Lies, Damned Lies, and Statistics

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	Tuesday, May 27, 2008 Whitelist Us         It Is the Season of the Bear By Andrew Gordon Did you notice the government’s latest figures on gas and food prices? If you didn’t know what was going on, it could have given you a “what the heck” moment. The Bureau of Labor Statistics (BLS) gave us some crazy numbers to chew on last week. For example, it said that gasoline prices decreased 4.6 percent. It also said that the price for vegetables dropped 4.1 percent. Beef, veal, and coffee also cost less in April, according to the BLS. It’s impossible to believe its numbers – that overall energy dropped 0.2 percent and food prices remained the same. We all know that this can’t be true. The funny thing is, even the BLS admits it. There it is, in black and white, in its monthly Producer Price Index (PPI) report: the index for finished consumer foods climbed 5.2 percent ... the energy goods index advanced 17.5 percent ... and gasoline prices rose 3.2 percent. The total increase for the core PPI (excluding food and energy) came to 3.0 percent. But 3.0 percent was not the number you saw in the headlines last week. The number you saw was 0.4 percent. And the market was still taken aback. It was only expecting 0.2 percent – as in the previous month. What’s going on here is seasonality. The government builds it into its employment and inflation numbers not to confuse us (though that is arguably the result), but to smooth out the numbers. Let’s revisit gasoline prices. Why did the BLS say it decreased 4.6 percent when it really rose 3.2 percent? Because last April and the April before that (the BLS actually goes back five years to compare prices), it rose even faster. In other words, this is the season (as we approach the heavy driving months of summer) when gasoline prices rise rapidly – every year. Annualizing the 3.2 percent rise in April would give us an almost 40 percent rise for the year, but that’s overestimating what happens. Into the summer, prices usually fall back. There are other months earlier and later in the year when prices fall back. So the annual price increase ends up being much less than 40 percent. INTERNAL ENDORSEMENT Wall Street Lies EXPOSED! They've led you to believe that investors who want outsized gains must take on ridiculous risks. Click here to learn how a Small One-Time Investment Could Grow Until It's Larger Than All of Your Other Investments Combined. Seasonality can lower “adjusted” price increases. But it can also raise them. For example, what happens if the price of gasoline doesn’t fall beginning in June – as it has done in prior years. If the price of gas just stays the same and doesn’t go up at all, the BLS will be reporting a hefty rise on the “adjusted” price of gas in June. And if the real price of gas goes up? Then the seasonally-adjusted price could very well cause a panic over energy prices which will make last week’s outcry seem like a whimper. And what goes for the PPI index also goes for the CPI index. The CPI index beat expectations for the month of April, but only because of adjustments made to the numbers based on seasonality. May’s numbers should also be held down by seasonality. But when June’s numbers are reported (that would occur in July), then all hell could break loose. Seasonality also was a huge factor in making April’s unemployment numbers look good because a lot of new jobs are usually created in the spring. So the Labor Department added tens of thousands of “new” jobs into its final job count. One of the sectors where it had new jobs expanding? The financial sector. With all the layoffs by the big banks, do you really think this is a sector seeing strong new job growth? Without the Labor Department adding these presumed new jobs into its bottom line, instead of reporting “only” 20,000 jobs lost for April, the figure would have been well above 100,000, and you wouldn’t be hearing the pundits remark on how well the job market has been holding up. The truth is, employment isn’t holding up well. And prices aren’t being held down too well. Mark my words. These employment figures will also be revised upwards. It seems the Labor Department conveniently forgot that we’re on the verge of a recession (actually, I believe we’re already in one). What seasonality giveth, it will taketh away ... come June. These very important inflation and job numbers will not merely slip. They could very well drop drastically. Wall Street won’t like that. If crude prices remain well above $100 by then (as I think they will), it will be damning evidence that the Fed couldn’t, after all, finesse its way out of the twin threats of no growth and rising inflation. This is my contrarian take. While most economists and brokerages have been predicting a 2nd-half comeback for the economy, I believe it’s going to begin a major leg down. Depression/recession, crisis, runaway inflation, a new bear market, and Fed impotence will be Wall Street’s new battle cries. It won’t be pretty. Good Trading, Andrew Gordon P.S.  To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com. [Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon's INCOME service that selects the best dividend-paying stocks available.] Market Watch How Much Extra Good Did This Extra Money Do? By Andrew Gordon Did you get your stimulus check yet? What did you do with it? Your answer will decide just how much it will help the economy and especially the retail sector. The general take by the retailers themselves (in their latest earnings reports) is that they’re not expecting a big boost. And that any boost they will get will disappear well before the fourth quarter. If this poll is accurate, the retailers are right not to get their hopes up too high. This survey comes from lifehacker.com. What Are You Doing with Your Stimulus Check? Spending on essentials.  5.2% (216 votes) Frivolous shopping spree!  11.7% (486 votes) Saving it all.  24.9% (1039 votes) Paying bills or debt.  37.7% (1569 votes) A little of everything.  20.5% (855 votes) 4165 total votes. results as of 05/23/2008 02:40:15 pm. As you see, well over half – 63 percent – say they will either use the extra cash to save or pay bills. And if you throw in some of the “little bit of everything” vote, the percentage is probably closer to 70 percent who won’t be using their money to go shopping at the mall. Not that there’s anything wrong with that. I didn’t’ vote. But if I did, I would have voted for the “saving” or “paying bills” category. The stimulus checks, at best, will give the economy a very small boost. Another way of looking at it is this. The rise in the price of gas will more or less offset the extra money injected into the economy by the stim checks. Of course, our budget deficit is up that much more. So much fanfare. So little impact. INTERNAL ENDORSEMENT Imagine if There Were Only 6 Numbers to Choose from When Buying a Lottery Ticket! Wouldn’t that be great?! Of course, the less the number of choices, the more likely your chance of success, right? How many choices are there when buying and selling shares? Errmm… a LOT! Hundreds…One of the reasons I enjoy such consistent success from trading, is because I only have 6 options to choose from! Except this is even better in a way, because the lottery is pure luck… I only have 6 choices AND have a VERY good idea about which choice to make because of the insider signal If you enjoy IDE's daily investing advice, you'll definitely be interested in checking out our sister publication, Early to Rise. Each morning, you'll get powerful wealth-building advice covering real estate, entrepreneurship, personal finance, marketing, and much more. Sign-Up for Early To Rise today! To unsubscribe, Click here To change your email address, Click here To cancel or for any other subscription issues, write us at: Investor's Daily Edge 245 NE 4th Ave, Suite 201 Delray Beach, Fl 33483 Phone: (800) 681-4759	The Market Minute How High Can Oil Go? ... Predictions of $150-200 don’t sound outrageous, do they? But Asia is thinking about cutting back on their gasoline subsidies and letting prices rise. It could dampen demand and rising demand for crude from Asia is what makes the oil bull run. If Asia does embark on this path, it’ll do so very slowly and cautiously. Runaway food prices have already caused food riots in Asia. Gas prices have the ability to do the same. Asia won’t break oil’s price rise momentum. If it comes, it will have to come from elsewhere.       In The Markets   Last Change YTD Dow MARKET CLOSED   Nasdaq MARKET CLOSED   S&P 500 MARKET CLOSED   Gold MARKET CLOSED   Silver MARKET CLOSED   Oil MARKET CLOSED   Nat Gas MARKET CLOSED     Newsworthy Consumption averaged 20.3 million barrels a day in the past four weeks, down 1.3 percent from a year earlier, the Energy Department said yesterday. Prices climbed above $135 a barrel earlier today as OPEC ministers said they could do nothing to prevent higher prices because they are pumping at capacity. “The fundamentals justify a price between $80 and $100,” said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. “The run-up in prices has more to do with institutional investors coming into the market. There's nothing to discourage them from doing so because the returns have been so high.” “You have to be bullish until we see a much bigger pullback than is occurring today, and when that happens we will be looking for a correction, nothing more,” said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. “The recent surge is a function of short covering in the market,'' Wittenauer said. “We are giving back some of this gain, but it's too early to call a top to the market.” Traders who are “short” are betting on a decline by selling. They need to purchase contracts to close out their short positions. “We are not in charge anymore,” Shokri Ghanem, Libya's top oil official, told Bloomberg Television today. The Organization of Petroleum Exporting Countries has “no magic solution” to high prices, Qatar's Oil Minister Abdullah bin Hamad al-Attiyah said today in a phone interview from Doha. -- Bloomberg.com     Meet the Team MaryEllen Tribby - Publisher Jedd Canty - Business Director Rick Pendergraft - Managing Editor Jon Herring - Editor Nicole Reynolds - Marketing Analysts / Editorial Contributors Michael Masterson Charles Delvalle Andrew M. Gordon Dr. Russell Mcdougal D.D.S.

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