Thursday Outlook: The Inflation Con Game

by: David Fry

The Fed minutes released Wednesday afternoon stated that they’re going to do what they can to stimulate growth now while leaving inflation concerns for another day. So the dye is cast.

Yesterday's release showed “official” inflation data running over 4% but of course that’s a joke. The table below courtesy of Shadow Government Statistics shows CPI calculations using today’s method, another experimental method [in the works no doubt] and the method before Clinton & Co. changed the methodology. So, based on the old method inflation is running near 8%.

The next table shows inflation measurements using methods as they stood in 1980 and by that measure inflation is running at nearly 12%!

Why do they make these changes? Use your imagination. But, certainly making things look better than they are is one reason and another is entitlement benefit [Social Security, etc.] costs would be adjusted higher under the older methods. Is this con game a scandal? It damn well should be but most are unaware of it.

After watching the opening I couldn’t think of many reasons investors would bid stocks higher. But that’s just silly ol’ me. There is cash on the sidelines as investors’ fund their 401K’s and so forth. Evidently some bought into the idea that the Fed will cut interest rates again soon [aren’t you tired of this chant?] and then will raise interest rates “quickly” once economic growth returns. One headline suggested stock investors believe the Fed doesn’t think inflation is a problem while another suggested the opposite. Rigging the data can confuse headline writers.


Anyway, stocks did rise after another 200 point intraday swing. Breadth and volume wound up being 'good'.

click to enlarge

More important really is the reaction of bonds and other sectors to both inflation data and Fed minutes.

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