Government Lies (and Statistics)

The government is lying to us. I know this isn’t exactly news, because they lie to us all the time. But in this case, I’m talking about inflation. According to the most recent “official” government announcement by the Bureau of Labor Statistics on September 14, “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in August on a seasonally adjusted basis. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment. The seasonally adjusted increase in the all items index was the largest since June 2009. About 80 percent of the increase was accounted for by the gasoline index, which rose 9.0 percent and was the major factor in the energy index rising sharply in August after declining in each of the four previous months.”

In effect, what they’re telling us is that, according to their barometer, inflation is running at only 1.7% over the past twelve months, and it’s only that high because of rising gas prices. In prior months it had been below 1% annualized. This “low inflation” is just one of the many factors used by the Federal Reserve to justify QE2 and QE Forever (aka QE3). The problem is that the government keeps changing the way they calculate CPI to suit their needs, which means they will use any tools at their disposal to show the lowest possible level of inflation. Anybody who lives in the real world knows that true inflation is rampant today, and is putting a death grip on ordinary citizens struggling to make ends meet.

Consider how much more expensive it is today to buy groceries, or fill up your tank, or go to the movies, or buy a pair of jeans, or send your child to college. I could go on and on. The government is insulting our intelligence every time they tell us there is little to no inflation. Where do they live? Who’s paying for their health care, or their cable bill or for the cost of a ticket to a concert or ballgame? When is the last time they went out to dinner and paid for a steak with their own money?

The cold hard reality is that the average American is earning less and less while everything we consume costs more and more. You’ll never hear that in any of the government pronouncements. Keep that in mind next time you read or hear a report telling us that we’ve conquered inflation. Don’t believe it; the government is lying.

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I’m Mad As Hell

Last night I took my girlfriend and my kids to see Bruce Springsteen and the E Street Band play at Met Life Stadium in New Jersey. It was an amazing three and three-quarter hours of music. As a singer, songwriter and live artist, Bruce is simply without peer in the annals of rock and roll history.

As I was there with my family, singing at the top of my lungs, I marveled at Bruce’s talent and energy, and at his unsparing, and often painful, take on life in America. He has always been the champion of the working man, the 99%, or the 47% that Mitt Romney so casually dismissed recently.

That got me thinking about the direction of this country, economically and politically. Let me state upfront that I’m a fiscally conservative Democrat with some Libertarian leanings. Unfortunately, I don’t think any of our elected officials really represents my interests any longer (if they really ever did), and that leaves me very sad, frustrated and angry. It seems as though the national good, our collective interest, has been abdicated by the extremists, special interests and partisan political hacks. Goodwill and compromise for the greater good has been replaced by nastiness and divisiveness in the callous hopes of “stealing” a few votes from the fringes. It’s disgusting, and I’m fed up with it.

Do you wonder, as I do, what could be done if these Super PACs were banned, and the untold millions of dollars being spent by billionaires to elect their puppet, I mean candidate, were diverted to paying down the national debt, or building a road or a school, or maybe curing cancer? What if there were a real debate on taxes and entitlements rather than simply partisan rhetoric about soaking the rich or trickle down economics? What if there was an honest discussion of OUR view of this country and it’s future, rather than being bombarded by vitriol-soaked ads cranked out by some caffeine-fueled media geeks? I could go on, but you get the point.

I’m mad as hell and ready for a change. And I don’t mean Obama or Romney. I mean a real change. And I’m afraid that only a serious crisis will precipitate that change. I’d rather we make some of these changes of our own volition, but I’m afraid the kind of change I envision will ultimately be thrust upon us, whether we’re ready for it or not. And it won’t be pretty.

More on Gold

For those of you new to my writings you may be unaware that I’ve been bullish on investing in gold since 2001 when the price was only about $270/oz. In fact, on my first appearance on the Fox News channel in December 2002 (you can view the clip, and all my appearances in the WAM in the Media section of my website: www.waminvest.com), one of my recommendations was Newmont Mining, then trading for $29.34. Today, it’s $57.10 and has been paying dividends for years. For more than a decade I’ve been recommending that my readers buy gold. I starting buying silver about four years ago. I’ve put my money, and that of my clients, where my mouth is as I own a number of gold mining stocks (including Newmont which I’ve never sold), mutual funds and ETFs. In fact, I’d say my clients have had a 10% allocation to gold and silver for years. So I’m no newcomer to this sector play. 

Thanks to the actions of the Federal Reserve I’m more convinced than ever that the prices of gold and silver will continue to rise. It’s reasonable to think that sometime next year the price of gold will surpass $2,000 and silver will be north of $50 as our government, and by extension the Fed, lead us down a torturous path of monetary ruin. Yes, all the quantitative easing policies have helped to prop up the stock market. But while that’s temporarily pleasing, those same policies are likely just inflating the next big bubble that will invariably pop, causing even greater harm than the weak economy they’re purported to stimulate.

Beware the free lunch. Everything that goes up must invariably come down. The same holds true for economic cycles. Busts always follow booms. Recessions clear out the weak and the dying businesses, just like a fire clears out the dead brush in a forest. As long as we (and by that I mean the Fed and our government) plead for useless Federal intervention rather than accept the pain that is normal in any down economic cycle, the future consequences are likely more dire. I’m keeping my gold.

QE3

About 30 minutes ago Fed Chairman Ben Bernanke, as expected, announced another round of quantitative easing (QE3) in a futile attempt to stimulate our moribund economy. This is simply throwing good money ($40 billion per month) after bad. In addition to the aforementioned bond buying program he guaranteed that rates will remain exceptionally low until at least 2015. While this is great for borrowers, it is punitive for the elderly and those living on fixed incomes. Worse, it will likely have little or no affect on the economy in the short run and will undoubtedly add to the growing fiscal crisis that we’re facing. The government, and by extention the Fed, should cease in it’s fruitless efforts to contravene market forces and allow the economy and the stock market to ebb and flow according to their normal market cycles. While the stock market liked the move today, which is good for me and my clients, especially those of us holding gold, I worry about the long term consequences.

Who’s Managing Your Investments?

So who’s managing your investments? Are you trying to do it yourself, after work and putting the kids to bed, but before Letterman? Are you relying on Cramer or Suzy Orman, or one of the popular magazines for your tips and advice? Are you concerned that the complexity of the investment world and the myriad available choices is becoming too daunting for you to navigate alone?

Maybe your money is with Merrill Lynch, Morgan Stanley or one of the other traditional broker-dealers. By the way, did you know that Merrill Lynch recently imposed a minimum asset level of $250,000, below which they don’t even want you as a client? Many of the other big brokerage houses have similar, or higher, minimums. Is that who you want managing your hard-earned money?

Are you aware that a stockbroker does not have a fiduciary duty to place the interests of their clients above their own interests? In lieu of this high standard, stockbrokers must simply adhere to a “suitability” obligation, which is defined as making recommendations that are consistent with what they define to be in the best interests of the customer. Unfortunately, their interests, and the those of the firm that employs them, can often conflict with your individual needs because their first duty is to their employer; you come second. In contrast, a Registered Investment Advisor (RIA) typically adheres to a fiduciary standard whereby the needs and interests of the client legally comes first. This is a very important and powerful distinction.

Given the more stringent guidelines imposed on investment fiduciaries, there is little question that the fiduciary standard provides better protection for individual investors. So when you’re thinking about who’s currently managing your investments, or who you may want to manage them in the future, keep that in mind. If you have any questions, give me a call at 914-481-5888 or email me at greg@waminvest.com.