Hiding a Recession

[adios]

In your OP you wrote:
[ QUOTE ]
What is the significance of a 10% CPI? Well, the CPI is used to "deflate" GDP, which we are told was nearly 4% last quarter. Uh, what? How is this absurd number arrived at? Well, they only deflated the nominal GDP by 0.8%. That's right. You read that right. In calculating GDP last quarter, the government assumed price inflation was 0.8%. That's the lowest since the Eisenhower administration.

[/ QUOTE ]

Actually I found the data you're citing:

GDP Data


Could come at this a couple of other ways but all the data is generated by the government so it probably wouldn't mean much one way or the other to you.

I'm not saying you're wrong necessarily. If you look at all the data inflation in the 70's was much worse. How long do you think the government may have been erroneously reporting the data? Inflation in the 70's could have been understated as well.

[Borodog]

[ QUOTE ]
In your OP you wrote:
[ QUOTE ]
What is the significance of a 10% CPI? Well, the CPI is used to "deflate" GDP, which we are told was nearly 4% last quarter. Uh, what? How is this absurd number arrived at? Well, they only deflated the nominal GDP by 0.8%. That's right. You read that right. In calculating GDP last quarter, the government assumed price inflation was 0.8%. That's the lowest since the Eisenhower administration.

[/ QUOTE ]

Actually I found the data you're citing:

GDP Data


Could come at this a couple of other ways but all the data is generated by the government so it probably wouldn't mean much one way or the other to you.

I'm not saying you're wrong necessarily. If you look at all the data inflation in the 70's was much worse. How long do you think the government may have been erroneously reporting the data? Inflation in the 70's could have been understated as well.

[/ QUOTE ]

As someone has already pointed out, if the current CPI definition had been in place, inflation during the 70s would never have exceeded 3%.

I have no reason to believe that there was any systematic manipulation of inflation metrics prior to the early 1980s.

[DcifrThs]

[ QUOTE ]
I have no reason to believe that there was any systematic manipulation of inflation metrics prior to the early 1980s.


[/ QUOTE ]

why? what changed?

thanks,
Barron

[adios]

Thanks, that focuses it more. The early eighties marked the start of the disinflation trend. You may be right. The fact that it is inflection point in Fed policy and inflation trends gives your argument more credibility IMO i.e. that inflation has been significantly understated. I'm going to think about this some more and do some investigating.

[DcifrThs]

here's another thought or two:

one thing that doesn't sit well with me is the availability of this info. now i'm not an efficient market type but i do believe that markets, though beatable, are a very good barometer of opinions/estimates. your ability to come up with ones that are better than the consensus and your ability to manage those bets determine your ability to add alpha imo.

so then, if this info is so readily available (i.e. boro had no trouble getting it) and the implications so clear (as again has been outlined despite my thickheadedness in some areas) why has virtually none of it been discounted (taken into acct) by the markets.

for instance. if inflation is so much higher than it is reported in CPI, the necessary yeild on TIPS would be much higher since CPI wouldn't near compensate you for the reduction in purchasing power you'd acheive as a result of said higher inflation.

further, treasury bonds should be trading at a huge spread to TIPS as break even inflation (though it hasn't proved to be an accurate predictor of future inflation and in some cases seems to adjust retroactively) moves up substantially .

additionally, since individual's purchasing power has fallen, and is thus predicted to fall so much, other market based economic indicators (equity futures & spot prices etc.) should at least in some part have reflected this over the past 2-6 years, right? specifically, if you loko at a chart of the 2yr and 10yr you see that since the last recession in 2001, short rates have risen dramatically while long rates have remained virtually unchanged (again prior to june 2007). this is indicitive of inflation expectations being anchored amazingly well.

instead, what have we seen? low interest rates and global liquidity feeding asset price increases. but in addition to those low interest rates (or perhaps b/c of them) we've seen consumer purchases and the like increase dramatically both domestically and globally. so where has this decreased purchasing power gone?

where are the effects of inflation? and why haven't they either 1) reduced consumer demand for the goods and services being inflated OR 2) been discounted by the markets by any stretch of the imagination over the past number of years?

for instance, the excess liquidity globally had to find a home, but the home it chose seems to counter the logic of the readily available info boro has provided.

so either the market is absolutely dead wrong, the information is correct yet the conclusions from it are incorrect, or some combination of the two.

historically though, threats to inflation have moved markets substantially (before the 1980s) and they seem to be good at sorting out what is and what isn't good information.

you can counter well it is manipulation so markets are fooled. but the evidence of the manipulation is public. look at banks/fin services etc. they kept their exposure fiarly secret (certainly not public or easily obtainable) but when lossese surfaced, markets reacted.

the OP by borodog imo amounts to the "surfacing" of this info yet there has been no reaction by markets (and talking pre june 2007 here).

thoughts?

Barron

[lehighguy]

To a certain extent we can say the market sees it and is reacting.

USD to Euro:
http://finance.yahoo.com/q/bc?s=USDEUR=X&t=5y

Oil:
http://futures.tradingcharts.com/chart/CO/W

Gold:
http://finance.yahoo.com/q/bc?s=GLD&t=5y

Current reductions in the long rates are, IMO, driven by the intenese fear out in the marketplace. When you don't know what to do with your money you throw it in treasuries. And boy do these mortgage buying wiz kids not know what the hell is going on.

When OPEC is thinking about accepting euros as payment, china is thinking about shifting to partial euro currency reserves, and Warren Buffet is publicaly declaring his lack of confidence in the dollar and buying brazilian real then at least some market actors are catching on.

[DcifrThs]

[ QUOTE ]
To a certain extent we can say the market sees it and is reacting.

USD to Euro:
http://finance.yahoo.com/q/bc?s=USDEUR=X&t=5y

Oil:
http://futures.tradingcharts.com/chart/CO/W

Gold:
http://finance.yahoo.com/q/bc?s=GLD&t=5y

Current reductions in the long rates are, IMO, driven by the intenese fear out in the marketplace. When you don't know what to do with your money you throw it in treasuries. And boy do these mortgage buying wiz kids not know what the hell is going on.

When OPEC is thinking about accepting euros as payment, china is thinking about shifting to partial euro currency reserves, and Warren Buffet is publicaly declaring his lack of confidence in the dollar and buying brazilian real then at least some market actors are catching on.

[/ QUOTE ]

please refer to my specific discussion as before june 2007. i stated that numerous times because the market action now has many different aspects to it and is fundamentally driven by money market issues in both fear, high volatility in many markets, and "legitimate" recession expectations combined with fed cutting.

so can you please rethink your reply as it relates to the years 2001-2006 (or more accurately 1998-june 2007). why didn't markets react when this info was public?

what does that imply?

Barron

[lehighguy]

Take those graphs and find 5 year versions. All of these trends have been prevelent for the 2001-2008 time period.

[DcifrThs]

[ QUOTE ]
Take those graphs and find 5 year versions. All of these trends have been prevelent for the 2001-2008 time period.

[/ QUOTE ]
oil has not. gold has not.

please paste the graphs that show gold prices anywhere remotely close to where they've gone for the past year. same with oil.

the euro, however is a different story and i agree that trend has been prevalent...but for fundamental reasons.

Barron

[The once and future king]

DcifrThs

You havnt answered my question. Tips might have compensated you enough to cover purchasing power in relation to the basket of stuff (consumer goods), but I cant see how over the period in question it would have compensated you for the loss of purchasing power against a basket of assets.