Are we (really) getting screwed in the ass?

As investors, most of us spend time looking at these so called "economic indicators." They are fun, for the mental masturbators, and useful, for those who like gambling. Some other serious side uses exist, including many decisions that will affect the federal budget. Social Security, Governmental workers payrolls, and many, many more.

So it's of a special concerns when everyone starts noticing that these numbers that come out are near-miraculous. Even CNBC, which usually broadcasts crap, had Bill Gross on the channel proudly proclaiming that both equity and bond markets should be down significantly if you account for inflation the real way.

How coule this be? Either Bernanke and Greenspan were superheros, or something is covering our eyes. So what's the real truth?

Now, before I get started, there are so many different indicators and different views on the indicators that it's not even possible to count them with the available pubic hairs on our body. However, the general sentiment of many is that yes, we are getting screwed in the ass, as people like Kevin Phillips write in his article in Harper's Magazine.

The other side

Just as there are pundits arguing for dupery and deceit, there are those that argue for, there are some opposing arguments. David Leonhardt argues in his NY Times article, that we are psychologically wired to only see inflation, and de-emphasize deflation. He points out the fact that CPI only rose by 4% last year, and the fact that goods have been becoming cheaper and cheaper (Hamburger prices only rose 18% over 1980-2003) whereas the workers wages rose (150% during the same time.). Also on the argument block is the fact that people feel what they buy the most - so oil, food, the things that have high marketing power of price, we notice way more.

He also presents an interesting problem - how home prices have fallen but since BLS uses owner's equivalent rent, their figure is affected by the home rent prices, which incidentally has been pretty resilient.

His big idea is that although it did get bad, it is not as bad ass you think. We are not looking at the whole CPI because we don't experience it as much, and CPI might even be overshooting the real inflation rate.

I'll say, after reading many more articles, that few of the points are flawed. Owner's equivalent rent mirrosr the cost of owning houses, hedonic adjustments hut more than help and the "fixings" done by the feds DOES NOT HELP in getting truer picture of the economy.

More to come in Part II tomorrow.....