The Rude Awakening
Gaithersburg, Maryland
Wednesday, April 18, 2007 ------------------------------ - How do you know when a government is lying? They report it.
- Scouring the government's stack for the REAL figures,
- Keeping an eye on the milkman and plenty more…
------------------------------ Eric Fry, reporting from Laguna Beach, CA… "Information" and "insight" often seem like synonyms. Like, for example, when your neighbor says, "Hey John, I saw your wife kissing the milkman this morning." This particular bit of information contains a wealth of insight. In other settings, however, "information" and "insight" can feel like antonyms. Like, for example, when a CNBC commentator remarks, "The stock market is acting well." This particular bit of information contains not a single scrap of insight. It is, therefore, "useless information." A third category of information strays even farther from insight. It produces deception, or "anti-insight." This third category of information is called, "government data." Within this deceptive category we find items like the Consumer Price Index (CPI) and Gross Domestic Product (GDP). The leaders of our government would prefer that the statistical portrayals of our economic health be as flattering as possible…and so they have become. Over the years - little by little - various government agencies have revised the processes andmethodologies that calculate important economic data like GDP. The government bean-counters continuously revise their processes, they say, to make their data more accurate. But somehow, each new methodology flatters our economy more than the preceding methodology. The new and improved numbers always become…well…new and improved.
A little nip here on the CPI, a little tuck there on the GDP - along with a bit of M-3 removal - and before you know it, you've got an economy that looks pretty darn good, even if its underlying health is suspect. One man, John Williams, prefers insight to deception - so much so that he has created an entire business around producing truthful government statistics. His business, called "Shadow Government Statistics," exposes and analyzes the flaws in current U.S. government data and reporting, as well as in certain private-sector numbers. "Have you ever wondered why the CPI, GDP and employment numbers run counter to your personal and business experiences?" Williams muses. "The problem lies in biased and often-manipulated government reporting…Despite minor changes to the system, government reporting has deteriorated sharply in the last decade or so." Williams provided the scintillating details of his analysis, during a recent face-to-face encounter with two members of the extended Rude Awakening family: Chris Mayer and Addison Wiggin.
Truth-seekers, read on… ----- The Most Feared Book In Washington! ----- We couldn't have said it any better ourselves… On the day that we rushed 537 copies of this book to Washington, USA Today ran a
staggering cover story quoting David Walker, the nation's comptroller general: "The United States can be likened to Rome before the fall of the empire. Its financial
condition is 'worse than advertised,' [Walker] says. "It has a 'broken business model'. It
faces deficits in its budgets, its balance of payments, its savings - and its leadership." Welcome to the Empire of Debt, folks…Uncover the Truth Here ---------------------------------------------------------- Figures Don't Lie, Liars Figure
By Chris Mayer "If you asked a bunch of people sitting at a bar what the inflation rate was, you'd get numbers closer to the truth than what the government says in its official numbers." So said economist John Williams one afternoon over meatloaf and mashed potatoes in a little restaurant within walking distance of his New Jersey home. I made the trek out here, along with my publisher and friend, Addison Wiggin. We wanted to meet the old fellow, whose work we hold in esteem. Truth-seekers like Williams are dear, because lies are so cheap. And because not too many of us are willing to parse through thousands of pages of dry economic reports to get behind the government's accounting alchemy. What follows is an update on some of Williams' latest work and its investment implications. In a nutshell, here is the story. Government officials, mere self-interested mortals like the rest of us, want to paint the best picture possible. This, they've found, tends to win them more elections. So every administration for years and years has made little adjustments in reported figures for things such as inflation. These little adjustments, as you might imagine, always go one way. They make things look better than they otherwise might. Over time, these little adjustments start adding up. Then you get big differences between what is really happening and what the reported figures say. Williams has gone back and reversed these adjustments. For example, take a look at the official U.S. inflation rate, popularly measured using the consumer price index (CPI). Williams, by just using the pre-Clinton era CPI, gets a number vastly different from today's official figures: 
The official numbers tell us inflation is less than 3%. Yet, when calculating inflation using the same methods that were used before Clinton took office, Williams gets inflation closer to 6%! The latter figure is nearer to the experiences of everyday people living in this country, who have to pay for groceries, gasoline, insurance, medical bills and more. This is why Williams says that the average person has a truer sense of price inflation than what the official numbers would have you believe. As I tackled the steamed broccoli, Williams recounted the primary ill of the modern economist. "Something like 80% of economists get their annual forecasts wrong," said he. "So to be right more often, all you have to do is go against what most economists are saying." Most economists, because they seem to take the data at face value, have a rosy view of the U.S. economy. No mainstream economist that I know of makes the case that the U.S. is in a recession. Yet Williams does not hesitate to tack against prevailing sentiment. "We are in an inflationary recession now," he told us. Williams ticks off the data that confirm a recession in progress: much weaker than expected housing starts, retail sales and industrial production. Also, a weak manufacturing survey, sluggish annual growth in durable goods orders, rising new claims for unemployment insurance and anemic employment growth. Williams' Shadow Government Statistics shows the economy shrinking now, whereas the official government numbers still show positive growth. 
We won't get into all of the details. But what does an inflationary recession mean for investors? Think 1970s. Not disco and bell-bottoms, but rising prices for gasoline, groceries and gold. Think higher interest rates. Rising inflation basically means your dollar buys less. So as an investor, you want to stay ahead of that inflation number, to keep your purchasing power. If you keep this in the back of your mind, some investments look a lot better than others. For example, a bond yielding 5%, which is about what a 10-year Treasury pays, looks rather inadequate against an inflation rate of nearly 6%, per Williams. Basically, the interest rate on your bond isn't keeping up with what you are losing to inflation.Tangible assets tend to do better in environments like this. In the early 1970s, commodities soared even as the economy headed into recession. So long-term investors should look to own real assets - whether oil and gas in the ground, cheap raw land, water rights, ships, rigs or what have you. Companies that can grow at a rate higher than inflation should reward investors as well, as long as you don't pay too much for them. Companies that should be able to swim upstream and boost cash flow in a sluggish economy include certain commodity and infrastructure businesses. Also, don't forget about opportunities abroad. In short: Buy cheap tangible assets with growing cash flows ("tangible assets that sweat"). That's been our playbook for a few years now in my investment service, Mayer's Special Situations. And lastly, don't trust the government's numbers. Ever. Chris' Note: Addison and I have agreed to make available to Rude Awakening readers my latest research report. If you're looking for government figures, my report will disappoint you…if you are seeking oft-overlooked investment opportunities used by Wall Street's elite, you'll find them right here. ----- 6 Invisible Investments ----- "[This strategy] has historically generated far better returns than the overall stock market and… continues to shine." - Barron's "There's big money to be made if you can identify the next targets and buy in before everyone else does…" - CNNMoney "Six Invisible Investments Wall Street's Elite Love To Own" Wall Street's "Big Dogs" build fortunes using 6 hidden kinds of investments the rest of us rarely discover. Today, I'm spilling their secrets…Read Them Here | 
