Take the Consumer Price Index, a widely used measure of inflation. It tracks inflation in part by comparing a basket of commonly consumed goods over the years.

Governments don’t like inflation. So they simply pull a fast one on Joe Public and swap the goods in the basket as it suits them. This from TradeSystemGuru.com’s Matt Blackman:

In an effort to keep inflation down and accentuate growth, statisticians shamelessly distort and manipulate the data. For example, the Consumer Price Index measures inflation in part by comparing a basket of goods over the years. But what is not publicly understood is that each year, that basket changes. […]Here is just one example of how one of these tools, namely substitution, works. If the price of salmon goes up too much, the Bureau of Labor Statistics substitutes it for a cheaper food item like say hot dogs. The result is that from 2007 to 2008, CPI showed a 4.1% rise in the price of food. But according to the Farm Bureau, that tracks the same basket (without using substitution, weighting or hedonics), food prices actually rose 11.3%!

Employment figures are also fudged. As James Dale Davidson points out in the upcoming issue of Crisis Strategy Alert:

The official unemployment statistic picked up in today’s headlines, the Bureau of Labor Statistics’ U-3 measure, does not count everyone who is unemployed and underemployed.But that’s not the only problem with the numbers.

The government also inserts an official fudge factor – which in May amounted to 220,000 fictitious jobs. These so-called “birth/death” statistical adjustments arbitrarily add fluctuating numbers of jobs to the total measured employment. This supposedly accounts for jobs supposedly being created by new businesses that are supposedly too small and young for the government to detect. U-3 is also flawed in that it doesn’t count people ineligible for unemployment benefits. […]

To get a real picture of the current unemployment levels you need to focus on the grossly underreported U-6 data set known as “alternative measures of labor utilization.” The U-6 data set includes everyone counted in U-3, plus “all marginally attached workers” and people who aren’t working full-time but wish they were (i.e., the underemployed). (Marginally employed covers “persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.”)

When you add up U-3 and all the underutilized workers, the official U-6 rate for May 2009 is 16.4%. In other words, the employment picture is twice as bad 14 months after the recent peak as it was in December 1930, 18 months after the peak prior to the Great Depression.

As James says, “If you take care to analyze the data, it’s easy to see that there are not many green shoots growing. In fact, when you put aside the hype and look more carefully, indicators such as employment, industrial production, stock prices and international trade are all tracking their trajectories from the Great Depression… or worse.”

Taking care to analyze the data can clearly mean the difference between a good investment decision and a bad one… the difference between a stock market victim and a successful investor… the difference between a comfortable retirement and a last-minute scramble to cover a pension shortfall.

If you’re interested in discovering the truth behind the government’s lies about the economy and protecting your wealth during the current crisis, you can take a 60-day risk-free test drive of James’s research service.

You will get immediate access to past issues, weekly updates on how to profit in the downturn and the full Crisis Strategy Alert portfolio. If you decide within the first two months of the test drive that James’s investment research and crisis recommendations are not for you, it won’t cost you a dime… guaranteed. Frankly, this is a no-lose offer. Take it or leave it. It’s entirely up to you.

One thing the feds can’t fudge is the amount of tax receipts they take in. As Barron’s recently put it, “nobody pays taxes on phony, phantom jobs or earnings.”

According to Trim Tabs, the decrease in income-tax withholdings since May “indicates wage declines and job losses have accelerated.” This from Barron’s:

[I]ncome-tax withholdings in the past four weeks are down 6.1% from a year ago; in the last two weeks, they’re down an even bigger 8.1% from last year. That marks a sharp deterioration from May, when income-tax withholdings were off “only” 4.8% from a year ago. […]Meanwhile, “other” taxes were down 39.5% year-on-year, down from 33.6% in May. Corporate income taxes were down 35% from a year ago in the latest four weeks after having been down 12.3% year-on-year in May. […]

Not only do plunging tax revenues tighten the fiscal vise on the federal, state and municipal coffers, they provide unambiguous confirmation of the truly dire straits of the economy.

These numbers, of course, are at odds with the surge in the stock market, which had lifted the averages by about a third from those March lows. Now, however, equities appear to be rolling over, which could be nothing more than profit-taking to nail down wins ahead of the end of the second quarter.

But the advance also seems to be losing steam in bourses abroad as well as in commodities, which suggests much of the surge was liquidity-driven, not unlike last summer’s spike in crude oil prices to $147 a barrel. We’ll see.

Well… We have a week ahead of us that will be dominated by the U.S. data cupboard. And this week, we’ll get the June Jobs Jamboree (JJJ) on Thursday instead of Friday. Saturday is the 4th of July, and I guess the Bureau of Labor Statistics (BLS) isn’t working on Friday! HA! No, they do this every now and then when the markets will be quite thin on a Friday before a Holiday weekend. And this week qualifies BIG TIME! It will be the 4th of July! And maybe, just maybe because you never know, someone in Washington D.C. will realize that the it’s supposed to be about WE THE PEOPLE, not we the politicians…

Friday, I left you with the currencies moving higher on yield demand, I held by breath this morning when I turned on the currency screens, as I was concerned that another “demand” was going to be the headline. Because that’s how it’s been lately, eh? One day this “demand” the next day some other “demand”… But, no such new trade direction today. WHEW! I totally dislike getting whipsawed around like that, when we all know, and the traders all know, and the Hedge Fund managers all know, that in our collective heart of hearts, that in the end, the dollar will be much weaker… It’s just all this stuff that goes on between now and when the end of the trend takes place.

For instance, one of the headline stories on the Bloomie this morning is that the “Best Currency Forecaster says the Dollar to Rise Most Since 1981 by year end”… WOW! Now that’s an interesting forecast… But, it’s just that… The “forecaster”, believes that the U.S. recession will have come to an end in the U.S. this year, and U.S. growth will outpace everyone else, making the dollar the King once again… Now… I talk about going out on limbs all the time with my opinion / look ahead on things, and this is “forecast” qualifies as going out on a limb!

It’s important that I tell you about these things, because… This is market commentary, and I wouldn’t be doing it right, if I only told you stories on one side the ship… Right? Of course that’s right! Of course, you know me, I just don’t see it happening that way, and the one thing I think of when I read something like that is: rose colored glasses…

And… Speaking of the sides of the ship… Union Bank of Switzerland (UBS), the world’s 2nd biggest currency trader, has just revised THEIR CURRENCY FORECAST for year end, believing the dollar will be lower… So there you go… Two stories from both sides of the ship!

Playing well with the “forecast for a strong dollar” is a story overnight that China has once again backed off their statements calling for a replacement to the dollar as the world’s reserve currency. Of course, that’s what the “markets read”… I don’t read it that way… Let’s see what you think… “China ruled out “sudden changes” to its foreign-reserves policy”… I think it’s strictly China being China, aloof, cunning, and other things… Of COURSE they don’t want any “SUDDEN CHANGES”, they haven’t had enough time to rid themselves of hundreds of billion of dollar reserves!

Even with those two stories this morning, the dollar remains on the down side against the currencies, with the euro remaining above 1.40 through Friday, overnight Sunday, and so far this morning… The euro did get a boost this morning from a report on economic confidence, as the data moved upward to an index number of 73.3, VS the 71 that was forecast…

The European Central Bank (ECB) will meet this Thursday, and I do NOT expect them to make any moves with rates, leaving their internal rate at 1%. The most important thing will be if ECB President Trichet, has something to say that could me the markets after the rate announcement.

Sweden’s Central Bank, the Riksbank, also meets on Thursday this week. (there’s a ton of stuff going on Thursday, eh?) With internal rates at just .50%, I guess they could cut, but what would be the point?

The Swiss franc is getting caught in the middle of a war between the Swiss National Bank (SNB) and traders… The SNB has been in the markets quite a few times recently intervening (selling francs) to keep the currency from getting too strong. And traders see that as a great opportunity to test the SNB’s intestinal fortitude… I’ve always loved watching these things develop… If the traders “really” want to test the SNB, they’ll win, as the SNB doesn’t have the war chest that, say a Japan has… Unless they want to get into the “printing” business….

Besides data, and Central Bank meetings this week, it’s also the end of the quarter tomorrow… Which means the books get closed as some businesses have their year end, on June 30th. This also means that 2nd QTR earnings isn’t that far off, and I think these reports will be quite interesting, maybe taking some of the shine off the thoughts that the recession ended already!

The High Yielders have remained strong since Friday of last week, with Aussie, kiwi, Brazil, all leading the way. And there was no “new News” from the BRIC’s over the weekend… For those of you new to class, the BRIC’s are Brazil, Russia, India and China, all emerging markets that are clamoring for change and a great influence in the world’s financial matters… And why not? They have more money in reserves than you can shake a stick at, and… The have the a very large portion of the world’s population!

So, let’s go to the data cupboard and see what else will be on the docket this week data wise…

Today we have a couple of 3rd tier reports, so nothing to write home about, but tomorrow… We’ll see the April S&P Case/Shiller Home Price Index… I truly expect this data to show that Home Prices continue their downward spiral… We’ll also see The Chicago Purchasing Manager report (manufacturing), and Consumer Confidence…

When we turn the calendar page to July on Wednesday, we’ll be met by the ADP Employment report, and the ISM Manufacturing Index. There’s also Construction Spending, Pending Home Sales, and Total Vehicle Sales. Then on Thursday, which will be the “Mother of all Economic Data and Central Bank meeting days”… The June Jobs Jamboree, along with the Weekly Initial Jobless Claims… Which is going to look really stupid for the Jobs Jamboree… You see, the monthly report from the BLS is expected to print at -350K… Whereas the “WEEKLY” Initial Jobless Claims will print at over 600K for the week! I know, I know, it doesn’t add up, folks… Which is one of the things I complain about, and point out, and make fun of all the time… The BLS… Need I say more?

And then there was this… Did you know… That U.S. Treasuries posted their largest 1st half losses in 30 years? Well, that’s the facts Jack! Now… Quite a few “bond dealers” believe that the worst is over… OVER? Nothing’s over until we decide it is! Was it over when the Germans bombed Pearl Harbor? HAHAHAHAHAHAHA! (ok that’s a line from Animal House, please I know it’s incorrect, just funny!)

Seriously though… I don’t see how these “bond dealers” can say something like that, as they know all too well that the supply of Treasuries that will be issued this year will be enough to send yields higher… How can they get away with saying something like that? Oh! I know! They won’t be technically wrong, if Treasuries continue to lose value, as long as they don’t lose as much as they did in the 1st half of this year! Shame, shame, shame…

OH, and remember last week, when I told you about the President saying “not yet” instead of a resounding “no” when asked about another Stimulus? Well… The White House Senior Advisor, David Axelrod, said this weekend that the President is ready to discuss additional measures… And the President also casually mentioned that “we have not broken the back of the recession”… Is that like baiting the hook? I think so folks…

Now… On to the Big Finish for this Marvelous Monday!

Currencies today 6/29/09: A$ .8065, kiwi .6490, C$ .8685, euro 1.4065, sterling 1.6570, Swiss .9215, rand 7.8405, krone 6.4470, SEK 7.7390, forint 196.30, zloty 3.1920, koruna 18.4855, yen 95.30, sing 1.4540, HKD 7.75, INR 48.10, China 6.8335, pesos 13.1920, BRL 1.9355, dollar index 79.94, Oil $69.69, 10-year 3.50%, Silver $14.12, and Gold… $941.95

That’s it for today… As I said above, yesterday was my little buddy Alex’s birthday. We went to breakfast, as we always do… Yesterday was also my darling daughter Dawn and husband Jerry’s 6th wedding anniversary. I felt bad after sending out Friday’s Pfennig that I had not paid respect to Farrah Fawcett, who had passed away after losing her battle with cancer on Thursday. I wonder how many T-shirts were bought and worn back in the 70’s with Farrah on the T-shirt… They were everywhere! And this weekend, the info-commercial guy, Billy Mays, passed away… OK… Our little Christine returns to work today, after a brief vacation… Yay for us! And a good show for the U.S. National Soccer Team yesterday, losing the Championship game 3-2, after leading 2-0 at halftime! Gotta go… It’s a Monday, so we might as well make it Marvelous, eh?

Source: A Week Dominated By Data

There is more New Bad News (NBN) contained in November’s drop in payroll employment because, “Job losses were large and widespread across the major industry sectors in November.”

The New Bad News (NBN) to me personally is that this means that if I get fired again, then another job will be that much harder to find, especially since my job skills are apparently substandard, as I father from my current boss being sure that she can train a monkey to do my job and, as she said, “It will probably have better personal hygiene, too!”

Since experience has shown that I am not a “people person”, service industry jobs are especially difficult for me, and there always comes a time when I finally snap and I say, in a voice that gets louder and louder until I am shrieking, “I’m not going to ask if you want fries with that! You shouldn’t have any fries, because you are another big fat pig who spent all your money on fatty foods and sugared drinks instead of putting some money into gold and silver to protect yourself from the debasement of the purchasing power of the money thanks to the Federal Reserve creating so damned much money and credit to fuel doomed booms and a cancerous growth of government! And yet you want to talk to me about how you want some stupid fried potatoes, you moron? Hahahaha!”

Anyway, the report does not actually mention me by name or even wish me good luck in getting another job, but farther down in the report we find that “Total Unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers”, zoomed to 12.5%! It’s worse than I thought!

Personally, I am not sure how to interpret this exactly, but I know two things. For one, unemployment figures have never been this bad, as far as I know without doing any research of any kind; and secondly, the laughable CES Birth-Death Model figured that, perhaps by magic, 30,000 new jobs were created in November! Hahaha!

Part of the explanation could be that, as John Crudele of the NY Post explains, “Right now, the unemployment rate would be more than twice as bad if you go back to the way this figure used to be calculated” back in 1994 when “the Clinton White House decided that the unemployment rate needed to be modernized.”

And one of the things they did was decide that from now on, “anyone who had been out of work for at least a year was no longer counted as unemployed – they were just too lazy and discouraged to find work”! Hahaha!

Oddly enough, there is no statistical offset for people like me, who are the nation’s over-employed, which is to say we are chronically lazy, worthless and undependable louts who SHOULD be unemployed, but who actually have jobs!

The news media is happily parroting the official government pronouncements and those of its minions while ignoring my tragic story of love lost, and so they all join together to report that unemployment is 6.7%, while just up the street, the McKinsey Global Institute says that it estimates that the unemployment rate in the United States is actually 16.25%, and here’s John Williams at shadowstats.com putting it at 16.5%!

So it looks like a lot of people are getting fired, but on the other hand, government payrolls went up again, for the zillionth month in a row, this time by another 7,000 workers, bringing the total to a staggering 22.5 million government workers out of a total 144.2 million official jobs in the whole freaking country, which of course does not count the number of new prostitutes and professional thieves that have sprung up in response to financial devastation. So maybe the 30,000 new jobs assumed in the CES Birth-Death Model in actually pretty close! Hahaha!

Welcome to the hell of inflation!

Source: No Rest for the Unemployed

The stunner of the day was administered by the report from the Labor Department showing that the unemployment rate in May rose to 5.5%, the highest since October 2004. The 0.5% jump was the steepest in seasonally adjusted unemployment in 33½ years, and far exceeded economists’ projections for rise to just 5.1%.

Nonfarm payrolls fell by 49,000 last month. It was the fifth consecutive decline and was in line with expectations. Of course, even that negative number may be optimistic, as the Bureau of Labor Statistics net birth/death adjustment added 217,000 phantom jobs to May’s data.

Those trying desperately to spin the data, such as commentators on CNBC, argued that the huge jump in unemployment was seasonal, and due to teenagers and students entering the job market for summer work. But realists pointed out that the same thing happens every year, and that this spike was singularly big.

The implications are clear.

As Sal Guatieri, an economist at BMO Capital Markets, wrote: “The U.S. is in recession. Job losses, along with a plethora of other headwinds, should ensure that the rebate boost to spending is short-lived, and that the Fed refrains from tightening in ‘08.”

Source: Jobs Report Stuns Market

Constant readers will recall the ball got rolling with a Kevin Phillips piece in the May Harper’s, and has since been addressed in the New York Times, CNNMoney, and the Christian Science Monitor, with varying degrees of honesty and accuracy.

Now comes the San Francisco Chronicle with an extensive profile of Shadow Government Statistics impresario John Williams. With his move from New Jersey to Oakland last year, the ShadowStats phenomenon is a local story for the Chronicle. For the most part, the piece does him justice. It’s also the most serious attempt yet to get the government side of the story without completely dissing Williams as a conspiracy theorist (as NYT columnist David Leonhardt did, albeit not directly). And since it’s the power elite’s push-back against those who don’t buy the official numbers that interests us the most, it’s what we’ll address here.

The article points out that Williams has two somewhat interrelated concerns: That the changes made in the statistical measurements over the last several decades have made the numbers rosier than they really are, and that some of this has been politically motivated.

Most experts scoff at his contention that economic data are grossly inaccurate. And they say his
claim that data are tampered with for political reasons is preposterous.

“The culture of the Bureau of Labor Statistics is so strong that it’s not going to happen,” said University of Maryland Professor Katherine Abraham, who headed the agency that produces employment and inflation data during the Clinton administration.

Steve Landefeld, director of the Bureau of Economic Analysis, the Commerce Department agency that prepares quarterly GDP reports, said in an e-mail that “the bureau rigorously follows guidelines designed to ensure its work remains totally transparent and absolutely unbiased.”

Um, no one accused the people who work up the numbers of being opaque and biased. The changes in the statistical criteria that have been made over the years are there for all to see. All Williams is charging is that those criteria are invalid and over time have distorted the true picture of the economy’s health. But give credit where it’s due; some of his critics are capable of moving beyond straw-man arguments.

“All of those methodological changes were made after academic economists did decades of research and said they should be done,” said UC San Diego economist Valerie Ramey, a member of the Federal Economic Statistics Advisory Committee.

Still, even those who dismiss Williams concede he makes a few points worth considering.

Abraham rejects most of Williams’ arguments. But, she said, “There may be grains of truth in some of what he’s saying.”

Alas, the grains must be so fine that the reporter didn’t think it was worth getting into, so it’s hard to pass judgment here.

He accused the current Bush administration of taking advantage of a switch to monthly instead of
semiannual seasonal adjustment of job creation data to “bring the number in where they want it,” though he admitted he had no evidence.

Bureau officials said they were mystified by accusations that the agency falsifies data. The 2003 shift to monthly seasonal adjustment of jobs data “was recognized statistically as a better way,” said Assistant Commissioner Patricia Getz.

In any case, she noted, payroll figures are matched once a year with tax records to produce an accurate tabulation of the number of jobs in the economy.

Yes, but those once-a-year numbers aren’t what get plastered across the front pages of newspapers and screamed out on CNBC. And that’s the whole idea. Ditto for the various unemployment measurements. The government still publishes many of the gloomy ones every month, but the headline number is what gets continually tweaked and twisted. This is what sleazy government lawyers like to call “plausible deniability.”

Anyway, give the Chronicle credit for a very thorough job of calling attention to Williams’s work. We’ll put it in the plus column along with the CNNMoney piece and Kevin Phillips’s original article in Harper’s.

This battle is just getting started. The more people who become aware, the fewer people who stand to be caught by surprise from the economic super-shocks around the corner.

Source: Cooking the Books: An Update

The Bureau of Labor Statistics (BLS) gave us some crazy numbers to chew on last week. For example, it said that gasoline prices decreased 4.6 percent.

It also said that the price for vegetables dropped 4.1 percent. Beef, veal, and coffee also cost less in April, according to the BLS.

It’s impossible to believe its numbers – that overall energy dropped 0.2 percent and food prices remained the same.

We all know that this can’t be true. The funny thing is, even the BLS admits it. There it is, in black and white, in its monthly Producer Price Index (PPI) report: the index for finished consumer foods climbed 5.2 percent … the energy goods index advanced 17.5 percent … and gasoline prices rose 3.2 percent.

The total increase for the core PPI (excluding food and energy) came to 3.0 percent.

But 3.0 percent was not the number you saw in the headlines last week. The number you saw was 0.4 percent. And the market was still taken aback. It was only expecting 0.2 percent – as in the previous month.

What’s going on here is seasonality. The government builds it into its employment and inflation numbers not to confuse us (though that is arguably the result), but to smooth out the numbers.

Let’s revisit gasoline prices. Why did the BLS say it decreased 4.6 percent when it really rose 3.2 percent?

Because last April and the April before that (the BLS actually goes back five years to compare prices), it rose even faster. In other words, this is the season (as we approach the heavy driving months of summer) when gasoline prices rise rapidly – every year.

Annualizing the 3.2 percent rise in April would give us an almost 40 percent rise for the year, but that’s overestimating what happens. Into the summer, prices usually fall back. There are other months earlier and later in the year when prices fall back. So the annual price increase ends up being much less than 40 percent.

Seasonality can lower “adjusted” price increases. But it can also raise them. For example, what happens if the price of gasoline doesn’t fall beginning in June – as it has done in prior years. If the price of gas just stays the same and doesn’t go up at all, the BLS will be reporting a hefty rise on the “adjusted” price of gas in June.

And if the real price of gas goes up? Then the seasonally-adjusted price could very well cause a panic over energy prices which will make last week’s outcry seem like a whimper.

And what goes for the PPI index also goes for the CPI index. The CPI index beat expectations for the month of April, but only because of adjustments made to the numbers based on seasonality. May’s numbers should also be held down by seasonality. But when June’s numbers are reported (that would occur in July), then all hell could break loose.

Seasonality also was a huge factor in making April’s unemployment numbers look good because a lot of new jobs are usually created in the spring. So the Labor Department added tens of thousands of “new” jobs into its final job count.

One of the sectors where it had new jobs expanding? The financial sector. With all the layoffs by the big banks, do you really think this is a sector seeing strong new job growth?

Without the Labor Department adding these presumed new jobs into its bottom line, instead of reporting “only” 20,000 jobs lost for April, the figure would have been well above 100,000, and you wouldn’t be hearing the pundits remark on how well the job market has been holding up.

The truth is, employment isn’t holding up well. And prices aren’t being held down too well. Mark my words. These employment figures will also be revised upwards. It seems the Labor Department conveniently forgot that we’re on the verge of a recession (actually, I believe we’re already in one).

What seasonality giveth, it will taketh away … come June. These very important inflation and job numbers will not merely slip. They could very well drop drastically. Wall Street won’t like that. If crude prices remain well above $100 by then (as I think they will), it will be damning evidence that the Fed couldn’t, after all, finesse its way out of the twin threats of no growth and rising inflation.

This is my contrarian take. While most economists and brokerages have been predicting a 2nd-half comeback for the economy, I believe it’s going to begin a major leg down. Depression/recession, crisis, runaway inflation, a new bear market, and Fed impotence will be Wall Street’s new battle cries. It won’t be pretty.

Good Trading,

Andrew Gordon

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

Source: It Is the Season of the Bear

The process began with the publication of an article called, “Numbers Racket: The Economy is Worse than We Know” in the May issue of Harper’s, by Kevin Phillips — the former GOP strategist who took a turn to the left in recent years. It cites the work of, among others, John Williams of Shadow Government Statistics.

As we noted here last week, New York Times columnist David Leonhardt produced an especially lame column that amounted to the start of the power elite’s push-back against the Phillips piece, labeling it the stuff of “conspiracy theories.”

But it’s not working, witness an article on the CNNMoney site with the following lede: “Americans are feeling a lot more economic pain than the government’s official statistics would lead you to believe, according to a growing number of experts. They argue that figures for unemployment and inflation are being understated by the government.”

Well that’s about as unambiguous as you can get, save for the clumsy and needless passive voice in the second sentence. It’s all there — why CPI could be as high as 11%, unemployment 9%, quotes and/or citations from Phillips, John Williams, Bill Gross, and Peter Schiff. (Hey, why nobody from Agora Financial? We’ve been banging the drum for years.) If anything, the article comes off as rather unbalanced, with a lone paragraph stating, “The Bureau of Labor Statistics, which produces both the CPI and unemployment readings, says changes in both measures were made to more accurately reflect the real world. The BLS also says the changes have resulted in changes of less than 1% for each measure.” (I assume the writer means one percentage point, and not one percent.)

It’ll take a few more days to see whether this meme spreads to other media outlets, or if it peters out. Constant readers will recall I mused on the possibility months ago that Ron Paul could make it a campaign issue. He didn’t, but it might become one regardless.

Source: CNN Calls BS on BLS

Junior Mogambo Ranger (JMR) Phil S. sent me an article titled “Numbers Racket”, with the subtitle “Why the economy is worse than we know”, by Kevin Phillips, which first appeared in (I assume) Harper’s Magazine, and which I had talked about in a previous MoGu newsletter – although I forget which one, and I am not going to go find out because I can hardly stand to read that Stupid Mogambo Crap (SMC), as it is embarrassing enough to write it. I can only imagine your embarrassment in being caught reading it! Hahaha!

But this article is not about solving that old riddle, “Who is the most stupid: The Mogambo for writing his stupid crap, or the people who voluntarily read it?”, but about how I am glad JMR Phil sent it to me, because there was something in it that I had missed before, where the discussion turned to unemployment.

Mr. Phillips writes, “The series nearest to real-world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the ‘marginally attached,’ a new catchall meaning those not looking for a job but who say they want one”, and which is running at a frightening 9% unemployment.

Well, admittedly, this is not new, but the interesting part that IS new is when he writes, “Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been ‘bought off the unemployment rolls’ by government programs such as Social Security disability, whose recipients are classified as outside the labor force.”

That’s right! There are lots and lots of people who no longer have to work because the government supports them! Too bad he doesn’t give an estimate of how many these are!

But the new unemployment numbers came out, and right off the bat I see that the Civil Labor Force went up by 173,000 and the number of Employed went up by 360,000, but Non-Farm Payrolls went down by 20,000 and Goods Producing Payrolls went down by 110,000! Huh?

Of course, nobody is surprised that government employment went up by 9,000 employees to 22,385,000, which is up 224,000 over the last year.

In fact, there are now more people on Government Payrolls (22,385,000) than Goods Producing payrolls (21,618,000)! Hahaha! We are so freaking doomed! What makes it So Damned Funny (SDF) is that a conceited, self-absorbed nation like America, that boasts how smart we are, cannot possibly realize the utter, utter stupidity of this! Hahaha! And yet, here it is! Dare I repeat myself that we are freaking doomed? Sure! We’re freaking doomed! Hahaha!

Agora Financial’s 5- Minute Forecast ignores my jocular outbreak and somberly reports that “The U.S. economy shed jobs for the fourth-straight month in April” which they say is important because “in post-Great Depression history, a four-month losing streak has always preceded a recession.” Yikes!

I am always interested in things that use “always” to describe them, which I have learned the hard way, such as “People always get upset when I tell them that they are stupid because they are not buying gold, even in response to Alan Greenspan of the Federal Reserve destroying the dollar by creating so much of them, so that the damned government can spend us into bankruptcy, and then they REALLY always get upset when I say that their stupidity has doubtlessly been passed along to their ugly, mutant children, who are, on average, the most ignorant, most stupid, most self-absorbed, most violent, most criminal bunch of worthless trash ever created in America, as indicated by standardized testing and personal experience, mostly from having a few of the rug-rats myself.”

And the fact that I “always” have to defend myself against these stupid people, including my own wife and kids to show you the kind of treachery I have to put up with around here every freaking day of my life, makes me perhaps a little more sensitive to the word “always” being featured so prominently in the snippet “a four-month losing streak has always preceded a recession.”

Maybe this “recession” thing is why the Labor Department reported that the U.S. lost another 20,000 jobs in April. In fact, the economy has shed 260,000 jobs since New Year’s Day!

I admire the way that John Williams restrains himself from busting out laughing as he says in his review of the government’s Payroll Survey that the “Bureau of Labor Statistics (BLS) reported a seasonally-adjusted jobs loss of 20,000 (loss of 28,000 net of revisions) +/- 129,000 for April 2008.” Hahahaha! Plus or minus more than 600% of the estimate? Hahahaha!

I instantly see how I can use this to my advantage the next time my stupid boss calls me into her stupid little office to get “on my case” about something. Like yesterday, for example, I could have used this fascinating and powerful technique when she called me in to ask me about losing the stupid Lindsey contract, which was because old man Lindsey had a “Hillary Clinton for President” campaign bumper sticker on his car, and so I politely told him that he was “stupid, commie-rat Marxist pinko collectivist low-IQ trash”, which he apparently took some exception to, and now it’s suddenly important to know how many OTHER contracts we lost because of me merely giving people what they deserve.

My first thought, of course, was to politely say, “None of your business, you stupid old cow, so shut up!”, but I realized it WAS her business, and, even worse, six other instances of this same thing instantly ran through my mind.

Today, now that it is too late to do me any good, I realize that I could have said, “How many others? None! Give or take six, which should be good enough for you because your own Leftist trash government says it is good enough when calculating employment!”

Saving this for another day, I now turn to the Birth/Death Model, which plays such a prominent role in the government’s calculation of employment, and which showed a surprising gain of 267,000 jobs, which is the biggest increase in the last 12 months! Wow!

Before you go off shouting “The recession is over! They’re hiring again!”, the Model showed that 45,000 jobs were added in Construction, which makes me laugh my Big Fat Mogambo Butt (BFMB) off, but not laughing in merriment and joy, but a dark and scornful laugh of contempt, because this would be the most jobs created in the Construction category in the entire last freaking year, which makes me laugh even harder and with more scorn! And LOTS more contempt!

Oddly enough, 83,000 jobs were created in the April’s Birth/Death Model in the category of “Leisure and Hospitality”, which I figure is a pretty good estimate of the number of women who have recently become prostitutes because they are so desperate for money! Welcome to the hell of inflation!

Until next time,

The Mogambo Guru
for The Daily Reckoning

The Mogambo Sez: I feel sorry for those who have not converted their wealth into gold, silver and oil. Not sorry enough to give them some of mine, however. Just sorry.

And I will feel sorry for them when gold, silver and oil make me rich and them poor. Not sorry enough to give them some of mine, however. Just sorry.

I’m sure it just breaks your heart that the Gray Lady thinks so ill of you. But it is what it is: The newspaper that tried to convince you Saddam Hussein was on the verge of unleashing mushroom clouds is now trying to make the case that CPI actually overstates the cost of living.

Granted, David Leonhardt can’t really begin his column with such a flat assertion. So he adopts a sympathetic tone:

Next week, the Bureau of Labor Statistics will release its monthly report on inflation, and it sure is going to sound strange. Wall Street is expecting the bureau to announce that the Consumer Price Index rose just three-tenths of a percentage point in April. Over the last year, the index has risen only about 4 percent.

I’m guessing that doesn’t square with your sense of reality.

He invites the reader in so warmly. And he goes on to point out you’re not alone in your perceptions.

“Last month, when I did an online Q. and A. with Times readers, I got three separate, thoughtful questions about — of all things — how the inflation rate is calculated. The current cover story in Harper’s, called “Numbers Racket: Why the Economy Is Worse Than We Know,” deals with the same subject. Written by Kevin Phillips, the Nixon aide turned left-leaning commentator, it concludes that the real inflation rate “is as high as 7 or even 10 percent.”

But it’s all illusion, Leonhardt proceeds to explain. See, many prices rose moderately or even fell during the 1980s and 90s. Food was getting cheaper relative to everything else. We tend not to notice that. “Part of this comes from the notion of loss aversion,” Leonhardt avers: “Human beings dislike a loss more than they like a gain of equivalent size.” And when things actually fall in price, we tend not to notice that either — especially if the things falling in price are things we don’t buy very often. We buy food and gas more frequently than just about anything else.

All of which is true enough, and Leonhardt apparently thinks that’s all he needs to prove his case because it’s at this point he hits you with the conspiracy zinger:

The conspiracy theories about inflation play off these human instincts, but they also depend on two other oddities. The first is the amount of attention given to the so-called core inflation rate. This is a version of inflation that excludes food and energy, which makes it a little like a grade point average that excludes math and French.

The core inflation rate does have a purpose. Its movements help Federal Reserve officials base interest rates on underlying price trends, instead of being overly influenced by food or gas prices, both of which can be volatile. But when Ben S. Bernanke, the Fed chairman, talks publicly about core inflation, he can leave the impression that the government is cooking the books. In fact, all the
important economic indicators, including real wages, are based on overall inflation, as are Social Security checks and cost-of-living raises.

Leonhardt makes it sound as if Bernanke is a sort of absent-minded professor here, focusing needlessly on an obscure and useless metric whose repetition only feeds the tinfoil-hat crowd. But in fact, the ceaseless harping on “core inflation” is a critical part of the whole scam: Fedheads believe they can create as much money and credit as they damn well please and face relatively limited consequences as long as “inflation expectations” stay under control. If people actually start to think prices are rising at a significant clip, well, then the Fed has a problem.

So much for Leonhardt’s first “oddity.” Here’s the other.

The final piece of the puzzle — and the focus of the Harper’s article — is the way that the Bureau of Labor Statistics has changed the price index recently. Back in the mid-1990s, a committee of academic economists concluded that the Consumer Price Index overstated inflation. To take just one example, years would often pass before the index included new products — like cellphones — and therefore it missed the enormous price declines that occurred shortly after those products entered the mainstream.

In response, the bureau tweaked the index. But economists who have studied the changes say they have had only a modest effect on the inflation rate, lowering it by perhaps a half point a year. More to the point, the changes seem to have made the index more accurate than it used to be.

Having already dismissed the idea that CPI understates the cost of living, Leonhardt feels no obligation to actually, you know, address any of the issues raised by the Kevin Phillips piece in Harper’s — which draws in part on the work of the fearless John Williams of Shadow Government Statistics and deals in fact with decades of statistical shenanigans, not just the Boskin Commission flim-flams of the 90s. Nothing about hedonics, nothing about substitution, nothing about geometric weighting.

Consider Leonhardt’s column an early warning. It’s not just the voice of the power elite assuring the plebes that all is well and they can go back to watching American Idol. It is also the beginning of an establishment push-back against Phillips, Williams, the DR, and everyone else who dares to call BS on government economic figures. It is heartening that this initial foray is so categorically, irretrievably lame.

U.S. consumer prices rose 4% year over year, pushing the high end of a 15-year range. And you can bet the reality is worse than what the government data will confess.

The U.K. also reported a 6.2% year-over-year gain in its headline PPI. I mention it because the pound has been stronger than the greenback in recent years — but the inflation story is not just about the dollar. The buildup of inflation pressures overseas will soon be evident — when the foreign currency bubble pops.

You’re seeing a price revolution unfold before your very eyes. Media reports of truckers and consumers angry over escalating fuel prices are becoming more frequent and intense, as are the reports of riots over soaring food prices in some corners of the world. Cost inflation continues to ravage mining project economics, hampering the industry’s ability to increase production in response to higher prices.

The ultimate cause of both price inflation and the business (boom-bust) cycle lies in the constant manipulation of money supply and interest rate levels by central banks and their governments.

The economic data, meanwhile, continue to point to recession.

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Instead of letting the market correct the dislocation — heaven forbid — central bankers, under pressure from the electorate, are but fanning the flames with price pressures already at two-decade highs.

Working off the same defunct Phillips Curve dynamic (the consumptionist theory of a trade-off between inflation and unemployment) that formed the monetary policy playbook of the ‘70s, the Federal Reserve is hoping a weak economy will weigh down prices. Yet even using this theory, one can see that if the Fed is successful at averting recession, what will keep prices down?

There is no end in sight for this vicious cycle but hyperinflation if the policy continues.

But more relevant to the present, the idea that slower economic growth might relieve price pressures that are concomitantly fueled by monetary policy is limited by global factors that many have alluded to over the past year or two — a worldwide slowdown in the growth of the real pool of savings, a switch from mercantilism to consumption policies in developing countries and slower productivity growth.

As one economist recently put it (emphasize mine):

“Past bouts of expansion have created bubbles in the financial sector, plus other sectors such as housing and state-dominated sectors like medicine and education. But a high dollar internationally, the growth of the international division of labor as well as technological advance kept the prices of consumer goods down, even falling. All these effects have been absorbed already, and the falling dollar relative to other international currencies has meant a higher price on imports. Lower productivity contributes, as well, as does the general recessionary environment. So the downward price pressure on consumer goods is at an end.”  

So a contraction in production just makes the situation worse.

Tell it to the Fed. Or just buy gold.

Your golden bull,
Ed Bugos

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