Governments have always lied, and since Machiavelli they’ve been able to excuse it as necessary, but only the most naïve observer could fail to notice the logarithmic increase in governmental lying over the past few decades. From “read my lips, no new taxes” to “I did not have sex with that woman” to “Saddam has weapons of mass destruction” to “you’ll be able to keep your doctor” to “masks will keep you safe,” lying today is just another word for talking when it comes to government.
That’s a horrible state of affairs in itself, causing untold misery and suffering, but what’s perhaps even worse is the degree to which government lying is accepted by citizens. In the spotlight this week is the latest Consumer Price Index (CPI) print, which is so obviously a lie that, had Pinocchio told it, his nose would have skewered the moon. Yet markets swallowed the lie, hook, line, and sinker.
The false storyline goes that the pitifully small CPI undershoot from what was expected (by 0.1%) indicates that inflation has been tamed, the Fed no longer needs to raise rates, massive money printing will resume, happy days are here again, and those who invest the soonest will enjoy the greatest appreciation. That narrative produced a northbound bull in the market, but the storyline itself is from the south end of said bull.
The supporting math for the CPI print asserts, for instance, a 34% decrease in medical insurance premiums. David suggests that readers don a pair of Wellies to negotiate that southbound effluent, such is its depth and sheer nastiness. But what is painfully obvious to any thoughtful observer was lost on virtually all markets. They rallied vigorously, assuming the worst is finally over.
Now, investing is neither the simplest nor most intuitive of human activities. One would think that it takes a high level of ability and intelligence to earn the money necessary to invest and effectively purchase assets that will grow or perhaps even multiply in value. And then an event happens such as happened this week. If you had any faith in human nature, well, this is Exhibit A for the prosecution.
But not everyone has been taken in. The University of Michigan regularly surveys consumers to determine the mood in the nation at large, and that mood is bad and getting worse. Consumers expect inflation to continue rising, contrary to the conclusions of the investing crowd. (And of course there are also our clients, who often find us precisely because they do not run with the investing crowd.)
These are fascinating developments, and they impact your world every day. You might miss them given the many things that command your attention, but they are front and center for the analysts at MFG. You can read more about them at the links below, this week and every week.
Key Takeaways:
- If you want to succeed in investing, don’t follow the crowd
- A bad week to short markets
The McAlvany Weekly Commentary: David and Kevin discuss the importance of investing in scarce items of value instead of overproduced things, the astounding level of mendacity that has taken over government statistics, the eagerness of markets to accept obviously jiggered government numbers, and much more. If you’ve ever wondered what the movies The Matrix or The Truman Show have to do with reality, or how reality might be described by information theory, be sure to listen to or read the transcript of the program.
Credit Bubble Bulletin: Quoting George Steer from the Financial Times, Doug notes that, “Hedge funds betting on a decline in US and European stock markets have suffered an estimated $43bn of losses in a sharp rally over recent days.” But “stocks are only part of the story. Powerful squeezes have engulfed bonds, currencies, and the Credit default swap (CDS) marketplace.” In short (no pun intended), it was a bad week for skeptics. Short sellers who bet that the bruised and battered bull stuck in the economic swamp had succumbed to the bear were hoisted on the horns of contrary indication.
Hard Asset Insights: Morgan wishes his readers a happy holiday this week, providing the regular weekly data points and referring those wanting more information to Doug’s weekly analysis in CBB.
Golden Rule Radio did not publish this week due to the holiday.
