Are government statistics and economic reports really offering investors the information they need to make prudent investment decisions?
John Browne says that the calculations used in these reports over the last 20 years have increasingly been distorted in favor of the government.
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The inflation rate may be the most important gauge for investors and is published in the form of the consumer price index (CPI).
The report is designed to reflect the spend rate of the average US citizen. But factors like the healthcare component of the report are raising skepticism on the part of investors.
Healthcare is only 1% of the CPI. This price weighting seems ridiculous in the face of America’s growing obesity problem and its aging population.
The overall inflation rate quoted by the Fed is around 2%. But costs for food and energy fly in the face of such a low number.
How do these reports affect the stock markets? For all the lauding and celebration of the Dow breaking through 14,000, it would need to reach 15,400 to equal its previous high of 14,165 on October 9, 2007.
The unemployment rate is another number that is viewed with skepticism. A world of politically manipulated statistics makes it more difficult for investors to make good investment decisions.
False or manipulated reports can cause investors and businesses to hoard cash in an effort to be prepared for the worst just when the economy needs investment and spending.
Leading US equity funds still are showing outflows of investment funds at significant levels. The rising markets have done little to incite individual investors to get back into the game.
Antiquated measures that have not kept up with globalization could also play a role. But the point is that lack of trust in government and in financial institutions doesn't just lie with the stalemate in Congress.
How would you begin to restore trust in America's institutions and leadership?