"A Sham GDP For A Sham Economy"......

The high quality of the GDP aka "Government Domestic Product" growth is indeed "impressive".... As a GOLDBUG you gotta love this kind of "sustainable" growth.....

Solch "solides" und vor allem "nachhaltig" erkauftes GDP bzw "Government Domestic Product" Wachstum verdeutlichen eindrucksvoll warum ich starker Befürworter von GOLD bin..... ;-)

Mean Street: A Sham GDP for a Sham Economy Even Newmark

Americans rejoice! GDP grew by 3.5% in the third quarter and the recession is over.

It’s time to drink champagne, dance in the streets, and have a group hug with Nancy Pelosi and Ben Bernanke. But whatever you do, don’t ask yourself why the recession has ended. The answer might ruin the party.

The recession is over only because Washington decided it should be. With billions in fresh government spending, it was only a matter of time before GDP posted some growth.

It’s too bad all that government spending is borrowed money. Someday, we’ll actually have to pay off this year’s $1.4 trillion deficit.

Of course, all of the president’s Keynesian men will argue that everything is working to plan — the stimulus is stimulating. But it’s hard not to see today’s GDP bounce as a bit of a sham.

Just check out where the economy grew. Almost half — or 1.7% of the pickup in GDP growth came from “motor vehicle output.” That’s the summer’s $3 billion cash-for-clunkers program doing its thing.

H/T Clusterstock

But at what cost?

Edmunds.com just released some compelling analysis on cash-for-clunkers. Apparently, it cost the U.S. taxpayer about $24,000 per vehicle sold. Edmunds gets that number by dividing the $3 billion by the 125,000 additional car sales generated by the program. The methodology makes sense to me, but click here and decide for yourself.

The White House would probably contend that it’s impossible to determine incremental sales — meaning each sale that only happened because of the government $3,500 to $4,500 subsidy. And that the sale of each and every car spurs economic activity well beyond the program’s $3 billion.

But isn’t it possible that the Edmunds.com analysis is actually understating the true costs to the taxpayer? What about the interest costs on the borrowed $3 billion?

What about the cost of propping up GMAC so that it could underwrite cash-for-clunker loans?

That’s the catch with all this government intervention — lots of unforeseen consequences. And we never learn. The trillion dollar disasters with Fannie Mae and Freddie Mac haven’t stopped the government from tinkering with the housing market.

Consider another one of Washington’s smashing successes: the $8,000 credit for first-time home buyers.

For the third quarter, “real residential fixed investment” — also known as “homebuilding” — jumped 23.4%. That boosted GDP by another 0.5%. Do you feel like hugging Harry Reid now?

H/T Mark Hanson

> More Homes.......Just what the Doctor ordered...... Thank god there are only 18.8 Million Vacant Homes In Q3 ......

> Mehr Häuser.....Macht bei Ansicht der o.g. Grafik die das Verhältnis von neuen Hausverkäufen und neuen Zwangsvollstreckungen extrem viel Sinn..... Besonders wenn man bedenkt das in den USA lediglich 18.8 Million leerstehende Häuser existieren ...... Brauche nicht zu erwähnen das diese mehr als sinnvolle Förderung gerade ausgedehnt und verlängert worden ist......

But we’re not seeing the real cost of the homebuyer tax credit. This is very expensive stuff. The Calculated Risk blog figures the home-buyer credit costs the taxpayer $43,000 per incremental home sale. Goldman Sachs ran its own numbers, reckoning that each incremental home sale cost the taxpayer an astounding $80,000. Again, the methodology seems right to me, but decide for yourself.

And again, this analysis understates the program’s true costs. We don’t include the cost of all the fraud — even though we know thousands of false and improper claims are being filed.

We don’t consider the cost of propping up the FHA , which is now underwriting all of the mortgages

And we can never calculate the true economic cost of messing with home prices – though the crisis over the last three years certainly gives us a hint.

So, let’s party as we welcome GDP growth. But never forget how the party ends – a group hug with lots of tears.

UPDATE

Monument Securities' Stephen Lewis via FT Alphaville

Government purchases were surprisingly strong. Instead of falling back from what had looked an erratic 14.0% annualised rise in Q2, defence spending increased further, at an 8.4% rate.

Cheering Over Ugly Report MISH

Personal income decreased $15.5 billion (0.5 percent), while real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent last quarter. Those are horrible numbers

The savings rate is down, which no doubt has misguided economists cheering, but people spending more than they make is one of the things that got us into trouble.

The government sloshed trillions around and yet disposable income is down, jobs are horrendously weak, and the only reason GDP rose is wasteful government spending, cash-for-clunkers and extremely unaffordable housing tax credits whose effect is soon going to start diminishing even though the program was just extended.

I see plenty of chances for negative territory or at least extremely anemic growth starting in the second quarter of 2010, if indeed not the first quarter.Let's see what Christmas brings.

I am expecting far weaker numbers than most. In the meantime, let's party even if only for a day or two. Reality is likely to return soon.

Mark Zandi H/ Claculated Risk

This suggests that all the growth in Q3 was due to the stimulus package, and the impact will now wane - only 2% in Q4, and 1.5% in Q1 2010 - and then the package will be a drag on the economy in the 2nd half of 2010.

It's Alive, It's ALIVE, It's ALLLIIIIVVVE! Paul Kedrosky

Turns out coursing a few gigavolts of financial stimulus current through even an economy the size of the U.S. will still get Frankenstein off the slab, however briefly.

Inside GDP : The Figures Behind The Number ( nice chart )

Full GDP observations from Goldman Sachs ZH

David Rosenberg: GDP Head-Fake H/T Expected Returns

> Why i´m not surprised that the bubblehead from CNBC brouht up all the "Cash On The Sidelines"...... UPDATE: What a difference a day makes.... The same guys laughing at Rosenberg & spinning the cash on the sidelines, strong gdp, markets moving higher etc have reversed course and are suffering severe AMNESIA.....Click here for BUBBLEVISION at its best.....

> Passend zur euphoriuschen GDP Stimmung verwundert es nicht das der Typ von CNBC das Totschlagargument "Cash On The Sidelines" ins Spiel gebracht hat...... UPDATE: Was für ein Unterschied doch 24 Stunden machen können.... Dieselben "Gestalten" die noch gestern Rosenberg "belächelt" haben und was von Cash on the sidelines, starkes GDP, etc gefaselt haben leiden unter akutem Gedächnisverlust und haben Ihre Meinung um 180% gedreht....Hier klicken um zu erfahren warum CNBC als Bubblevision geadelt worden ist....

From the latest Rosenberg report

U.S. Q3 REAL GDP — ABSOLUTELY NOTHING TO GET EXCITED ABOUT

Never before did a gap between a 3.2% consensus GDP forecast and an actual print of 3.5% manage to elicit so much excitement in the equity market. It just goes to show how speculative the stock market has become. The question is why it is that the economy couldn’t do even better?

Historically, the auto sector adds 0.1 percentage point or 0.2 percentage point to any given GDP report. In the third quarter, courtesy of cash-for-clunkers, the sector added 1.7 percentage points to the headline figure, which is less a than 1-in-10 event in terms of probabilities.

Because of the housing and auto subsidies, the personal savings rate plunged to 3.3% in Q3 from 4.9% in Q2 — in the past quarter-century, there have been only four other times that the savings rate went down so much in one quarter.

If not for that plunge in savings, real GDP actually would have contracted fractionally last quarter. The entire GDP growth was funded by a rundown in the savings rate that occurs less than 5% of the time.

Moreover, what is normal in that first positive post-recession GDP release is a 5% annual rate of growth. That puts 3.5% in Q3 into a certain perspective, especially when you consider the massive amount of stimulus that underpinned the latest batch of data.

While it seems very flashy, 3.5% growth is far from a trend-setter. Let’s go back to Japan. Since 1990, it has enjoyed no fewer than 19 of these 3.5%-or-better GDP growth quarters.

That is almost 25% of the time, by the way.

And we know with hindsight that this was noise around the fundamental downtrend because the Japanese economy has experienced four recessions and the equity market is down more than 70% from the peak

Without "Cash for Kindles, I-Phones, trucks etc" 2010 will be very "interesting".... Thank god the "experts" still argue the stock market is discounting the obviously bright outlook for the coming years....How else would you justify one of the biggest stock market rallies of all time ( chart ) ...... Would be shocking to see the "Herd" get it wrong ......... ;-)

Ohne "Cash for I Phones, LKW´s usw. " dürfte das Jahr 2010 mehr als interessant werden.... Zum Glück schauen die Märkte ja wie uns regelmäßig erzählt wird voraus und haben die "exzellenten" Aussichten für die nächsten Jahre sicher eingepreist.... Wie anders ist einer der gewaltigsten Aktienmarktrallies aller Zeiten ( Chart ) auch sonst zu erklären.....Wäre ja auch das erste Mal das die "Herde" komplett daneben liegen würde, oder ? ;-)

Fuzzy Numbers Chris Martenson

"Enron-esque characteristics".......

China´s National Bureau Of Statistics Is Funny.....

This kind of "accounting" makes even the BLS & BEA jealous.....

Diese Zahlen können es fast mit "Berchnungsmodellen" ( denke hier besonders an den Arbeitsmarktbericht und das GDP ) der USA aufnehmen........ Allen die immer noch auf dem Trip sind das China die Lokomotive für die Erholung sein wird sollten sich nicht von den offiziellen Zahlen blenden lassen und Ihre Erwartungen merklich zurückschrauben......

China’s National Bureau of Statistics is gathered in a “scientific and realistic method,” Ma Jiantang, the agency’s director, said at a briefing in Beijing yesterday

Albert Edwards LOL China FT Alphaville

As the debate over how bad things in China are rages on, growing Sino-sceptic Albert Edwards offers his two pennies on the country’s latest statistics.

Well, to be accurate, he laughs out loud at them:

That this outturn was bang in line with the median estimate of economists surveyed by Bloomberg makes it all the more unbelievable in my mind. All other economic data worldwide have been surprising massively on the downside and China should be no exception. A few hours earlier, for example, South Korea reported Q4 GDP had declined a hefty 5.6% QoQ, massively worse than a Reuter’s consensus which looked for a contraction of 2.7%! I naively thought that this QoQ decline was already annualized, but it was not. On a US style of reporting, the South Korean economy contracted at a 20% annualised rate in Q4. Asia is in depression. Whatever the heavily manipulated Chinese GDP is telling us, that economy must now be contracting. The Yuan needs to be devalued.

So the key thing that’s fishy according to Edwards is just how bang on line the numbers were. As for Tim Geithner’s bizarre declaration on Thursday that China was manipulating its currency (presumably a call for China to allow the yuan to appreciate?) Alberts actually believes the reverse is needed. The yuan must be devalued.

And he’s got a point. As he highlights, inter-regional trade within Asia is what appears to be suffering the most (blowing all notions of “decoupling” firmly out the window). This is clearly reflected by the sharp fall in Japanese exports, which fell no less than 35 per cent year-on-year in the last quatrer according to the latest figures. As Alberts stresses (his emphasis):

…we cannot highlight strongly enough how truly mindboggling Japan’s collapse in exports to China are. Last July they were expanding at a 16% yoy pace. Now they are contracting at a 35% yoy rate! This is a phenomenon throughout the region. Hence despite the notoriously manipulated Chinese GDP data showing a shocking slowdown in GDP growth to 6.8% yoy, I would eat my hat if the Chinese economy was doing anything other than contracting right now.

So there you have it readers, if the Chinese economy proves not to be contracting Mr. Edwards will - for he has said so - eat his hat.


> Combine the economic slump with the suppression from the comminust party you have a very "explosive" mixture..... And i think the "events" in China will easily rival the protest we are already facing in parts of Europe ( see European governments face protests over economy / Reuters )

> Wenn man die Talfahrt jetzt mit der Unterdrückung der herrschenden Partei kombiniert dürfte das für eine extrem explosive "Stimmung" sorgen. Teile Europas machen gerade vor was trotz Zensur auch in China ans Licht kommen wird ( siehe European governments face protests over economy / Reuters )

Chris Martenson´s Crash Course Must See Clip!

Unmasking "creative accounting" on such unimportant subjects like CPI, unemployment, GDP etc via Chris Martenson's Crash Course. Click here to start the video. You will love it. Almost every other episode is as good as the "Fuzzy Numbers" clip. Got gold...... ?

Seit ich mit dem Bloggen im Jahr 2006 angefangen habe hat mich am meisten fasziniert wie es die USA schaffen mit zum Teil wahnwitzigen Kalkulations und Berechnungsmethoden Ihre Statistiken massiv "aufzuhübschen" und damit Ausländern die $ Anlagen schmackhaft zu machen. Betrachtet man wie die Mittelzuflüsse aus dem Ausland entwickelt haben muß man Ihnen ein riesengroßes Kompliment machen. Die PR und Spinversuche stellen die des Irakfeldzuges locker in den Schatten. Auf der anderen Seite muß man schon fragen wie man diese zum Teil halsbrecherischen Methoden die Enron & Co blaß aussehen lassen als Investor nicht durchschauen kann.... Das dabei die eigenen Bürger auf der Strecke bleiben und diese "kreative Buchführungen" furchtbare Auswirkungen haben interessiert die politische Klasse ( parteiübergreifend wohlgemerkt ) die ja bekanntermaßen nur bis zur nächsten Wahl denkt wie üblich nicht sonderlich.

Ich empfehle jedem dringend sich diesen informativen Clip zum Thema kreative Statistik der USA in Sachen Inflation, GDP, Arbeitslosigkeit usw. von Chris Martenson's anzusehen. Bin mir sicher das Ihr danach alle anderen Folgen mit Haut und Haaren verschlingen werdet. In stark abgeschwächter Form findet ähnliches sicher auch bei uns statt. Die Ausmaße die in den USA notwendig sind um dem Rest der Welt vorzugaukeln das der Boden noch nocht rausgefallen ist belegen eindrucksvoll wie desaströs die tatsächliche Lage schon seit Jahren ist. Behaltet die Aussagen vom Clip im Hinterkopf wenn trotz übler Lage demnächst wieder "überraschend" starke US Zahlen kommen. Beispiele wie diese beweisen einmal mehr warum trotz aktueller Schwäche Gold in mein Depot gehört...... :-)


Hat tip to Barry Ritholtz

I´ll Bet The BLS Will Miss This One....

I just want to remind you that i´m with Mish on Inflation ( see Inflation: What the heck is it? ). I also want to highlight a world class rant from Aaron Krowne on this topic. The Truth About Inflation .

But when you go with the "official" definition of inflation ( rising prices ) and take the history of BLS calculations or how Tim from The Mess That Greenspan Made has described it "Guantanamo-style torture of the inflation statistics by government economists" into account i doubt that they will adjust for such "complex" things like smaller box sizes .... :-).

Bekanntermaßen sehe ich die Definition von Inflation wie Mish ( siehe Inflation: What the heck is it? ). Darüberhinaus möchte ich Euch diesen wirklich gelungenen Rundumschlag von Aaron Krowne zum Thema ans Herz legen The Truth About Inflation .

Wenn man aber der offiziellen Sprachregelung ( steigende Preise ) folgt und dann die äußerst "kreative" oder wie The Mess That Greenspan Made es ausdrückt "Guantanamo-style torture of the inflation statistics by government economists" in die Betrachtung miteinbezieht habe ich starke Zweifel ob diese Preiserhöhungen "enttarnt" werden...... :-)


Thanks to Wall Street Follies

Smaller Box, Similar Price
WSJ: Many food manufacturers are retooling assembly lines to produce smaller versions of everything from cereal boxes and ice-cream cartons to mayonnaise jars, margarine tubs and cheese packages. By giving consumers less for roughly the same price, food executives hope to keep consumers from moving to cheaper brands.

Consider General Mills Inc.'s Cheerios cereal. When the American Farm Bureau Federation sent members into supermarkets to conduct its second-quarter food-price survey, the 10-ounce box of Cheerios had vanished. So the volunteer shoppers turned to the box nearest in size, 8.9 ounces.

The smaller box cost $2.98 on average, up from $2.86 charged by the stores for the bigger box a year earlier. On a per-ounce basis, the retail price of Cheerios jumped 17% to 33.5 cents in the second quarter from 28.6 cents a year earlier.

General Mills spokesman Tom Forsythe said moves by the Minneapolis company can't alone explain the big retail-price jump. It's possible that supermarkets, which set the retail price, are taking advantage of an opportunity to add some margin of their own.

David Mackay, Kellogg's chief executive officer, said in an interview last week that his company has shrunk about 10% of its U.S. breakfast-cereal boxes by an average of 2.4 ounces. With the company's input costs climbing 9% this year, Mr. Mackay said he doubts grain prices will ever drop back to where they were just a few years ago.

Pimco´s Bill Gross Must Read Piece On CPI

The following post from Bill Gross is worth reading every single sentence. While i´m with Mish on what Inflation is ( see Inflation: What the heck is it? ) it is very telling how the US is able in depressing the symptoms of inflation. But as long as foreigners are willing to destroy money in buying US treasuries and agency paper one has to congratulate the US for their excellent PR ( no sarcasm! )........ I´m staying with gold......

Ich empfehle dringend das komplette Posting von Bill Gross zu lesen. Bekanntermaßen sehe ich die Definition von Inflation wie Mish ( siehe Inflation: What the heck is it? ). Es ist schon bemerkenswert wie die USA es schaffen die Symptome der Inflation auf äußert vielfältige Weise zu manipulieren. Der Irakfeldzug ist verglichen damit ein Lacher. Solange Sie es trotzdem schaffen genügend ausländische Investoren zu finden die Gelder besonders in Staatsanleihen und Papieren von Fannie & Freddie zu versenken kann man es den USA nicht einmal übel nehmen die kreative Berechnung jenseits von Enron & Co zu heben. Man muß hier ausdrücklich das herausragende PR loben ( das meine ich ehrlich ). Ich für meinen Teil bleibe da lieber beim Gold......

Thanks to Wall Street Follies

Hmmmmm? Gross / Pimco - What this country needs is either a good 5¢ cigar or the reincarnation of an Illinois “rail-splitter” willing to tell the American people “what up” – “what really up.” We have for so long now been willing to be entertained rather than informed, that we more or less accept majority opinion, perpetually shaped by ratings obsessed media, at face value. After 12 months of an endless primary campaign barrage, for instance, most of us believe that a candidate’s preacher – Democrat or Republican – should be a significant factor in how we vote. We care more about who’s going to be eliminated from this week’s American Idol than the deteriorating quality of our healthcare system. Alternative energy discussion takes a bleacher’s seat to the latest foibles of Lindsay Lohan or Britney Spears and then we wonder why gas is four bucks a gallon. We care as much as we always have – we just care about the wrong things: entertainment, as opposed to informed choices; trivia vs. hardcore ideological debate.

It’s Sunday afternoon at the Coliseum folks, and all good fun, but the hordes are crossing the Alps and headed for modern day Rome – better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future. Lincoln didn’t say it, but might have agreed, that the worst part about being fooled is fooling yourself, and as a nation, we’ve been doing a pretty good job of that for a long time now.

I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control. I laid out the case three years ago in an Investment Outlook titled, “Haute Con Job.” I wasn’t an inflationary Paul Revere or anything, but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter. In the ensuing four years, the debate has been joined by the press and astute authors such as Kevin Phillips whose recent Bad Money is as good a summer read detailing the state of the economy and how we got here as an “informed” American could make.

Let me reacquaint you with the debate about the authenticity of U.S. inflation calculations by presenting two ten-year graphs – one showing the ups and downs of year-over-year price changes for 24 representative foreign countries, and the other, the same time period for the U.S. An observer’s immediate take is that there are glaring differences, first in terms of trend and second in the actual mean or average of the 2 calculations. These representative countries, chosen and graphed by Ed Hyman and ISI, have averaged nearly 7% inflation for the past decade, while the U.S. has measured 2.6%. The most recent 12 months produces that same 7% number for the world but a closer 4% in the U.S.

This, dear reader, looks a mite suspicious. Sure, inflation was legitimately much higher in selected hot spots such as Brazil and Vietnam in the late 90s and the U.S. productivity “miracle” may have helped reduce ours a touch compared to some of the rest, but the U.S. dollar over the same period has declined by 30% against a currency basket of its major competitors which should have had an opposite effect, everything else being equal. I ask you: does it make sense that we have a 3% – 4% lower rate of inflation than the rest of the world? Can economists really explain this with their contorted Phillips curve, output gap, multifactor productivity theorizing in an increasingly globalized “one price fits all” commodity driven global economy? I suspect not. Somebody’s been foolin’, perhaps foolin’ themselves – I don’t know. This isn’t a conspiracy blog and there are too many statisticians and analysts at the Bureau of Labor Statistics (BLS) and Treasury with rapid turnover to even think of it. I’m just concerned that some of the people are being fooled all of the time and that as an investor, an accurate measure of inflation makes a huge difference.
The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments, 2) calculations of housing costs via owners’ equivalent rent, and 3) geometric weighting/product substitution. The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world – a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.

In the 1990s the U.S. CPI was subjected to three additional changes that have not been adopted to the same degree (or at all) by other countries, each of which resulted in downward adjustments to our annual inflation rate. Product substitution and geometric weighting both presumed that more expensive goods and services would be used less and substituted with their less costly alternatives: more hamburger/less filet mignon when beef prices were rising, for example. In turn, hedonic quality adjustments accelerated in the late 1990s paving the way for huge price declines in the cost of computers and other durables. As your new model MAC or PC was going up in price by a hundred bucks or so, it was actually going down according to CPI calculations because it was twice as powerful. Hmmmmm? Bet your wallet didn’t really feel as good as the BLS did.

In 2004, I claimed that these revised methodologies were understating CPI by perhaps 1% annually and therefore overstating real GDP growth by close to the same amount. Others have actually tracked the CPI that “would have been” based on the good old fashioned way of calculation. The results are not pretty, but are undisclosed here because I cannot verify them. Still, the differences in my 10-year history of global CPI charts are startling, aren’t they? This in spite of a decade of financed-based, securitized, reflationary policies in the U.S. led by the public and private sector and a declining dollar. Hmmmmm?

In addition, Fed policy has for years focused on “core” as opposed to “headline” inflation, a concept actually initiated during the Nixon Administration to offset the sudden impact of OPEC and $12 a barrel oil prices! For a few decades the logic of inflation’s mean reversion drew a fairly tight fit between the two measures, but now in a chart shared frequently with PIMCO’s Investment Committee by Mohamed El-Erian, the divergence is beginning to raise questions as to whether “headline” will ever drop below “core” for a sufficiently long period of time to rebalance the two. Global commodity depletion and a tightening of excess labor as argued in El-Erian’s recent Secular Outlook summary suggest otherwise.

The correct measure of inflation matters in a number of areas, not the least of which are social security payments and wage bargaining adjustments. There is no doubt that an artificially low number favors government and corporations as opposed to ordinary citizens. But the number is also critical in any estimation of bond yields, stock prices, and commercial real estate cap rates. If core inflation were really 3% instead of 2%, then nominal bond yields might logically be 1% higher than they are today, because bond investors would require more compensation. And although the Gordon model for the valuation of stocks and real estate would stress “real” as opposed to nominal inflation additive yields, today’s acceptance of an artificially low CPI in the calculation of nominal bond yields in effect means that real yields – including TIPS – are 1% lower than believed. If real yields move higher to compensate, with a constant equity risk premium, then U.S. P/E ratios would move lower. A readjustment of investor mentality in the valuation of all three of these investment categories – bonds, stocks, and real estate – would mean a downward adjustment of price of maybe 5% in bonds and perhaps 10% or more in U.S. stocks and commercial real estate.

A skeptic would wonder whether the U.S. asset-based economy can afford an appropriate repricing or the BLS was ever willing to entertain serious argument on the validity of CPI changes that differed from the rest of the world during the heyday of market-based capitalism beginning in the early 1980s. It perhaps was better to be “entertained” with the notion of artificially low inflation than to be seriously “informed.” But just as many in the global economy are refusing to mimic the American-style fixation with superficialities in favor of hard work and legitimate disclosure, investors might suddenly awake to the notion that U.S. inflation should be and in fact is closer to worldwide levels than previously thought. Foreign holders of trillions of dollars of U.S. assets are increasingly becoming price makers not price takers and in this case the price may not be right. Hmmmmm?

What are the investment ramifications? With global headline inflation now at 7% there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide. In this role we would suggest: 1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS, while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose P/Es are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies are obvious choices for investment dollars.

Investment success depends on an ability to anticipate the herd, ride with it for a substantial period of time, and then begin to reorient portfolios for a changing world. Today’s world, including its inflation rate, is changing. Being fooled some of the time is no sin, but being fooled all of the time is intolerable. Join me in lobbying for change in U.S. leadership, the attitude of its citizenry, and (to the point of this Outlook) the market’s assumption of low relative U.S. inflation in comparison to our global competitors.

Bernanke Vs The CEO Of Nestle On Food Inflation

Who do you believe? I´ll go with the expert from the world largest food company and not with the spin masters from the FED who eats at the CPI cafe.

Wem würdet Ihr glauben? Ich halte mich da doch eher an den Experten des größten Nahrungsmittelkonzernes der Welt und nicht and den in einer parallelwelt lebenden FED Chef der im CPI Cafe essen geht....

Thanks to Wall Street Follies

This is taken from Herb Greenberg.

The head of Nestle doesn't see food inflation as a short-term issue, but part of "structural" changes in his world. So much for this "core inflation is in check" mumbo jumbo. Check, please.

At the same time Bernanke is living in his own "core world" and wonders why the inflation expectation are imperfectly anchored.....

Zur gleichen Zeit fabuliert Bernanke weiter über seine eigene "core" Welt und wundert sich das die Inflationserwartungen nur suboptimal verankert sind....

"Delivering a speech to the National Bureau of Economic Research, the Fed chief said "changes in energy [and food] prices should have relatively little influence on 'core' inflation, that is, inflation excluding the prices of food and energy."

Make sure you read Barry Ritholtz nice rant Un-frickin-believable

spin, spin, spin.....

bonds are up, stock futures are up, everything is bullish...... except the $......

anleihen rauf, aktien rauf, alles bullish........ bis auf den $.......

U.S. housing starts down 23% year-on-year
U.S. building permits down 26% year-on-year
but still higher than expected…....thanks to

Starts increased 0.8 percent mom to a seasonally adjusted 1.518 million annualized rate following a rate of 1.506 million in February, downwardly revised from 1.525 million.

more on the bullish news from paper money http://tinyurl.com/29r2v5
U.S. March CPI up 0.6% vs 0.7% expected
U.S. March CPI largest gain since April 2006
U.S. March core CPI up 0.1% vs. 0.2% expected (see cartoon)

Core prices were up 2.5 percent in the 12 months ended in March, the smallest year-over-year gain since May. Overall prices were up 2.8 percent from the same time last year, compared with a 2.4 percent gain in February

thanks to http://www.wallstreetfollies.com/

UPDATE:

U.S. March median CPI up 0.3%: Cleveland Fed

U.S. median CPI up 3.5% in past year, vs. 3.6%

Michael Bryan and Stephen Cecchetti (from the cleveland fed) have found a measure that forecasts inflation better than either the CPI excluding food and energy or the all-items CPI: a weighted median of the CPI. The weighted median CPI is easy to calculate and has a higher correlation with past money growth than other inflation measures, resulting in improved forecasts of future inflation.

here the link to the cleveland fed http://tinyurl.com/2mraql

and when all the vacant housing units will lead to a softer "owners' equivalent rent" (makes 40% of the basket) they don´t need to spin that much in the future to "create" a low cpi number

und wenn in naher zukunft all die leerstehenden immobilien die "oer" drücken (machen 40% des warenkorbes aus) brauchen die sich zukünftig nicht mal sonderlich anstrengen um die inflation niedrig zu rechnen

please click on the labels for more on the often "unique" us cpi/inflation calculation.

für mehr infos zu der oft eigenwilligen cpi/inflationsberechnung bitte unter den labels nachlesen.

i highly recommend the post from mish / ich empfehle zudem den nachfolgenden link

"Inflation: What the heck is it?"

http://tinyurl.com/msno7

disclosure: long gold/goldbugs

An Inflation Heat Map / business week

click on the headline to read the full piece

bitte auf die überschrift klicken um den vollen bericht zu lesen

.....A look at recent and upcoming data shows the Fed has little wiggle room as it tries to figure the balance of risk between inflation and growth ......



>remember this map when the media and wall street is spinning that consumer price inflation is no problem (even with the creative and unique fed formula....see graph..). especially with the fed minutes out today......

>behaltet diese auflistung vor augen wqenn es demnächste wieder auf cnbc und wall street heisst das inflation kein them ist ( selbst unter zuhilfenahme der kreativen fedformel....) besonders wichtig da die fed minutes heute veröffentlicht werden....

thanks to http://www.wallstreetfollies.com/

got gold....?

Fed's Inflation Analysis Ranks With Zimbabwe's: Caroline Baum

harsh words..... to the defense of bernanke and the fed one can argue that they are not alone. the liquidity is exploding around the globe. even in the eu were the ecb watches (unlike the fed) the money supply very closely the growth is close to double digits and far above the ecb taget. and it looks like the central banks have lost control over the creditexplosion that causes inflation. but that should be enough of fed defense from this writer...... :-)

i highly recommend what congressman ron paul has to say on this topic! (thanks to mish
Monetary Policy and the State of the Economy - Ron Paul http://forum.themarkettraders.com/read-m/26/1803/1814#msg-1814

ziemlich harte töne.....zur verteidigung der fed kann man anführen das die weltweit nicht allein sind. nahezu überall explodiert die geldmenge. selbst die ezb die ja im gegensatz zur fed die geldmenge als wichtig einstuft wächst diese fast zweistellig und damit deutlichst über dem gewünschten level. mehr wird man von mir in sachen fedverteidigung aber nicht hören..... :-)
empfehle den o.g. link von einem kongressabgeordneten zu diesem thema.



Feb. 20 (Bloomberg) -- Maybe it was the repetition, the iteration of the same monetary policy testimony on back-to-back days last week, that did it, that left the words grating on my consciousness.

Here was Federal Reserve Chairman Ben Bernanke, one of the outstanding monetary economists of his time, talking about inflation as if it were the result of some pesky exogenous forces.

``A waning of temporary factors that boosted inflation in recent years will probably help foster a continued edging down of core inflation,''.......

What's more, the contribution ``from rents and shelter costs should also fall back,'' he said.


There's a big difference between an inflation measure, which Bernanke was talking about, and the inflation process. Policy makers -- Bernanke, Alan Greenspan before him, the Fed governors and bank presidents -- talk about the effect oil prices or imputed rental costs have on inflation gauges, such as the consumer price index. That's not the same as the inflation process, which is always and everywhere a monetary phenomenon.

If oil prices rise because cold weather boosts demand, the relative price increase may manifest itself as a rise in the CPI in the short run. But with appropriate growth in the money stock, the demand for, and price of, something else should fall. (unfortunately the fed has "created" some methods to suppress this number (hedonic, core, substitution, oer etc......)/ zudem hat die fed in kreativer weise ganz eigene wege gefunden selbst den cpi zu drücken..... thanks to http://www.wallstreetfollies.com/ )


Cause and Effect
So when Bernanke talks about temporary ``factors'' boosting inflation, he is really talking about temporary ``effects'' of higher oil prices on the CPI. Oil prices don't cause inflation. Nor do wages, even though you'd never know it from discussions on the subject. The Fed causes inflation all by itself, creating too much money relative to the supply of goods and services.

If the inflation-as-effect posture is just a shorthand way of communicating with Congress, that's one thing. If it's the Fed's analytical framework for inflation, then we're in trouble. The tenor of the discussion of inflation in the minutes of the Fed's policy meetings, which are in line with the comments in the testimony, makes me wonder.

To his credit, Bernanke did give members of Congress a rudimentary lesson in the inflation process: not the Fed's role in it but an intermediate step along the way.....

Out-of-Everywhere
For example, anyone reading the Feb. 7 New York Times article http://tinyurl.com/2ebq5e on the ravages of Zimbabwe's hyperinflation (1,594 percent in January, and that's month-over-month) would be confused about what causes inflation. After stating that hyperinflation is ``eroding the government's control over every aspect of public life'' -- as if it were the control, not the lives, that mattered -- the Times quotes Harare economist John Robertson on the problem at hand.

The government says ``they can fix prices, but the things that cause price increases come from so many different directions that the government can't control them all,'' ...

Funny thing about those multidirectional price-increase emanations. They may come from so many different directions, but they all originate with one source: too much money.

Mute On Money
The Zimbabwe government recently outlawed inflation, arresting a number of senior executives in recent months for breaking the law: raising the price of flour and bread without the express approval of the Ministry of Industry and International Trade.

Venezuelan President Hugo Chavez adopted the same inflation- fighting tactic, threatening jail sentences and even nationaliztion if grocery store owners defy price controls.

The 1,331 word New York Times article on Zimbabwe's economy never mentions money. Rarely does the Fed refer to money -- in its public statements and apparently in its internal discussions. There are no mandated targets for the monetary aggregates, fewer aggregates (reporting on M3 was discontinued last year much to the chagrin of conspiracy theorists), no agreement on how to define money and no good way to measure it, we're told. thanks to john williams shadow stats http://www.shadowstats.com/cgi-bin/sgs


But excess money creation is the cause of inflation, and it would be better if the Fed could make the public understand that the rise in the price level is not a result of higher commodity prices, aggressive labor union demands for wage increases or greedy businessmen trying to milk the public.


It may not sell in Zimbabwe, where anyone trying to explain the roots of inflation might be arrested on the spot. But in the U.S., with inflation running at about 2.5 percent ( watch the alternative inflation number from john williams shadow stats http://www.shadowstats.com/cgi-bin/sgs, the public can handle the truth. (well maybe the fed should start to report a honest cpi number ...evtl. sollten die zumindest mal den anfang machen und ehrliche cpi nummern veröffentlichen)

enron acounting to keep inflation low

more examples of enron style acounting......./ mehr beispiele für kreative erhebungsmethoden

http://immobilienblasen.blogspot.com/search?q=statistik

hat tip to barry ritholtz! make sure you read the full story

http://bigpicture.typepad.com/comments/2006/11/ppi_hedonic_adj.html

plus http://housingdoom.com/ for the hint.

PPI Hedonic Adjustments

“Prices for light motor trucks fell 9.7 percent following a 3.5-percent gain in the preceding month. From October 2005 to October 2006, the index for light motor trucks dropped 12.4 percent…In accordance with usual practice, most new-model-year passenger cars and light motor trucks were introduced into the PPI in October. (See Report on Quality Changes for 2007 Model Vehicles, USDL 06-1973.)” Quality changes produce hedonic adjustments to prices. Ergo the large drop in vehicle prices is fiction. It’s the work of BLS bureaucrats, the Winston Smiths from “1984”.

The ‘quality’ or hedonic adjustment to light vehicles is $392.10/vehicle. The BLS reduced the actual costs of these vehicles by $392.10 ERV. For autos the BLS adjusted the real price $139.96 lower. So as we have maintained for years, PPI and especially CPI are constructed so that they can’t show actual inflationary changes or pressure." (emphasis added)