Positioning the Story

The Wall Street Journal yesterday published an interview with Sam’s Club CEO Rosalind Brewer. This post, however, is really about journalism, specifically the bear-baiting habits of the media, which try to generate “excitement” by using words that signal combat, war, and conflict.

On the front page of the Marketplace section, the WSJ headlines a page 7 story thus: Sam’s Club Chief Maps Big Plan to Outflank Costco. The story’s actual headline is: Sam’s Club CEO Launches Charge on Rivals. The story is an interview. It begins with a blurb by the Journal “setting the stage,” thus “positioning the story.” In that setting, Sam’s Club is compared, unfavorably, to Costco and Amazon.com.  Then the interview follows. But the only mentions of either Costco or Amazon are two questions by the Journal’s interviewer, each a leading question:

• Sam’s Club has posted two years of positive sales growth but still lags Costco. What will it take to catch up and make Sam’s Club into an $80 billion—$100 billion business?
• Are you afraid of online retainers like Amazon.com that have been taking away market share from brick-and-mortar retailers?

Rosalind Brewer artfully avoids mentioning these two companies or engaging those questions at all—except to note, in answer to the second question, that “It’s always good to have a strong competitor; they make you better.” She speaks of products and serving the customers throughout. Well, Bravo, Ms. Brewer. She seems to grasp something that the “investment community,” so called, will evidently never learn. Companies exist to serve their customers—not to please those who buy their stocks. Some CEOs know that, others don’t. Life is about service, not combat. Therefore a quite innocuous story is turned into a seeming clash of giants when it’s really about carrying more gluten-free products…

Independence? Fund Yourself!

A telling story in the New York Times. On the front page yet. The headline pulls its punches, but still, the story is there. The headline is:

Israel TV Station’s Troubles Reflect a Larger Political Battleground

Israel’s Chanel 10 television evidently published stories about Netanyahu’s travels to Europe as an elected official with his wife. Rich friends paid all of his bills, and Chanel 10 put these bills on the screen in news reports. Netanyahu was an elected official then and not yet prime minister. He travelled first class. The NYT describes his hotel suites as “baronial.” The friends-paid expenses included dry-cleaning bills for Madam Netanyahu’s clothes. So?

So what if Netanyahu had generous rich friends? Well, we have a case here of Caesar’s wife or, at minimum, Caesar’s wife’s dry-cleaning bills. Interested in clear language, such a situation makes for problem in drawing up clear definitions of what words like “corruption” mean, but that’s my problem. Chanel 10’s problem is that it is now on the brink of financial collapse. It owes money to a public regulatory body that, in turn, is controlled by the Parliament. The agency intended to extend the loan’s repayment schedule, but a Parliamentary committee nixed that generous offer. The moral of that story?

Well, Arsen, time to eat crow. Always have favored state-subsidized television. But, alas that has its problems too. Want independence? Fund yourself. But self-funding often means selling your soul to advertisers—because TV simply costs too much to spread that cost to individual contributions by subscribers. The snake in the paradise of Journalism and the People’s Right to Know and all that—as the snake in every other paradise—is money. You have to have lots of your own. And even then, if Caesar is powerful enough, somebody will testify under oath, persuaded by some politbureau or other, to send you one way to Gulag.

It ain’t easy. No way, José. Heaven will help us, but it’ll take a while.

Rogue Trader at UBS

An article on the New York Times’ Business Page this morning deals with one Kweku Adoboli who lost $2.3 billion in so-called rogue trades. The thrust of the article, by James B. Stewart, is to blame the UBS for failing to supervise Adoboli. All right. I managed to learn, but somewhere else, that a rogue trader is “Someone who makes trades that haven’t been authorized”; thanks for that Julia Felsenthal (link). My informant also adds that if the “rogue trader” happens to make profits, and especially very big profits, we usually do not hear about such unauthorized events. To qualify as a rogue trader de facto rather than merely de jure, you have to lose lots of money.

What Stewart’s article omitted, however, were the really interesting features of this story. Adoboli, who is 31, graduated from Nottingham University in 2003 with a degree in Computer Science and Management. He got his job at UBS in 2006, thus around age 26. His initial job at UBS was to assist in programmed trading; specifically he provided tech support for algorithms. Presumably his expertise lay in adapting trading algorithms to trading goals, these latter expressed in mathematical terms. Sometime in or before 2008 he became a trader, but I cannot find any press mention of the date of his transition from trainee to trader.

Now anyone who’s ever been involved with playing with algorithms knows the temptation of trying out this or that variant to see what happens. If a trend is going left and up, will it keep on going up more if you tweak this variable? Now in the usual test environment, no harm is done. But if you have to make a trade to test your brilliant insight, the results may be serious. That’s what seems to have happened here.

This story started looking much more complicated when I got this far. A young, relatively immature, and possibly already successful computer trader—computer emphasized because Adoboli obviously had no genuine trading experience or history—makes mistakes and then compounds them by trying to cover them up. He was the one who confessed—a bit late, to be sure. Add to that now that the very essence of such trading is speed, that computer trades are triggered by split-second changes in indexes—and that it would take equally smart computer algorithms to ride herd (thus “authorizing”) such trades—and now a much richer story is in front of us.

It’s lessons are that there is a problem in (1) appointing inexperienced people to engage in computer trading; how does the supervising senior trader know if a particular small change to an algorithm is good or bad? Has he been trained in computer science too? There is a problem (2) in computer trading as such. There is a problem (3) in taking someone out of college with a computer sci degree and setting him to work advising on algorithms. Programming is an experiential activity. It is a craft you learn by doing. It takes years. Algorithms, alack, alas, are weird, if abstract, but still structures. They have odd dynamisms. They are just like maddening reality. They very often produce the unexpected unless you know the terrain.

James Stewart’s column in the NYT is encouragingly labeled Common Sense. It would have been of some service to me to have been told the above, which is not, repeat not framed anywhere in press reports. Well, amateurism to the rescue.

Shale Hoopla — Careful!

A New York Times headline today says “Geologists Sharply Cut Estimate of Shale Gas.” The reference is to a press release by the U.S. Geological Survey (link) dated August 23, 2011. The first two paragraphs of that press release state:

The Marcellus Shale contains about 84 trillion cubic feet of undiscovered, technically recoverable natural gas and 3.4 billion barrels of undiscovered, technically recoverable natural gas liquids according to a new assessment by the U. S. Geological Survey (USGS).

These gas estimates are significantly more than the last USGS assessment of the Marcellus Shale in the Appalachian Basin in 2002, which estimated a mean of about 2 trillion cubic feet of gas (TCF) and 0.01 billion barrels of natural gas liquids.

This certainly sounds like a huge increase in shale gas estimates, indeed like an 82 TCF increase between 2002 and 2011. The same press release, however, actually references the 2002 report. And if you follow their link (here), you find the following text under Resource Summary:

The USGS assessed undiscovered conventional oil and gas and undiscovered continuous (unconventional) gas. The USGS estimated a mean of 70.2 trillion cubic feet of gas (TCFG), a mean of 54 million barrels of oil (MMBO), and a mean of 872 million barrels of total natural gas liquids (MMBNGL).

The 2 trillion in this year’s release has turned into 70.2 TCF. Was that “2 trillion” a typo. In the 2002 report, furthermore, a detailed table also repeats the numbers with many more decimal points. We still have an increase between 2002 and 2011, but it is an increase of 13.8 TCF not an increase of 82 TCF.

So why does the New York Times headline a sharp cut in shale gas estimates? Well, the Times points at a July 2011 report by the Energy Information Administration in which that agency shows shale gas reserves in the Marcellus Shale of 410 trillion cubic feet. The Times reporter then quotes an EIA official (Philip Budzik) saying that the EIA will sharply revise its estimate downward. The casual reader will wrongly conclude that the EIA has been grossly inflating its numbers and that Budzik, an operations research analyst—not an agency spokesman—knows what he is talking about. The article also mentions testimony by the EIA’s acting director, Howard K. Gruenspecht, defending the EIA’s methods before Congress this July; why wasn’t Gruenspecht interviewed?

The Times reporter might have read both the USGS and the EIA reports with a little more care. He would have discovered (1) that the USGS release actually reports a large increase, but in a subcategory of shale gas, clearly labeled “undiscovered, technically recoverable,” as shown above; (2) that the USGS release might contain an error, and (3) that in the EIA report, where that 410 trillion figure is shown, the EIA clearly states that that number includes 56 TCF of “undiscovered resources estimated by the USGS.” This means that the EIA was only counting a part (56 TCF) of the USGS’s now 84 TCF figure, not all of it, and that the 410 trillion includes a lot of other categories of shale gas (see the note on top of page 5 of the EIA report (link)). The conclusion is that Mr. Budzik might have misspoken and that EIA will probably increase rather than decrease its shale gas estimate in the future. Many a slip twixt journalism’s cup and lip. Alas, it is stories in the “newspaper of record” that build the hype that forms our precious public opinion.

You wonder where that Marcellus Shale region is? Well, here is a map of it, from the EIA’s 2011 report:

Changing News Habits

Talking of the Statistical Abstract, I chanced across its Table 1134 the other day in the 2011 edition accessible here. It brings us information on newspapers from the year book of Editor & Publisher going back to 1970. I’ve indexed circulation and U.S. population for the period 1970-2000 using the provided decade and one 5-year intervals, and then annually from 2002 through 2008. Both U.S. population and daily newspaper circulation are indexed at 100 in 1970 and then the changes indicated from that year forward. In 1970 circulation stood at 62.1 million daily; our population was 205 million. In 2008 circulation had dropped to 48.6 million, population had increased to 304 million.

Our habits are changing. To tell the truth, exactly what it means is anybody’s guess. Some people who no longer get the paper, still read it on electronic devices. Others who still get the paper—as we get the Detroit News—don’t read the damned thing. It usually sits on a chair still in its red plastic wrapper, sometimes for days on end—unless some necessary shopping causes Brigitte to find relevant ads. We don’t read it because its ink-to-information ratio has radically changed. We still read the New York Times, and daily. But many millions of others get their awareness of the news from radio, television, the Internet, and their cell phones.

I don’t read gloom and doom into the drop, drop, drop, the Chinese water torture our old print media now suffer. I never actually believed in the presence of a vast, well-informed, and highly responsible citizenry trembling with eagerness to do good. Responsible elites are always very small. To get a kind of indication of that, take a look at next post. There you will learn something about the circulation of the Statistical Abstract itself.