Have you noticed that what you pay at the pump or the check-out counter seems to have little correlation with government inflation figures? Does it seem that prices for daily necessities are going up at a rate far greater than 4%/year? Well, the following will attempt to explain why your experience is far different than what the government is telling us.

Over the past 20 plus years, the government has made several “adjustments” to the primary measurement of inflation known as the Consumer Price Index (CPI). In this article, I will explain what those adjustments are and why they have resulted in the significant understatement of the CPI.

If I were a lawyer (which I’m not) and if I were prosecuting the government, the first steps I would need to take is to establish that the government and more specifically the Bureau of Labor Statistics (BLS) has both the means and motive to manipulate inflation statistics. Read the rest of this entry »

By proceeding, I acknowledge that I have read and understood the Disclaimer, Performance Reporting Disclosure and Copyright Statements .

Dear Clients,
The following is my Performance Update and Outlook for May. All prices and returns are as of 05/29/08.

Just as the smoke has cleared from Act I of the credit crunch, everyone is now up in arms about inflation. While the threat of inflation is real and growing, unfortunately, the credit crunch has not played itself out. In fact, the curtain maybe just going up on Act II which I’ll discuss in Part IIIb of this update.

I’ve started to find myself in pretty good company as more and more investing legends are coming around to the probability of Stagflation. On May 20th, Yahoo Finance wrote the following regarding Warren Buffet’s and George Soros’ views on the economy, inflation and the credit crunch.

Soros was particularly concerned about inflation, which is front and center today as crude prices surge toward $130 and core PPI was higher than expected…While the less dramatic than the uber-skeptical Soros, Buffett was certainly direct in his assessment that the credit crunch is not over, contrary to popular belief on Wall Street. “I don’t think the effects of the credit crunch are far from over at all,” Buffett said during a presentation in Europe, according to wire reports. “I think there will be rippling, tertiary effects.”

Bill Gross, CIO of PIMCO Funds and manager of the world’s largest bond fund, is the latest guru to throw himself into the inflation camp which I find odd since he was a proponent of lower rates last year which would have resulted in more inflation. He says in his June Investment Outlook, “…we’ve been foolin’ ourselves [believing] that inflation is under control.” (when he says “ourselves” he is making a general reference to US citizens – not to himself.)

Of course, the continuing inflation in our economy is not surprising as it is a necessary evil. Our government must continue with its inflationary policy to finance trade and budget deficits. They are seeking to repay our debt to foreigners with a discounted currency. Its not an ideal situation but it is likely better than the alternative. Until the US becomes more fiscally responsible with individuals becoming net-savers, industry becoming net producers and government maintaining balanced budgets, inflation is imperative.

Here is how my performance measured up to the averages for the first five months of 2008: