Sure enough, in April and May, UBS put its Transcriptlytics tool to work on 250 earnings calls to extract a measure of management confidence (net sentiment) as well as of language complexity.
The tool then traces sector patterns for rising and falling confidence relative to nine years’ worth of past earning-call transcripts and focuses on individual company stories where the conference-call language indicates heightened complexity.
So, confidence is apparently rising in the commercial services sector and in healthcare, but falling in consumer services and in real estate, for example.
Worryingly, UBS points out that semiconductors are often a leading indicator of macro trends for the rest of the market and confidence is falling sharply there as managements discuss trade wars and inventory levels.
My assumption has always been that everything before the ‘but’ is bullshit
- Banks analyst
For our favourite sector, banks, Transcriptlytics finds top quintile positive moves in management net sentiment at Banco BPM, Banco de Sabadell, Bankia, Danske Bank, HSBC and Intesa Sanpaolo. So, that sounds like terrific news for banking.
Or is it? When Euromoney speaks to the head of investor relations at a bank not on that list and who always complains that the stock market does not appreciate the positives of his bank, Euromoney suggests he think about tools such as Transcriptlytics.
“Oh, we already are,” he tells us. “We know the language algorithms are reading corporate statements, so we have our own algos writing them now.”
It may be a little hard to stick to the script through an earnings call, Euromoney suggests. The head of IR is not so sure: “It won’t be long until it’s just their robots talking to our robots.”
Now really worried, Euromoney comes out of the meeting and calls this bank’s own banks analyst to check he’s still there.
Thankfully, he is and talking sense as ever.
“I will continue to work on my old rule of thumb,” he says. “When they tell us ‘the outlook is benign but there are a few uncertainties ahead’ or ‘but loan losses can’t stay this low for ever’, my assumption has always been that everything before the ‘but’ is bullshit.”