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What We Read Today 06 October 2014

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

  • Hewlett-Packard plans to break into two (Wendy Koch, USA Today) Hewlett-Packard (NYSE:HPQ) plans to follow IBM and spin off its "Q". The tech giant wants to focus on its technology services businesses and set up its personal computer and printer operations as a new standalone enterprise. The "Q" in the HP ticker represents Compaq Computer which merged with HP in 2002 to establish a then dominant position in the PC space. The story was broken Sunday morning by The Wall Street Journal. See also next article.

  • Recent articles about Scotland Independence and Similar Movements :

Scotland's deputy first minister says Scottish independence is unstoppable (BBC News)

Call to rule out early Scottish independence referendum repeat (BBC News)

After Scotland, now it's Catalonia's turn. But pro-union voices struggle to be heard (The Guardian)

  • Articles about conflicts and disease around the world:

Hong Kong protests: Civil servants at work as numbers dwindle (BBC News)

Is it fair to blame the West for trouble in the Middle East? (The Conversation)

Cost to rebuild Gaza? $4 billion, political will (Yahoo! News)

Israel lets hundreds of Palestinians leave Gaza to mark Muslim holiday at Jerusalem’s holiest mosque (National Post)

Somali troops 'capture key port town' from al-Shabab (BBC News)

British hostage released in Libya after five months (Yahoo! News)

Jordan tackles homegrown Islamists as it joins attacks on Isis (Financial Times)

Turkish police tear-gas BBC team near Syrian border (BBC News)

Islamic State Takes Hill Over Kurdish Border Stronghold (Bloomberg)

Pakistan Taliban vow support for IS in Syria and Iraq (BBC News)

‘Boots in the air’: U.S. helicopters return to combat in Iraq for first time (McClatchy DC)

Report: ISIS plots to seize Iran’s nuclear secrets (Al Arabiya News)

Ukraine Military Says Separatists Violated Month-Old Ceasefire (NBC News)

Germans set to send first troops to Ukraine since WW2 (Daily Mail)

At least 5 police killed in suicide blast outside concert hall in Chechnya, Russia (RT)

Latvia’s ruling coalition keeps Russia-leaning party at bay in election (The Guardian)


There are 14 articles discussed today 'behind the wall'.

Today we have a lengthy rant on proper use of significant figures in economic data.

Do not miss "Other Economics and Business Items of Note", the final section every day.

Please support all that we do at Global Economic Intersection with a subscription to our premium content 'behind the wall'.

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  • Has the Stock Market Selloff Run Its Course? (Adam Johnson, Bloomberg) Is the current pullback just that, a pullback, and not a significant decline of high single digits, a correction (decline greater than 10%) or bear market (decline more than 20%). If the selloff has run its course it will be similar to three occasions already seen this year. See graphic below. And if the market does start to move up from here, Johnson wants us to know that the last time the market declined following a mid-term election came after November 1946. That's 38 gains against no losses.

stock-market-declines-2014

  • Economic Numerology (Mark Buchanan, medium.com) Mark Buchanan has hit on a subject that has irked Econintersect for some time: The lack of attention of economists to significant figures when dealing with data. Buchanan gives an example in this piece which is the amount of energy (in btu) used in the U.S. per dollar of GDP in 2011: 7,328.424 btu/$ (This comes from the U.S. EIA (Energy Information Agency) website). Now we don't know how accurately determined is the number of btus produced and consumed in the U.S. in 2011. But we don't really care as long as it is known at least as accurately known as the value of GDP for 2011. Buchanan estimates that the uncertainty of determination of GDP may be more than 1 part in 100. That would mean that the measurement of GDP could not determine the difference between 100 and 101. If the value is reported as 101 the uncertainty is such that we don't know if correct value is 100, 101 or 102 (101 +/- 1%). The same uncertainty recognized in the number of btu/$ GDP would give the previous value as 7,329.424 +/- 73.28424. That means we cannot distinguish between 7,256.140, 7,329.424 and 7,402,718.

Let's change the units to 100 btu/$ GDP. The three numbers are now 72.56140, 73.29424 and 74.02718. Remember now, these are indistinguishable based on the ability to measure GPD. Lets round the numbers to three significant figures: 72.6, 73.3 and 74.2. These are identical because we cannot measure GDP with sufficient accuracy to tell the difference. Based on the assumed accuracy of measurement we know that 73.29424 is more than 72.5 and less than 74.3, but we do not know any more than that.

So Buchanan's point is that the seven significant figures in the EIA tables represent absolute nonsense. There is no information delivered after the first two significant figures. To present the data without misrepresentation the EIA table entry should be 7300 and there should be no decimal point after the second zero because a decimal point indicates that the second zero is a significant figure and there are only two.

Often the first non-significant figure is included in reporting a result, but that is only a correct presentation of data if the insignificant figure is identified in some clear manner. For example, the EIA table could have presented the 2011 data entry as 7,300 where red indicated the first insignificant figure. If the data were presented as 100 btu/$ GDP then the number would have been 73. (or 73.0 if the first insignificant figure were included).

Why is it worthwhile to include the first insignificant figure? This has value when the data is to be used in further calculations because it reduces the build-up of rounding errors. Consider five data points, each with two significant figures: 73., 7.3, 2.1, 8.6 and 21. Multiply the five numbers to get 202,107.654, which rounds to 200,000 (two significant figures which is not specified until we mark the first insignificant figure with 202,000).

Next rewrite the five numbers and include the first insignificant figure for each: 73.0, 7.30, 2.14, 8.63 and 21.4 Multiply these to get: 210,612.4609, which rounds to 211,000 with the third digit in the result marked as insignificant. By including the random distribution of first insignificant figures in each of the component data points and rounding to the correct significance at the end we have reduced accumulated rounding error. 211,000 is a more accurate result than 200,000

Final note: Significant figures are no stringer than the weakest link. If you have an experimental measurement that determined the average weight of an egg from a certain chicken farm is 1.012 ounces (three significant figures) and you have counted the eggs produced in a year to be 412,473 eggs (five significant figures), how many pounds of eggs are produced in a year? The product of 2.012 x 412,473 is 829,895.676 ounces. There are exactly 16.0000.... ounces per pound so the farm has produced 51,868.47975 pounds of eggs. The significant figures in a result is the smallest number of significant figures in the input, so the accurate answer is 51,870 pounds of eggs. If you wanted to give the tons per year the result would be 25.93 tons of eggs per year. The number of ounces in a pound and the number of pounds in a ton are exactly precise numbers with no uncertainty and cannot influence the accuracy of the result.

This type of exercise is commonly presented at the beginning of most introductory level science courses and students are expected to observe precision and accuracy rules in all their work.

Confronted by the failure of its principles, Europe insists it has no others. The US, on the other hand, has invented new ones as it goes along. Even the partially sighted can see the difference.

Read also If Europe insists on sticking to rules, recovery will be a dream (Wolfgang Munchau, Financial Times)

sp500-sectors-we-2014-0ct-03

  • Jim Grant: We’re In An Era Of "Central Bank Worship" (Henry Bonner, Zero Hedge) This is a great interview of the author of Grant's Interest Rate Observer whose readers have made a fortune investing in bonds since the founding of the newsletter 31 years ago. Recently he has a leading bond bear. Jim Grant doesn't have much to say about what may happen next month, or even next year, but he continues to have outspoken views on long-term trends and economic cycles. This interview is well worth your time.

In this "siphon-up economics," the rich get richer by draining wealth from the rest of us. The new Census data reveal that since the late 1980s, incomes for the bottom half of Americans have stagnated while those of the top 10 percent have steadily climbed.

And the people hogging the pie are also growing more powerful. Corporate lobbying is at an all-time high, and the Supreme Court is handing down decisions that enshrine the political influence of wealthy Americans. As a result, your ability to make your voice heard is eroding.

  • 3 graphs tell the story about the US economy, hidden amidst the noise of the jobs report (Fabius Maximus) Fabius Maximus has contributed to GEI. Jobs growth has been steady-as-she goes in this recovery (first graph), percentage of population age 15-64 employed is well below pre-recession peak and about where it last was in the early 1980s (second graph) and wage growth in this recovery is well below inflation and actually negative almost half of the time (third graph, shown below).

hourlyearnings-2010-2014

"The tapes reveal a basic cultural issue: The Fed can identify problems, but can't bring itself to make the banks fix those problems. We need congressional hearings to dig into what's gone wrong at the Fed, and we need to do it now because our whole economy is riding on the Fed's ability to supervise the biggest banks."
  • Why the Fed Is So Wimpy (Justin Fox, Harvard Business Review) Repeated from yesterday WWRT. The wimpiness is a result of regulatory capture, according to Fox. and that is why the Carmen Segarra story is so central to the problem. (See GEI News for details.) Fox says that:
for the last two decades or so, not having a substantive conflict of interest policy has been Goldman’s business model. Representing both sides in mergers, betting alongside and against clients, and exploiting its informational edge wherever possible is simply how the firm makes its money. Forcing it to sharply reduce these conflicts would be potentially devastating.
  • Analysis: Bitcoin Price Crash Below $300 - How Much Lower? (Venzen Khaosan, Crypto Coins News) Bitcoin traded at $250 Sunday, down 78% from its high in December 2013. It has recovered to about $300 since hitting the low, but some are wondering if the 37% drop just since the first of October is the front wave of a complete crash to oblivion. See also the next article.

Click for larger image.
bitcoin-1-year-2014-oct-05-600x360

bitcoin-video

  • Other Economics and Business Items of Note and Miscellanea

Videotapes of Lectures for Economics 244: Discrete Choice Methods with Simulation (NERA Economic Consulting)

Have we done enough to regulate finance? (Simon Johnson, World Economic Forum)

ObamaCare signups return with more plans but concerns about software, cost, care options (Fox News)

After hack, bank customers need to be vigilant, experts say (Boston Globe)

Fact Checker: Has ACA raised Nevada health premiums? (Reno Gazette-Journal)

Silver's slide hurting investors, but may help shoppers (Pittsburgh Post-Gazette)


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