETF false alarm from Cointelegraph a week ago; a timely example of the problem with the desperate desire from all media types to get the story first rather than get the story right.
Cointelegraph tweeted that BlackRock’s Bitcoin ETF had been approved. Within an hour, BTC spiked 8% in response to that report and than quickly gave it all back when the report turned out to be false. Everyone made a big deal about Cointelegraph getting that story wrong. But do you know what my immediate takeaway was?
Holy crap, ETF approval isn’t even remotely priced in yet.
While I’m not going to sit here and say the ETF is a certainty, my personal view is that we will get a spot approval early next year if not before the end of this year. A forward looking market would already be pricing this in but that apparently hasn’t happened yet.
All I’m doing is reading the tea leaves. I assumed others were doing the same but now I have doubts about that. When the ETF news turned out to be false, the selloff was interesting but I viewed what happened before the selloff as the real signal.
Now that the fake news price breakdown is behind us, it seems as though others in the market got the same signal from last week’s fake news price spike that I did. Because BTC is currently over $1,000 above the Cointelegraph tweet top. I added to some of my BTC proxies last week on the weakness. In an era of patterns, data, and content optimization, sometimes trusting your gut and your lyin’ eyes is the best way to interpret the signal.
This goes both for Bitcoin and for an economy that feels like its puking jobs.
Disclaimer: I’m not an investment advisor. I’m long bitcorns.