Forex Online Story: The Cat has Come Out of the Bag

Monday, April 20, 2009

The funny thing about statistics is that they can be manipulated to tell a story that is contrary to the actual truth. The fact is that for the past few weeks we have been seeing data coming out from government agencies and corporations that provide investors a glimmer of hope that the economic situation is changing. While international organizations like the IMF warn of trouble ahead, companies like General Electric, Citigroup, Goldman Sachs along with various governmental statistical divisions provide the online Forex world with “positive” numbers. I became suspicious of these numbers when Citigroup, a recipient of “bailout” money only three months ago, and only a few weeks ago considered a “zombie” (dead but living on the fat of the US government) announced a pretty healthy profit expectation. It was reinforced when they announced that sales figures in the EU shot up drastically in January.

Well, the cat has come out of the bag. Forex traders and brokers who have been watching this happen and acting on the data will be happy to know that the reason for all of this good news is the result of number manipulation. Let’s start with the sales data, which showed a 30% rise in January. The reality here is that until January, they used to report the numbers YOY or year over year, reflecting the performance of one month against the same month in the previous year. Now this number is reported month over month – meaning January sales rose 30% against one of the worst months for sales in recorded history.

Next, this past weekend I read in the Wall Street Journal that the Goldman Sachs profit increase from 4th quarter 2008 to first quarter 2009 excluded the miserable month of December that Goldman had – thus making the losses in Q4 of 2008 much less. This was allowed because in the change of status that the bank made from investment bank to “savings” bank in order to qualify for federal deposit insurance protection. Because the change was made mid-December, they were allowed to omit Decembers numbers from the report. Nothing changed other than the legal classification of the bank, but it resulted in a major change to its on-paper bottom line.

This week as the world begins to digest this, we will see some volatility and signs that things are slowing down again. The euphoria has left the building along with Elvis and reality is creeping in again. It can be seen on the unemployment lines and in the empty shelves of stores going out of business and on the foreclosure signs lining the streets of what was once thought to be prosperous neighborhoods.

Trade well – and don’t believe the hype until you know the full story.


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