In the last month, the economic news releases have been better than expected. Manufacturing numbers and property sales for the US have turned positive surprising the public. Investors and government decision makers ask themselves whether this trend will continue; little do they realize that these numbers are spurious. They depend on the point of reference; are they computed month-to-month, or relative to a year ago? The outcome depends on the starting point; if in the previous year the numbers were bad, then it is easy to report a positive performance now. The practice of reporting one number, such as the growth compared to a year ago, is misleading. Economic numbers should be made public in the appropriate context, ideally as part of a comprehensive weather map for the economy and its financial markets.
To reduce economic uncertainty, we need a global information system that aggregates on a continuous basis, the economic time series from all around the world. By putting the time series into their appropriate context and displaying them graphically it is possible to provide more concise and easy to interpret information than is the case today. The weather maps in meteorology are a template for such a service where simple pictures convey a lot of information. We have to learn how to come up with something similar for the economic and financial markets.
The global information system with the online updates of the macroeconomic data will replace the discrete news releases that today shake the markets where; for example, the Non Farm Payroll numbers can move the market by 2 and more percent. The discreteness of the news releases creates volatility because market participants in anticipation of the release close out their positions and as soon as the release hits the market, they try to jump on the bandwagon of the price move. With online updates, there is a gradual absorption of information without the market disruptions of today’s news releases.
Author: Richard B. Olsen, Founder and CEO of Olsen Ltd
Precisely why my entire financial universe is contained in the trading platform. Solves the problem of discrete and discontinuous data and interest for the individual. Continuous price signals generate continuous wealth. Kind of like saving souls, it’s done one sinner at a time. Saving the world is another matter entirely!