My level of disgust with the sunshine blowers* and the government numbers they tout has reached a new high. Today, here's the headline that annoyed me:
"U.S. stock futures were adding to moderate gains and the dollar weakened early Tuesday after data showed inflation, excluding food and energy, was tame in May." (CBS Marketwatch)
Tame. Stock market up. What else do you need to know?
First of all, the CPI is a bit warped. Even the Fed acknowledges that the CPI is far too low because it includes not housing prices but equivalent rents. Equivalent rents are quite depressed (ie, deflated) by the dirt cheap interest rates and programs by lenders like Fannie Mae that offer no-down-payment loans. The CPI also includes used car prices, which are similarly depressed. Keeping that in mind, here's an interesting table, straight from the BS Deparment. Er, BLS Department:
| Compound | ||
| Annual | ||
| Category | 3-mos. Ended | |
| in May | ||
| All Items | 5.5 | |
| Food and beverages | 5.1 | |
| Housing | 4.3 | |
| Apparel | 5.1 | |
| Transportation | 12.4 | |
| Medical care | 4.9 | |
| Recreation | 1.1 | |
| Education and | ||
| communication | 1.4 | |
| Other goods and | ||
| services | 1.7 | |
| Special Indexes | ||
| Energy | 29.7 | |
| Food | 5.1 | |
| All Items less | ||
| food and energy | 3.3 | |
Food and energy are excluded from the "headline number". No one has to have those after all. I mean, you can choose to buy only apparel and transportation for a few months -- you don't need heat or A/C or gas or food, right? You lucky sods that don't need to eat or gas up your car or run your lights or air conditioning, well, for you, the CPI is only 3.3%. That doesn't sound like much, but we've been hearing that inflation is "tame" and therefore it's OK to leave interest rates at the "emergency" level of 1% for, oh, I don't know, a while. In any case, the rate cutting began before the terrorist attacks in 2001.
Just for fun, pick a year, say 1998 and go here. Put in $1. Multiply the result, 1.16 by your salary in 1998. Are you making that much now? Good for you, if so, because you've kept pace with inflation, at least according to the Federal Government's way of figuring it. Don't fool yourself into thinking you're getting ahead. If you've kept pace, you've only been running in place. All your efforts have not actually resulted you being rewarded for experience, but you're still doing better than a lot of people. If you really want to get depressed, subtract your annual cost of health insurance premiums in 1998 from the 1998 salary. Now subtract the annual cost for this year. Still ahead? Wow, I'm impressed. I can't even show a gain on that metric myself, and I work for a company who gives nicer raises than anywhere I've been an employee before.
Clearly, since the government uses this number to keep entitlements in line with inflation, they need to keep it low. Any idiot can see this, so why does the financial establishment insist on using it to gauge the inflation we experience?
Perhaps tomorrow we can discuss the bullshit jobs reports we've been getting this year and the effect of the totally wack Birth/Death model the BLS applies to the survey numbers. Probably not though. I don't think I can stomach it.
--*These are the folks on CNBC and MSNBC, in the WSJ and on CBS Marketwatch who are in the business of blowing sunshine up your ass. It's up to you if you want to believe it or not. Most people desparately want to believe. After all, if you have a 401K or an IRA, there's really no where else to put it but stocks and bonds. If you believed those were bad investments, well what the hell would you do?
Posted by nicole at June 15, 2004 09:15 AMA good place to have stuck you IRA might have been in some kind of CD, in euros instead of dollars. As you said, when the economy goes south, the “Fed” lowers interest rates which expands credit and devalues our currency to make exports more completive.
(At least I think I got that right.) Unfortunately, I’m a newbie and I’m not even sure you can get an account like that around here.
The foreign currency play occurred to me last year, and I know how and where to do it. Unfortunately, tax must be paid on gains in those accounts.
This does not, however, enable me to do what I want with my 401K. 401Ks are often limited to whatever your company *thinks* you should be invested in. You may recall from the Enron and WCOM debacles that some of those folks were *entirely* invested in their own company stock. Some of that was forced, if not all, by the requirements of the account.
>>tax must be paid on gains in those accounts.
Really, I though that anything was "safe" from taxes when it was in an IRA. (Well, postponed anyway).
I know you can have your money in a stateside CD/IRA in most any bank. I also know US banks can give you an account in euros, I just don't know if you can have a euro/CD/traditional IRA at your local bank. Even if you could, you might have a tough time getting the clerk to give you anything "weird".
Another thing you can invest in is gold coins. You don't actually get to hold on to those coins, but you pay someone to keep "your" gold in a safety deposit box. One other choice might be, you can hold mortgage notes, but if you already own your own home around here you are likely top heavy in real estate already.(I think you can actually hold your own 2nd mortgage note, which might be handy to avoid a Jumbo mortgage, or to get you into a pricier home).
>>This does not, however, enable me to do what I want with my 401K. 401Ks are often limited to whatever your company *thinks* you should be invested in.
My only thought here would be to "laid-off" so you can roll your 401k into your IRA, and then get "re-hired' every year with your seniority intact but there is probably something illegal in this.
Your employer pays an outsider a fee to manage the employees 401k, if they could just hand you a check, and let you manage your own 401k in your IRA, and avoid paying that fee, I think they would go for it. So your employer hires the lowest bidder to manage your 401k and the bidder limits your choices.
>>You may recall from the Enron and WCOM debacles that some of those folks were *entirely* invested in their own company stock. Some of that was forced, if not all, by the requirements of the account.
I thought some people actually chose to be 100% in their company's stock. If so, I have no mercy for them. Imagine someone with their spouse, who both work at the same company, and have their entire nest egg in their employer's stock. It's possible that they both could be laid off, and lose everything in their nest egg if the company goes under. Are they really hiring people so clueless that they aren't even smart enough to know when the need professional finance help?
The only employer stock I'm required to have is the matching funds they give me as a benefit. I could invest more, but that's generally regarded as a Bad Idea.
(Those high level employees that restricted access to the 401k so people couldn't diversify their funds, while the stocks were tanking, should have their heads stuck on polls as a warning to other executives. Instead the "fed-gov" goes after Martha Stewart.)
Posted by steel at June 18, 2004 04:09 PMI checked, and the IRS does not let your IRA own any part of your primary or vacation home. Other property is OK, though.
Posted by steel at June 23, 2004 09:38 AM