How the US Government Manipulates Inflation Data
by Phil - February 1st, 2011 6:11 am
The PCE bothered me yesterday.
The Government told us that the PCE core price index for December was 0% – no inflation at all. I found that to be incredible – as in not credible at all and then Tuscadog asked me how long the Bernank could keep justifying his rampant money printing with fake government data, to which I responded: "I had many derogatory things to say about that but I was literally so sickened by that BS that I couldn’t bring myself to comment on it so I just left it alone but it’s a very sad joke that our government can tell us that there was no inflation in December while the whole planet is falling apart, isn’t it?"
Fortunately, there was a helpful article in the WSJ by Brett Arends that pointed out that the way the government justifies their low inflation figures is through "substitution and hedonics," a topic expert Government BS detector, Barry Ritholtz had touched on as well. As Barry says:
Hedonics asks the question: "How much of a product’s price increase is a function of "inflation," and how much is quality improvement?" Thus, the entire late 1990′s concept of Hedonics is premised upon a flawed assumption: that quality is static. Hedonics is a variation of the old trick of comparing the present with the past, instead of the present. Measuring quality improvements is a distraction from the real measure of inflation: the purchasing power of a dollar.
Hedonics opens the door to producing magical results: a lower inflation rate with generally rising prices, a higher growth rate although the economy may be weaker, and a higher productivity number, although productivity would have been declining without the hedonic imputations.
What BS, right? Well, when I get mad, I do research and when my research uncovers something – I make an electronic puppet show:
Forward this to your friends and Congresspeople – lets try to get our government to get real!
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by ilene - January 30th, 2011 8:23 am
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Food Inflation Comes To America: General Mills, Kraft And Kellogg Hike Prices On Selected Food Products
by ilene - January 20th, 2011 8:20 pm
Courtesy of Tyler Durden at Zero Hedge
After denying for months that surging food prices will eventually come to the consumer, hoping that instead food companies could absorb the margin drop, sellside research is finally capitulating to the reality of what is really happening in the retail store. In a note discussing General Mills, Goldman Sachs says the company raised prices on snack bars some 7% last week. Goldman further clarifies that "this reportedly followed a comparable increase taken by K on its snack bars in mid-December. In addition, KFT has reportedly announced a 6% increase on select Planters branded nut products. We expect more price increases to be announced by the food companies in the coming weeks." Maybe, but the Chairman sure doesn’t. And the Chairman is always 100% correct.
Other observations from Goldman on what are now seen as inevitable price increases across numerous food verticals.
These pricing actions support our Food sector view that price momentum will continue to build as 2011 progresses, driven by easing promotional spending and list price increases (see our 1/5 report, Time to embrace inflation; Upgrade Food to Neutral, GIS to buy). This should drive top-line acceleration and margin stabilization over the course of 2011. Evidence of the progression is already apparent in retail scanner data (see our 1/11 report, Progression to a ‘less bad’ promo environment continues). Scanner data is likely to continue to show a measured pace of price growth. That said, we acknowledge that the growth is likely to build gradually as the pass-through of list price hikes to retail shelves lags and the reduction of promotional spend takes time to execute.
As a reminder, in December, the food component of the CPI increased by 0.1%, the lowest amount since July…
And just to complete the circus, Goldman now views price pass throughs as a good thing. See: it resolves the margin issue. Uh, yeah. But someone should explain to Goldman that when calculating revenue, one multiples Price (P) by Volume (V). And in a stagflationary economy, and increase in P results in a more than commensurate decline in V, offsetting all margin boosts.
GIS (Buy) remains our top Food pick and snack bar price hikes reinforce our conviction. To our knowledge, Mills has now executed price increases in categories that account for roughly half of its US retail portfolio (and we think there may
…
Bill Fleckenstein: The Race To the Bottom Will Be Won By the Dollar
by ilene - January 20th, 2011 5:12 pm
Courtesy of Chris Martenson
"This printing money is going to lead to huge trouble. It’s going to lead to higher interest rates. It’s going to lead to more inflation, and at some point there is going to be a train wreck in the currency and the bond market."
Market commentator and money manager Bill Fleckenstein sat down for a recent interview with ChrisMartenson.com and excoriated the Fed and the monetary policy it’s pursuing. He and Chris discuss the factors that enabled Bill to be one of the first to accurately identify and warn of the housing and credit bubbles – and how history is now repeating itself via the profligate printing of US dollars. The interview covers a wide range of topics meaningful to the investor trying to make sense of where things are headed from here – including central banking culture, bubble psychology, high-frequency trading, inflation/deflation, and the true relative value of the dollar vs the Euro.
Click the play button below to listen to Chris’ interview with Bill Fleckenstein:
In this podcast, Bill sheds light on why:
- The culture of the Fed reinforces a belief in its infallibility. This blinds it to the fact that its interventions cause market players to adopt irrational behavior leading to misallocations of capital that eventually need to be corrected by the system (e.g., busts).
- Correlation between asset classes is the highest it’s been in 60 years. This is a result of the Fed flooding the market with liquidity. It makes it very hard for investors to be anything besides speculators.
- The SEC has been asleep at the switch for the past 15 years, leaving the system vulnerable to exploitation – of which HFT programs are just the latest example.
- A funding crisis looks inevitable: At some point the bond market or the currency market will revolt, resulting in a weak dollar and increasing bond rates – despite whatever the Fed wants.
- It’s perverse for the US to be rewarded for using a printing press indiscriminately without making any fiscal changes, while Europe is painfully adopting austerity and getting penalized.
In Part 2: Outlook for 2011 (for enrolled ChrisMartenson.com members - click here to enroll), Bill gets specific about what he predicts will happen in the bond and currency markets, as well as his specific outlook for 2011.
Philly Fed’s Plosser Goes Off the Reservation, Admits Monetary Policy is Impotent
by ilene - January 18th, 2011 10:34 pm
Courtesy of Jr. Deputy Accountant
That’s not omnipotent, that’s impotent as in the f**kers are shooting blanks and don’t even know it. Well Chuck Plosser knows it but if he keeps this up they’re going to drag him off and sequester him in the bunker they reserve for bad central bankers who can’t keep their mouths shut.
See The Scope and Responsibilities of Monetary Policy from Santiago, Chile yesterday:
Most economists now understand that in the long run, monetary policy determines only the level of prices and not the unemployment rate or other real variables.2 In this sense, it is monetary policy that has ultimate responsibility for the purchasing power of a nation’s fiat currency. Employment depends on many other more important factors, such as demographics, productivity, tax policy, and labor laws. Nevertheless, monetary policy can sometimes temporarily stimulate real economic activity in the short run, albeit with considerable uncertainty as to the timing and magnitude, what economists call the “long and variable lag.” Any boost to the real economy from stimulative monetary policy will eventually fade away as prices rise and the purchasing power of money erodes in response to the policy. Even the temporary benefit can be mitigated, or completely negated, if inflation expectations rise in reaction to the monetary accommodation.
Nonetheless, the notion persists that activist monetary policy can help stabilize the macroeconomy against a wide array of shocks, such as a sharp rise in the price of oil or a sharp drop in the price of housing. In my view, monetary policy’s ability to neutralize the real economic consequences of such shocks is actually quite limited. Successfully implementing such an economic stabilization policy requires predicting the state of the economy more than a year in advance and anticipating the nature, timing, and likely impact of future shocks. The truth is that economists simply do not possess the knowledge to make such forecasts with the degree of precision that would be needed to offset the economic shocks. Attempts to stabilize the economy will, more likely than not, end up providing stimulus when none is needed, or vice versa. It also risks distorting price signals and thus resource allocations, adding to instability. So asking monetary policy to do what it cannot do with aggressive attempts at stabilization can actually increase economic instability rather than reduce it.
I know you’re dying to know what footnote 2 is.…
Food Riots 2011
by ilene - January 18th, 2011 3:51 pm
Courtesy of Michael Snyder at Economic Collapse
The stunningly violent food riots in Tunisia and Algeria show just how quickly things can change. Just a few months ago, these two northern Africa nations were considered to be very stable, very peaceful and without any major problems. But now protesters are openly squaring off with police in the streets. Many of the protesters are throwing "fire bombs" or are shooting fireworks at the authorities, and the police are responding with a tremendous amount of violence themselves. In Algeria, several protesters have been killed by police and several others have actually set themselves on fire to protest the economic conditions. In Tunisia, more than 100 people have been killed and the president of that country actually had to flee for his life. But on a global scale, food shortages have not even gotten that bad yet. Yes, food prices are starting to go up and food supplies are a little bit tighter right now, but much worse times than these are coming. So what in the world are the cities of the world going to look like when we have a very serious food shortage?
Just as we saw during the food riots of 2008, when people get to the point where they can’t even feed themselves anymore, they tend to lose it. In the video posted below, you can really feel the desperation of these young Algerians as they riot in the streets….
This next video is of the food riots in Tunisia. You will not want to let any young children watch this video. In fact, if watching police beat and smash protesters laying on the ground upsets you, then you might not want to watch this video either. The massive food riots that have erupted in Tunisia have left many city streets looking like war zones and at this point it is being reported that the violence has left over 100 people dead. The president of Tunisia has left the country because of the rioting, and an interim president has been sworn in. It is hoped that this will help restore order. This video is absolutely stunning….
You see, the truth is that it is not just in the United States that people are becoming angry at government. All over the world, frustration is boiling over. But unlike the United States, where food
…
Could the U.S. Dollar Rise 50%?
by ilene - January 13th, 2011 3:33 am
Courtesy of Charles Hugh Smith, Of Two Minds
Conventional wisdom is that the Fed wants the U.S. dollar lower, so it must drop. But the dollar seems to be lacking proper obedience to the Fed’s grand commands.
Before you shout that all fiat currencies go to zero, let’s stipulate that the U.S. dollar has already proceeded 95% of the way to zero. According to the handy BLS inflation calculator, the 2010 dollar is roughly worth 4.5 cents of the 1913 dollar. Put another way, it now takes $22.10 to buy what $1 purchased in 1913.
(Interesting that the BLS inflation calculator only goes back to the birth of the Federal Reserve….)
So a 50% rise in the dollar would register as a mere blip on a 100-year chart. I mention this to put a 50% rise in perspective. It will seem like a large move in the present, but on a longer timeline it wouldn’t be that big a deal.
How could the dollar rise when the Treasury and Fed are moving Heaven and Earth to drive it down? Let’s turn to the Fed Flow of Funds for some perspective: what happened from 2007 (pre-recession) to the present?
Household Real Estate Assets: $22.7 trillion to $16.5 trillion: -$6.2 trillion
Corporate Equities: $9.6 trillion to $7.8 trillion: -$1.8 trillion
Mortgage debt: $10.53 trillion to $10.12 trillion: -$ .41 trillion
Household/non-profit Net Worth: $64.2 trillion to $54.9 trillion: -$9.3 trillion
And this is after a tremendous run-up in both bonds and stocks since early 2009. Add in whatever estimates of commercial real estate losses you reckon are semi-accurate and other impaired enterprise assets currently valued at "historical cost," i.e. marked to fantasy, and you get a number well north of $12 trillion even at conservative estimates.
The Fed has fought off this mass devaluation of assets by expanding its balance sheet by $2 trillion. First it sought to stem the collapse of the housing market by buying $1.2 trillion in impaired mortgage backed securities (taking garbage off the banks’ balance sheets) and now it is trying to suppress interest rates by buying $1 trillion in Treasury bonds (recall that QE1 already loaded the boat with T-Bills, so QE2 is simply adding another $600 billion to an already heavy cargo.)
In both cases the Fed’s campaigns are mere rear-guard actions: housing continues to slip, and the tides of higher yields and rates have started rising despite the Fed’s…
Fed Releases New POMO Schedule, To Monetize $112 Billion In Bonds And Prop Up Stocks On 18 Out Of 19 Trading Days
by ilene - January 12th, 2011 3:13 pm
Courtesy of Tyler Durden
The New York Fed’s equity crash prevention team of Sack-Frost has just released its most recent POMO schedule. Over the next month, ending on February 9, the Fed will purchase about $112 billion in debt in 18 discrete operations. And for the first time unlike the prior two QE2 monthly schedules, there is not one dual POMO day. From the release: "Across all operations in the schedule listed below, the Desk plans to purchase approximately $112 billion. This represents $80 billion in purchases of the announced $600 billion purchase program and $32 billion in purchases associated with principal payments from agency debt and agency MBS expected to be received between mid-January and mid-February." The days when there is no POMO will be Monday, January 17 and Wednesday, January 26. All other days have a POMO operation scheduled.
Wildlife Wednesday – The Portu-Goose!
by Phil - January 12th, 2011 8:27 am
"Portugal will not request financial aid for the simple reason that it’s not necessary" – Socrates
Of course, that was Jose Socrates, Portugal’s Prime Minister, not Σωκρτης the great Philospoher, who was more famous for saying "False words are not only evil in themselves, but they infect the soul with evil" as well as "True knowledge exists in knowing that you know nothing." More apropos for this morning is the more famous Scocrates’ more famous observation that "True wisdom comes to each of us when we realize how little we understand about life, ourselves, and the world around us."
The investors jacking up the markets at 6am this morning understand very little about the relevance of Portugal’s sale of $1.62Bn in bonds. While the auction was a "success" with longer bonds going off at 6.7% that’s WITH intervention by China and Japan on an auction amount that either one of them could have tipped the cab driver on the ride over from the airport and not missed it. This is like going to your rich uncle for a used car loan because the bank wants 12% and your uncle says "sure I will help you out but you will owe me big time and I will make my brother’s life miserable because I have to give his kid money and I’ll never let him forget it" and then he hands you a contract to pay him back at 11.5%.
Actually, Portugal didn’t even get that much of a "family discount," The last bond auction of 2010 went off at 6.8% and the fear was that the rates would go over 7% but let’s not do cartwheels over 6.7%. Oh, sorry, too late, the markets are already doing cartwheels with a 0.5% gain in the futures and just look how excited the Hang Seng was after lunch, gaining 200 points in a virtual straight line and almost doubling the day’s optimistic opening. The Shanghai was just as exciting, falling from 2,828 down almost 1.5% to 2,788 but then flying back to 2,821 to book a 0.6% gain on the day and giving Mainland China’s Main Market this exciting profile:
So it’s no surprise Uncle China doesn’t want Portugal falling apart but Portugal doesn’t just need a car – They are also having trouble paying the rent and the phone bill and the…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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