Statistics Exposed


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Statistics Exposed

On www.preciousmetalsinvesting.com we discuss factors behind the headline statistics we are bombarded with almost daily. I read a recent article that seemed at first to have a very strange headline relating the FED to the current Star Wars Movie. Sales of the current Star Wars movie are currently being touted as the best of all of the movies in the Star Wars Franchise. However those headline statistics may not tell the whole story. People often just take the statistics touted in the headlines and don’t ask about factors that are involved. When you compare the INFLATION ADJUSTED sales of the current Star Wars movie against the first Star Wars movie it is actually worse. The sales of the Star Wars movies pale in comparison to the all time champion “Gone With The Wind.”

The point the author was making is that we often hear statistics without hearing about the factors that influenced them. As in the Star Wars movie comparison there are often factors that make what on the surface seem like positive statistics into something that deserves less cheering.

So where is the connection with government statistics and the FED? Headlines are often touted by the government or the FED that they say are great news. However when you look behind the curtain there may be less reason for cheering. For instance the government released statistics they touted as showing a positive job growth. But if we look behind those numbers to see what type of jobs are being created we often find they are lower paid positions in the service industry replacing what were once higher paying jobs in manufacturing.

The list of headline statistics we should look at more closely includes the reported rate of inflation. Every consumer knows when he or she goes to the store that prices have been rising. We are told in the headlines that inflation remains low. However how is that statistic constructed? The government inflation statistic most consumers are aware of the CPI, the Consumer Price Index. It is based on a “market basket of products.” To have the statistic be truly accurate for a year to year the products in that “market basket” of products would have to remain the same. but has it? The government has changed that market basket of products over the years. Just to illustrate if it had substituted iPads for buggy whips I would say that one product was no longer relevant to the consumer and that substitution was reasonable to reflect today’s consumer demands. Is that what the government did in revising the statistic? It would seem the main motivator is substituting a lower cost option for a higher priced product to give the illusion that inflation isn’t that bad. Steak too expensive? Then just substitute hamburger. Of course the changes weren’t exactly iPads and buggy whips or steak and hamburger but I think you get the idea. The government says that the changes in the market basket are due to changing consumer demand. But is demand for that item changing because the consumer no longer prefers it or because the consumer now finds it too expensive and has to make a less expensive substitution?

From the governments publication Comparing market basket changes and the CPI
which can be found at Comparing the CPI they say “A true Cost of Living index (CLI) is a ratio
of the minimum expenditure required to attain a particular level of satisfaction in two price situations; it attempts to measure the price change associated
with a constant standard of living.”

Is your “particular level of satisfaction” the same eating a hamburger as eating a steak? I don’t know about you but I prefer the steak. I get more satisfaction from eating steak than I do from eating a hamburger. The items I use for the comparison may not always be exactly the substitutions to the CPI “market basket’ the government is using. The comparisons are made to illustrate the point that the statistics sometimes hide more than they reveal.

If you want to get more in depth information about this you can go to www.shadowstats.com You can read some of the John Williams’ excellent articles on inflation for free before deciding whether you want to subscribe.
Listen to our Precious Metals Investing podcasts or go to the posts on www.preciousmetalsinvesting.com that discuss the specific statistics more in depth:

Letting the Air out of Job Statistics,

Auto Loans and Record Debt

So what you may ask does this have to do with Precious Metals Investing? Why is a discussion of this here at ? Investors often view investing in Precious Metals as a safe haven and an enduring store of value when other investments are under stress. This is a very volatile investing environment. What if the statistics you are using to guide your investments don’t reveal the whole story? You would be making your investment decisions based on incomplete data.

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