Tuesday Outlook: Déjà vu All Over Again

In our weekend commentary I wrote about how things were in the second half of the 1970s and Monday seemed similar. Investors made money in two areas back then: natural resources and tech.

The cast of players has changed these days and there are a few jokers in the deck—activist central banks cutting interest rates and priming the pump, Wall Street trading desks speculating with liquidity injections rather than lending it, many fast trading hedge funds, mutual funds, SWFs and newfound stars in emerging markets.

The chart below courtesy of Shadow Government Statistics shows the CPI from late 1979 through today. The blue line represents the CPI calculated using the methodology from the previous era while the red line shows how changing the index construction achieved a misleadingly low level of inflation. These changes occurred in early 1980 and again around 1993 and were designed to achieve two things: make things seem better than they actually were and save the government money on entitlement payments.

Have you bought into these phony numbers? Or do you, like most Americans, intuitively feel that inflation is at nearly 12%?

click to enlarge


Yesterday I visited with Van Eck in NYC. They are leaders in providing some key natural resource ETFs including: MOO, GDX, SLX and so forth. They launch a solar ETF Tuesday. Natural resources and gold in particular have been a specialty of Van Eck products over the years. With another month left in the trip and many more firms to visit I’ll be able to summarize all our findings then.

In the meantime, investors seem more obsessed about making money today while ignoring the steady stream of crummy news, primarily from financials. It’s as if they’re hardened to more losses as routine. It’s like they’ve forgotten former Senator Dirksen’s famous line: “A billion here, a billion there, and pretty soon you're talking real money". With inflation [which of course doesn’t exist] we could alter the senator’s line to: “Ten billion here and twenty billion there, and pretty soon you’re talking a trillion!”

Monday’s action featured more write-downs initially and then bulls came storming back to reclaim dominion over a slow tape.

Volume was once again very low while negative breadth was more revealing than headline index levels.



















































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Comments

[AAI:]

I always like the Shadow Govt Stats stuff. Looking at the dark blue line, the obvious question is: When is 1980 coming again? That of course would be a major sell signal for commodities and TIPS. If economies buckle a more under the ongoing credit crunch, and if Emerging Markets really do care about taming inflation (a big If), the answer could be, "Soon!"

2008 Apr 22 05:55 AM

[Becky:]

I love your charts and commentary! Thank you!

2008 Apr 22 08:53 AM

[adan:]

always look for your stuff

the charts w/comments, as i'm beginning to learn what they might mean :-) , are really interesting

thanks!

2008 Apr 22 02:26 PM

[indagreen:]

Always enjoy your commentary David; wish there were more like you but this way you are special.

Having worked in big business for over 30 years, I have to add that there is another piece to the puzzle. Lower infation benefits big business by supressing wages -- workers don't demand as much when CPI "data" is low. This is another one of those
government / big business schemes that is a win/win for them and the rest of us suffer a reduced standard of living.

Control the message .. set expectations .. control the masses!

2008 Apr 22 05:06 PM

[David Fry:]

Thanks everyone!

2008 Apr 22 07:31 PM

[Nate C:]

Thanks David for the UNG chart. Greatly appreciated.

2008 Apr 22 10:46 PM

[*.*:]

Lively and funny, thanks. But.....I need ideas....what to buy now in government-denied inflationary environment when commodities have already run up.....?

2008 Apr 28 10:24 PM