ever have the chance to travel through Moscow, we would recommend experiencing the local “Metro” subway system.
The local trains aren’t much different than the
ones in New York or Chicago,
but the various underground stations are fascinating.
Many of the larger downtown stations are known
for their sculptures and mosaics which were built
during Soviet times. The sculptures are, more
or less, a showcase for communist propaganda depicting
the so-called “glory” of the proletariat.
live in America,
the subway systems are not really a good place
to visit if you are looking for propaganda. Instead,
we would suggest tuning your television to any
financial news network. If you are not the “television”
type, just log onto any major news website for
the printed version. Finally, if you want to
hear it from the horse’s mouth, check out the
Bureau of Labor Statistics website for the latest
believe us? Then please tell us why every economic
statistic or earnings announcement is cast in
a positive light. If a company’s earnings drop,
the news may still be good because the actual
number is “ahead of Wall Street’s estimates”.
Even if the results are below Wall Street’s expectations,
the media will come up with an adjusted “pro forma”
earnings number. If the earnings cannot be adjusted
positively, then perhaps the results aren’t newsworthy.
On the economic front, the story is the same.
If national employment numbers suffer, then that
means we are more productive as a society requiring
less manpower. If oil prices increase, that is
good because Exxon and Chevron are members of
the S&P500. If the trade deficit balloons,
it means that foreigners are excited about investing
their capital in U.S. securities markets.
If inflation increases, it means pricing power
is here and that is good for corporate earnings.
If inflation decreases, well, that’s great for
consumers who will have more purchasing power.
Likewise, low inflation means low interest rates,
which will continue to fuel America’s epic housing boom.
of inflation, we haven’t even gotten started talking
about how the calculation itself is so hedonistically
flawed. The Consumer Price Index, which is what
the Bureau of Labor Statistics uses to measure
inflation, is a joke. It reminds us of old Soviet
economic broadcasts of thriving wheat production
when, in reality, their people were starving.
Speaking of starvation, did you know that many
government entitlements are tied to the CPI number?
And if the government can keep this number low,
well, you know what that means. Why do you think
a “solution” to social security lies in indexing
benefits to inflation rather than wages? It is
because the government knows they can always understate
inflation. During the Clinton years, the government decided to “adjust”
how inflation was calculated. According to Gillespie
Research, this adjustment may be around 3%. So
while CPI today may be reported around 3%, it
would be 6% if they just calculated the rate the
same as before. Real rates all the way out the
yield curve (including the 30-year) are negative.
How is that for hopeless and shameless attempts
by the Fed to keep an overheated U.S. economy running on the fumes from mountains
of personal debt!
job front, we often complain about the monthly
employment statistics given out by the BLS. Large
tweaks to the so-called CES Net Birth/Death model
have also had the effect of making payrolls look
far stronger than they should. Year-to-date
in 2005 some 463,000 jobs have magically appeared
thanks to this government estimate. One
should also be aware that the government has done
a masterful job of hacking away at the employable
base so as to keep the denominator in the unemployment
rate high - this has the effect of keeping the
headline unemployment rate artificially low.
of Volcker, Buffett, Templeton, and a few other
wise observers, most people in the country seem
willing to believe the impossible. Each government
talking head and Wall Street economist battles
to be this era’s President of the Flat Earth Society.
Bogus CPI, high oil prices, runaway trade deficit,
inflated jobs data, and negative real rates should
combine for a nasty economic slowdown - though
few are willing to cut through the propaganda
to see that the writing is on the wall.
Todd Stein & Steven McIntyre
Texas Hedge Report
Todd Stein & Steven McIntyre are internationally
known analysts and editors of The Texas Hedge
Report, a market newsletter that highlights under
and overvalued securities in the equity, bond,
currency, and commodity markets
For more information, go to http://www.texashedge.com