Politics & Investing

Re: ETed: "faith based economics"

pining4Lenore — Tue, 03 Jun 2008 22:16:11 GMT

Guv: First, its good to have a "heart to heart" on this.

1. Weightings: I would assert that, excepting housing costs, food and energy represent the biggest expenditures for most households. As you point out, most households do not put out the dough for a piece of electronics every month, but fuel (for vehicles and home heating/cooling) IS purchased every month. So those SHOULD be weighted heavily. Lets put some numbers to this: If 30% of a typical/median household's expenditures are on food+fuel, then that should be weighted 30% in the CPI, no?

2. "Core" vs "headline" CPI: (headline excludes the 'volatile' food and energy categ). To me, its helpful to use "core" numbers when looking at something from one month to the next. Why? They may be a huge spike in these one month, which reverses itself in a month or so. So you want to "screen out the noise". But, when looking at a year or more of data, or even several months, strung together, "core" inflation is pointless -- if food and energy prices are engaged in a SUSTAINED SURGE, then its inflationary. Period.

3. Housing: Guv, note: in the US, house prices are NOT included in the CPI. That is by govt design. Renter's equivalency is used. (If I recall, this is the cost someone pays to rent a house). By rights, housing is the biggest outlay for most families. May be 50% or more of expenditures for some who bought a house in the past few years. But say its only 35%, for argement's sake -- housing prices have what, doubled during 02-05... that is inflation. But it was hidden, because housing prices are not in the CPI. And even renter's equivalency, if I recall, may be underweighted vs. % of typical household budget goes to pay for the roof over one's head.

4. Did that newsletter you mention discuss hedonic adjustments? (affectively, the govt imputes negative price action on products where the quality has increased -- then adds that imputed negative inflation rate into the calculation for overall CPI). If a company did this kind of crap with their books, the officers and directors would be in a federal penitentiary.

CPI is a scam.

Re: ETed: "faith based economics"

Governor — Tue, 03 Jun 2008 20:31:18 GMT

Pining, I listened to a good conference call by Bill Gross the other day talking about this very thing and how you should invest in PIMCO bonds because of it. He makes some good points.

However, i got a white paper from a small investment manager here in town that disputes his claim. This manager states that the CPI is very accurate in aggregate and that it only looks understated because the current inflationary trends are concentrated on food and energy, two things that everyone pays attention to on a daily basis.

However, the CPI includes over 80,000 items, many of which are not shopped for over the course of the year or even every few years. For example, LCD televisions and computers, both of which have seen significant deflation over the past 4 years.

Also included are housing prices. Now, even here in Colorado, the price of housing has plummeted which would help drag down the CPI.

Thus, it says that while people go to the grocery store, on average, on a weekly basis and see the prices of food and gas go up (significantly on some items), they dont realize how much other items have gone down, mainly electronics and housing because they dont shop for these items very often.

I don't know if its true or not, but i found it interesting.

Re: ETed: "faith based economics"

pining4Lenore — Mon, 02 Jun 2008 20:55:16 GMT

Bill Gross agrees with me:

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+June+2008.htm

And if inflation IS higher than the official govt stats, then the real, inflation-adjusted economy has been shrinking for at least 2 quarters, and stagnant for much of the past several years...

Anyone who cares to use their senses that inflatin AIN'T under control Which means GDP "growth" is a lie they are telling us.

Who is the "faith based" ideologue...?

Re: The Recession that we are in..

Governor — Wed, 21 May 2008 16:44:51 GMT

Hank,

I think we are talking about different service sectors. For example, a doctor or lawyer are considered service employees. I think, perhaps, you are talking about low-skill hourly employees like those that work at Wal-Mart or the grocery store.

Yes, these low-skilled employees are being hurt right now as they normally do in an economic downturn. Its especially hard since inflation is so high.

From Wikipedia:
A service is the non-material equivalent of a good. A service provision is an economic activity that does not result in ownership, and this is what differentiates it from providing physical goods. It is claimed to be a process that creates benefits by facilitating either a change in customers, a change in their physical possessions, or a change in their intangible assets.

By supplying some level of skill, ingenuity,and experience, providers of a service participate in an economy without the restrictions of carrying stock (inventory) or the need to concern themselves with bulky raw materials. On the other hand, their investment in expertise does require marketing and upgrading in the face of competition which has equally few physical restrictions.

Re: The Recession that we are in..

Hank — Wed, 21 May 2008 15:57:15 GMT

Governor,

The average hourly wage in April might have been $17.29 per hour but that could be misleading if the top 20% of hourly workers are makin $80.00 per hour. I do know the majority of the service industry pays bottom line wages. I still think Governor you are spending way to much time with statistics. I think you need to get out and talk to the people to get a good perspective of our lack of growth for the ordinary citizen.

Re: The Recession that we are in..

Governor — Wed, 21 May 2008 13:46:37 GMT

The average hourly wage in april was $17.29 which is more than double the minimum wage. Second, the amount a person makes per hour is not indicative of a mature economy or not. The standard definition was a birth rate that is at or less than the death rate. However, many economists now look at the real per capita growth of the citizens and the mix of service vs. mfg. vs. govt industries. When the govt and mfg. sectors are high, it is said that the economy has yet to mature and shed the jobs that require less education attainment.

Re: The Recession that we are in..

Hank — Wed, 21 May 2008 03:07:40 GMT

Governor,

If you look at the service sector to see the condition of the economy all you see is a majority of part time workers and full time workers working for minimum or slightly above minumum wages. That would tell me we got a lot of workers having a hard time making a living. That is not what I would call a mature economy.

Re: The Recession that we are in..

Governor — Wed, 21 May 2008 02:02:59 GMT

Industrial parks are not an indication of economic health since they are an outdated form of capitalism. Manufacturing has been in decline since the 1960's because they are the precursor to a mature economy. Look at the service sector if you want to see the condition of the economy.

Re: The Recession that we are in..

Hank — Wed, 21 May 2008 01:56:52 GMT

Mwleach,

Here is a case in point. About two years ago our top US Scientist on Global Warming was fired because he believed his reports were altered /manipulated without his consent. He believed global warming was getting more serious than the government wanted to admit. I hope you take a drive around some industrial parks. It is an eye awakener.

Re: The Recession that we are in..

mwleach — Wed, 21 May 2008 01:07:38 GMT

Hank:

I would not be surprised if some government statistics are inaccurate (I have been very skeptical of the inflation numbers in particular). Howefver, I am very leary about any charges of "manipulation". Consider this; The DOL, chock full of government employees, would be delighted if they could figure out a way to give yet another bloody nose to the Bush administration. Considering the problems we have with the disloyalty in the State Department and the admininstative functionaries in the CIA, do you really think the folks at DOL could be pushed into putting out MORE favorable statistics than we were actually experiencing?

As for your "gut feelings" - what area do you live in? Local conditions may be affecting your opinion of economic conditions. In the area I am in, I know quite a few small business owners, I look at employment and business conditions, and our area is still pretty good.

Do we have some economic problems in the US as a whole? Sure. But this is NOTHING like the 70's, much less (IMO) the '30's.

MWL

Re: The Recession that we are in..

Hank — Wed, 21 May 2008 00:50:31 GMT

Hey Pining4,

I am sure glad you think the same way as I do. The majority of the good folks do not seem to have a clue why we are in a massive recession. I keep telling people if you base your thinking on government economic statistics and watching Fox News or CNBC you are going to get a "feel good report". I think you need hit the pavements and talk to working Americans and small business owners. You will get a whole different perspective on our economy. Here is why I believe we are in a recession. The demise of the Dollar, Record number of house forclosures, slumping housing market, record US trade deficits, health care premiums increasing at a 15 to 20% yearly increases, record fuel costs, employee pay increases at less than 3% with inflation built in for most American workers, record number of small businesses closing their doors. almost 50% of Americans have no health care policies. I can go on and on. Folks try driving through your local industrial parks. Look at the number of manufacturing plants that are for sale. Look at the parking lots of mfg. plants. 8 out of ten are only half full. While you are driving arount look at the new business construction going. They are either big box stores or gigantic warehouses. I am not trying to be a pessimist. I am a realist. Some of you are going to say there a plenty of companies that are having record earnings. During "The Great Depression" there were also a number of companies that great earnings. The problem is the majority of our companies and employees in the work force are bleeding. That is a fact. On the other hand, Government statistics can be manipulated. That's my story.

Re: The Recession that we are in..

Governor — Tue, 20 May 2008 20:13:03 GMT

"just because you like Pres doesn't mean it is scrupulous by telling the American people the truth." Well, it is all i (and the rest of us) have.

However, there is a big difference between a faulty methodology in computing something and purposely reporting incorrect numbers for the purpose of misleading the general public (which you contend).

The CPI is computed with over 80,000 inputs. It is the most accurate calculation of the general prices in the economy. The price of food and gas have skyrocketed in the past few years. These are two things that everyone uses and uses everyday, thus it appears to us more often. So, you become under the impression that the price appreciation of goods is more prevalent than it really is. Also, prices change differently in different places. Maybe where you are in Ohio, prices have risen faster than here in Colorado.

All this stuff has been calculated the same way since the mid-90's when the US changed from reporting the GNP (now NNI) to GDP. I dont think there is any manipulation by the govt apart, like you said, from faulty methodology. If there was, wouldnt they have underreported today? And last month? And the month before? (all above analyst estimates).

Re: The Recession that we are in..

Santa Cruz — Tue, 20 May 2008 20:12:32 GMT

"CPI is phony"

MMM...

NO, it is what it is.

I have my own inflation index "the 3 B index"

Beer, Bead and Beef index.

The BEER and BREAD are already UP!!!

BUT Beef is rising

Re: The Recession that we are in..

pining4Lenore — Tue, 20 May 2008 20:00:07 GMT

Gov: "..But just because you dont like the president, doesnt confirm your dreams of his administration faking all economic news. "

-------------

Guv, right back at you -- just becasue you like Pres doesn't mean it is scrupulous by telling the American people the truth. As to the CPI, GDP (and other govt stats, including unemployment) being manipulated, I don't say Bush started this. He simply took the crap methodologies in place from legacy administrations, and "ran with it". Well, MAYBE that is all he did.

As to recession or not, as I have laid out for you before, if CPI is UNDER-stating inflation, then GDP growth is OVER-stated. That is just how the math works out. And if inflation is UNDERSTATED, by say, 1% (easily the case, IMO) then GDP was negative in Q1.

Re: The Recession that we are in..

Governor — Tue, 20 May 2008 19:43:22 GMT

Who said there was no inflation? I did not. I wrote this two posts ago."Second, inflation being high, which it is, doesnt mean we are in a recession. "

The govt certainly did not. In fact, just today, your govt (which is apparently telling you something different) came out with wholesale inflation that rose 0.4% in April, twice what was expected. Now, that is significantly less than March's 1.1% number, but historically speaking, is very high.

The reality is, prices are rising because of oil costs and food input costs. However, it is being coupled with a broader economic slowdown which is helping (not much) to slow the rate of inflation as consumers spend less.

Yes, the prices of many things are going up. But just because you dont like the president, doesnt confirm your dreams of his administration faking all economic news.