The Market Ticker

Claims that headline inflation were only up 0.2% are, once again, "seasonal adjustment".

Without it, the CPI headline number was up 0.6%, or ~7.2% annualized.

Let me guess - your gas prices were only up 2% on the year this month, right? Yeah, ok. Same with food, electricity, etc.

"Seasonal adjustment" eh? Yeah, right. Gasoline prices down, as they reported?

I think The Government should be required to sell any product or service they "measure" in the CPI at the price delta they have claimed. Under that rule we'd all be paying about $3/gallon for gasoline instead of $4!

C'mon. The FedSpeak was all about inflation yesterday, then we get this?

So was that all posturing, do we instead believe the import prices-paid (and prices-charged for exports) that we got yesterday, or do we believe this sort of "report"?

Well, we'll see, but the initial Futures reaction is that the market "cheered" tamer than expected numbers, with a roughly 8 point move on the data release.

Here's the problem with "Ministry of Truth" nonsense like this - it destroys your credibility, and once that's gone, you have nothing. The "data" you release from that point forward no longer is used for planning purposes in business (if your business survives attempting to use this data!); it becomes simply a speculative tool that futures traders bet around and then as soon as the bets are either won or lost, they cash their chips and move on.

This is extremely damaging to the broader economy, because in fact the economy is not the stock market.

The real economy is the buying and selling of goods and services, and in the end must respond to the real marketplace, not obviously-cooked numbers.

The usual criticism is that the CPI-U doesn't track what people actually buy. Well, I think we can toss that complaint and replace it with this one - they're simply not reporting actual price changes any more, on purpose.

Please raise your hand if you saw a decrease in gasoline prices during the month of April.

Wait a second - the CPI information release claims that gas prices fell, but the EIA - the government's own energy administration - reported that gas prices rose by 9.5% in April, from $3.29 to $3.60! That's a one month change, not an annualized one!

Which of these two claims on gas prices is closer to what you have personally experienced?

25% of the average American's budget is spent on food and energy. Anyone here think that food has come down in price over the last month? I just went to the grocery store last night and I saw no prices that had declined over the previous 30 days; all were either even or higher, in some cases significantly higher. While I don't track "item by item" I do track my grocery spending (via Quicken) on a monthly and annual basis and my food bill has risen by close to 20% in the last year.

Over the last five years it has literally doubled.

Gas is simple - its up 30% over the last year and of course that's a clean double in recent memory too, as we all remember $2 gas, right? It wasn't that long ago.

Electricity and natural gas are higher as well; electrical prices on a per-kW basis are up 10% in 18 months here, or an annualized rate of about 6-1/2%.

For natural gas prices you only need to look at the spot quote - its higher. A lot higher, and in fact its still doing a rocketshot.

We had two interesting reactions - the dollar got hit on the release but the TNX also tanked, which is interesting. Why? The "common explanation" is that the market "un-priced" rate increases later this summer and fall, but I don't buy that one.

One has to wonder - is the "Ministry of Truth" emperor perhaps losing his clothes? We shall see...... but talk out of Britain was more morose on the price inflation front.

Is the rest of the world more inclined to be honest about economic conditions, including prices, than the United States? I thought we were supposed to be the "paragon of virtue" when it came to open and honest capital markets? Hmmmm....

Now let's talk about the impact of this report, as there are two possibilities:

• Its accurate. If that's the case, then the double-digit increase in import (materials) prices is being "eaten" by companies. By the way, ex-petroleum that was 7%, and solidly double digits with them. If that's the case, then you have a major profit margin squeeze, as this comes off the topline, which means that if you have a 10% pretax margin you now have a loss instead!
• Its not accurate, and "cooked", perhaps so that COLA adjustments on Social Security checks don't have to reflect reality. In that case those on fixed incomes get squeezed and can't spend, which means 70% of our economy takes a hit. Worse, wages that are indexed to CPI (union jobs, mostly) don't see increases, but prices really rise, which also squeezes consumption.

Either way its "welcome to falling margins", which spells multiple compression.

I figure it will take the market a quarter or two to figure this out, but it will, and when it does things get real interesting in the capital markets.

Now let's talk about what Bernanke says he really thinks about - that's "inflation expectations."

That is, he is utterly dependant on your belief in the government statistics.

Let me tell you what you should believe, in my opinion:

• The government is lying through "black box" horsecrap adjustments. The "mathematical models" are simply wrong, and the government refuses to correct the errors.
• These "errors" inure to the benefit of the people who would otherwise have to pay a real rate of return to you. This is why they're not fixing the broken models.
• You can believe what they spew, or you can believe your experience. Your choice.

If you believe your experience then it is my considered opinion that you better turn up the heat for wage inflation (for you!) lest you find yourself with a major standard of living problem right down the road.

So yes, I am advocating for you to do your part to "unhinge" inflation expectations.

Not because I really want to see a punishing spiral like we had in the 1970s, but because without one I see no way that you're ever going to succeed in forcing the government to tell the truth, and thus, address the issues.

Bernanke and his pals at the BLS will lie, cheat and steal every penny you let them have, and until you show up in your Boss' office and demand a 15% wage increase every year or you're going to walk, this crap will continue and your standard of living will continue to come under attack.

Your boss already knows he's paying that 15% increase, and he's counting on you being stupid enough to eat it.

Your choice.