Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19
Silver Price Trend Forecast 2019 - 9th Jan 19
Did Strong December Payrolls Push Gold Prices Up? - 8th Jan 19
How to Spot A Tradable Stock Market Top? - 8th Jan 19
Why 90% of Traders Lose - 8th Jan 19
Breadth is Very Strong While Stocks are Surging. What’s Next for Stocks - 8th Jan 19
Half of Investment-Grade Bonds Are Just One Step from Junk Status - 7th Jan 19
Stocks Rallied Again, Still Just an Upward Correction? - 7th Jan 19
Gold Golden Long-Term Opportunity - 7th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

The Dangers of Investing Based on Phony Government Statistics

Economics / Economic Statistics Jun 12, 2018 - 06:32 PM GMT

By: MoneyMetals

Economics

President Donald Trump recently took to Twitter to boast, “The U.S. has an increased economic value of more than 7 Trillion Dollars since the Election. May be the best economy in the history of our country. Record Jobs numbers. Nice!”

“We ran out of words to describe how good the jobs numbers are,” reported Neil Irwin of the New York Times, amplified in a Trump retweet.

If you believe the headline numbers, joblessness is at a generational low with the economy booming.


Trillions in nominal value added to the stock market since Trump’s election. GDP up over 3% in the second quarter. 223,000 jobs added in May. Unemployment at an 18-year low of 3.8%.

On the surface, this all paints a beautiful picture for the economy and stock market. But dig a little deeper, and the numbers aren’t quite as bright they appear. All that glitters is not gold.

Headline Unemployment Number Is Fake News

Donald Trump himself put his finger on one of the main flaws with the unemployment number back when he was a private citizen.

“Unemployment rate only dropped because more people are out of labor force & have stopped looking for work. Not a real recovery, phony numbers,” he posted on September 7th, 2012.

The headline unemployment number isn’t any less phony in 2018. Though it has improved under Trump’s presidency – in large part because of his pro-growth tax cuts and deregulation – the statistic is still derived from a dubious formula.

Back in 2012, Trump rightly pointed to the large numbers of workers who had dropped out of the labor force but weren’t counted among the ranks of the unemployed.

The labor force participation rate currently comes in at just 62.7%. That means 33.7% of the population is currently not employed in the labor force. The vast majority of these jobless Americans aren’t among the 3.8% officially “unemployed.”

A healthier labor force participation rate of more than 66% prevailed before the Great Recession. It’s lower today not just because more people are retired. It’s also lower because the share of Americans aged 25 to 54 who are working still hasn’t risen back up to pre-2008 levels.

Among working-age males, only about 69% are currently working – closer to a record low than a record high for this cohort.

Civilian Labor Force Participation Rate among Men

The most cited unemployment measure (U3) doesn’t include people who have been unemployed for so long they have fallen off the unemployment insurance rolls.

“Discouraged workers” who are no longer looking for employment because they believe no jobs are available aren’t counted as unemployed by the Bureau of Labor Statistics; nor are partially-employed or under-employed workers.

They aren’t employed, but they aren’t officially “unemployed,” either. They are statistically invisible.

Phony government statistics on employment, inflation, GDP, national debt, and other key measures of the economy can cause investors to pursue the wrong strategy at the wrong time. Politically skewed data can cause investors to overestimate their expected returns from conventional financial assets and underestimate downside risk.

Inflation Manipulation

Any investor who buys a stock, bond, or other financial asset has a set of expectations about the future. Whether implicitly or explicitly, an investor who accepts a 3% bond yield or a 3% earnings yield, for example, is making a bet that the economy will remain stable and inflation relatively low.

The problem is, the real-world inflation rate isn’t fully accounted for by the headline Consumer Price Index (CPI) figure.

Over the years, the government has changed the way the CPI gets calculated. In the late 1990s, the Congressional Budget Office announced the CPI would now include “geometric weighting” which has the effect of giving more weight to things that are going down in price and less weight to the things that are going up.

The government also introduced “hedonic” adjustments to the inflation statistics, supposedly to account for improvements in the quality of goods.

If a brand-new car has more technology features than a similar one built 20 years ago, then government statisticians use the improvements to offset the cost inflation of the car.

Of course, the extent to which cars are better today is debatable, especially since many of the “improvements” have been mandated by government.

The government manipulates inflation data in order to buttress GDP reports, suppress Social Security cost of living adjustments, make its bonds look more attractive, and raise more revenues.

A provision buried in last year’s GOP tax bill changes the inflation gauge used to adjust tax brackets to the “chained CPI.” The difference between chained and unchained CPI is small in any given year. But according to the Joint Committee on Taxation, this arcane provision will cost taxpayers over $30 billion through 2026. That’s because chained CPI usually comes in lower than regular CPI.

Government manipulation of the CPI results in a hidden tax that probably not one voter in 100 even knows exists. Sadly, a similarly small paucity of investors understands how phony statistics can distort market valuations.

The upshot is that when inflationary assets such as precious metals are systemically underpriced due to false economic perceptions, contrarians can pounce on the value opportunity.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2018 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules