September 16, 2006 –
People continually employ flawed and deceptive statistics when making their investment decisions. In the short term, the performance of the U.S. stock market has enormous influence on all other major stock markets. One of the most closely watched indexes to gauge U.S. economic conditions is the Consumer Price Index (CPI), which is viewed as a measure of core inflation in the U.S. economy. However, the CPI excludes food and energy prices because the government claims, these sectors have a history of being extremely volatile so they feel that their inclusion would skew real inflation rates. This is the dumbest, most deceptive piece of junk that I’ve ever heard. Skew them? No, their inclusion would just tell you what real inflation is.
When crude oil remains above $60 a barrel for months on end, and citizens necessarily have to spend USD $50-80 a week on gas alone, this affects the amount of money they can save. When higher oil prices cause higher transportation prices and thus higher food prices, then every citizen necessarily spends more money on food and again, is able to save less money.
To me, the CPI represent true inflation rates for all citizens that don’t have to eat and don’t use heat and don’t drive a car, but it certainly doesn’t represent true inflation or anything close to it. As I mentioned in a previous blog, inflation simply put is the loss of purchasing power. Higher energy and food prices cause a significant loss of purchasing power so to not include the increased prices in these sectors in the major quoted index for core inflation is just flat out deceptive. When energy prices are high, the CPI inflation index can understate true inflation by 100% to 200%.
What is even dumber than even the use of this index is how the thundering sheep herd reacts to this fantasy inflation number when it is reported by the U.S. government. The U.S. Federal Reserve’s unstated goal is to keep inflation rate at 3% a year or less. It is ironic that many times, the exclusion of energy prices and food prices from the core inflation index allows them to “accomplish” this. When inflation, as reported by the CPI, is stated as “under control” the thundering sheep herd rejoices, plunges money into stocks, and amazingly, often European and Asian markets follow, also rising on this news in the short term.
This behavior absolutely astounds me. If the next month, the U.S. government decided to be honest about the core rates of inflation and adjusted the CPI to include energy and food prices while not telling anyone of the adjustments to the CPI components, the reported inflation rate next month may skyrocket from 2.9% to 5.8%, although nothing in the U.S. economy has changed except for how the government decided to report inflation. If this statistic was reported, no doubt, U.S. markets would plunge that day, and European and Asian markets would follow. All because of the fact that a stated reported number has drastically changed, when in reality, nothing has truly changed in the U.S. economy.
I just don’t get this. If somebody out there does, please let me know.
I get it J.S., so I’ll let you know. Though a lot of people are really intelligent, more are just plain dumb. There’s no polite way to put this. I read your e-book and I agree with your point on the global educational system. Institutional education has transformed people into unthinking, mindless robots that are incapable of forming a single original thought. They incorporate what they read, someone else’s spoon-fed beliefs, as their own and have not a single belief that they founded as their own. Think about this. How many times have you spoken to someone that has an adamant, indisputable conviction about something when they have no direct experience with their stated belief? I’m sure too many to count.
For example, people will believe Muslims are a certain way without ever having spoken to a single Muslim in their entire life for more than ten minutes. Or they believe they are an authority on Asian culture because they eat in Chinatown every week. Or they believe they know all about war but have never carried a single weapon into a combat zone. Or could tell you that the solution to inner-city crime is to lock everyone up but yet has never stepped foot in a poor neighborhood and spoken with the residents who live there. Yet this happens all the time. And where do these people get their furious convictions from? From a book. From a newspaper. From a magazine. From the radio. Or from a talking head on TV. Every single possible source but direct experience with reality. In other words, somebody told them to believe something and without having the integrity to discover if there is any validity in a statement, they internalize it as infallible truth. People have grown so lazy today that they want someone else to even do their thinking. Ridiculous.
In martial arts training, we begin every session with a period of meditation, the purpose being to empty your mind of all stresses, all worries, all the weight of conflicts that might have happened that day. One must empty his or her mind so that it becomes an empty vessel, receptive to all the concepts that will be taught that day, so the day’s teachings will not be clouded by the chaotic mentality that may have been accumulated earlier in the day. Investors would be well served to do the same. Investment meditation you might call it. An empty mind is more apt to be able to learn and to question every belief when it is unaccompanied by direct experience.
Maholo, KAEHO
