Lies, Damn Lies, and Statistics

• Tweet

• Tweet

Today the Bureau of Labor Statistics released their latest batch of lies, excuse me, statistics, stating that the Consumer Price Index for all urban consumers (CPI-U) was unchanged in July on a seasonally adjusted basis and over the last 12 months, the index increased only 1.4% before seasonal adjustment. (Here is a link to the official PDF report if you’d like to read it for yourself)

Whew. If that reads like Greek to you (and you do not, in fact, hail from Greece…) fear not. You are not crazy in the slightest — it’s simply written in one of the most difficult (and deceptive…) languages of all to decipher: statistics.

Mark Twain is famous for popularizing the statement,

“There are three kinds of lies: lies, damned lies, and statistics”.

The original orator of this phrase remains somewhat of a mystery, but whoever first uttered it was a genius.

And if you can master the art of deciphering statistics, you will be a genius, too…in particular, a genius investor!

One of the most difficult things to do as an investor is to separate fact from fiction, remove bias and hype from what you read, and get to the heart and the truth of the matter—“Just the facts, ma’am”.

Just the facts, ma'am

This is much easier said than done, particularly when the so-called “trusted source”, who we have all been brought up and indoctrinated to believe does everything “for us” and “to help us” and “on our behalf”, aka our government, is the sneakiest and most suspicious of all.

Take today’s CPI-U numbers…did you know that the government has changed the way they “measure” and report on inflation more than fifteen times in the past thirty years?

According to John Williams of Shadow Government Statistics, the Consumer Price Index has been reconfigured multiple times since the early 1980′s to understate inflation versus common experience.

From an excellent public commentary on his website (he also has a paid service to which I subscribe — I’m unaffiliated but highly recommend it):

• CPI no longer measures the cost of maintaining a constant standard of living.
• CPI no longer measures full inflation for out-of-pocket expenditure.
• With the misused cover of academic theory, politicians forced significant underreporting of official inflation, so as to cut annual cost-of-living adjustments to Social Security, etc.
• Use of the CPI to adjust retirement benefits, private income or to set investment goals impairs the ability of retirees, income earners and investors to stay ahead of inflation.
• Understated inflation used in estimating inflation-adjusted growth has created the illusion of recovery in reported GDP.

So your reaction to today’s CPI-U data should be “yeah, right” followed quickly by “and who cares?”.

But every major media outlet will report on this today, guaranteed, as if it were the most essential piece of data that you could possibly have for your finances.

I respectfully submit to you, though, that the data you should be considering is this (reprinted with permission from the fine folks at Casey Research):

(Chart reprinted with permission from Casey Research)

Over the past 98 years, have things been getting more or less expensive?

That’s right…unless you completely “live off the land” like the pioneers of old, buying nothing, I think you’ll agree with me that things have gotten much, much more expensive.

I know from personal experience that gas now costs $4.00 / gallon in Michigan, and well over that here in California, and I assure you the monthly grocery bill for our family of four is somewhat staggering. And speaking of groceries and gas, just today we received notice from Costco that they are increasing their annual membership fees from $50 to $55…that’s 10%, not a tiny increase by any means!

And just around the corner from our house sits a new home for sale here in Palo Alto (which granted, is one of the most expensive neighborhoods in the U.S.).

But just for fun, let’s take a look at the ad for this “stunning” (not) home:

3/2 1600 s.f. home..."Affordably Priced" at $1,475,000

(I apologize for the grainy-ness of the image — I literally scanned this in from the flyer that I grabbed on my walk around the block last evening!).

This is another great exercise in reading between the lines…allow me to translate:

• Fabulous opportunity == MUCH WORK NEEDED (see kitchen picture below)
• vintage == old and dated
• a chance to customize == you will need to remodel the entire house
• mature landscaping == bark, bark everywhere and ONE pine tree
• **buyer to check grade level availability == your child will not get into the schools listed under any circumstances

You may think I’m joking, but I assure you I am not…those particular Palo Alto schools are overfull, and here is a picture of the “vintage” kitchen:

Vintage? Or just old.... Circa 1950, perhaps?

Yikes! (If you want to see the listing online for yourself you can do so here)

What I am trying to say is:

1. Statistics lie, or at least can be used to support lies, and
2. You therefore need to use your head, think for yourself, and analyze “statistics” based on your own experience and what you know to be true

What does this mean for your future?

Circling back around to today’s CPI-U data, it’s important to read between the lines and consider the source. Bernanke has literally flooded our monetary system with dollars, and at some point, although it may not be particularly soon, nor even this year, those dollars are going make their way out of the banks and into the economy where they will cause tremendous inflation.

In the immediate-to-near term, it appears as if the dollar is “strong” and inflation is “contained”, because all eyes are on the mess in Europe and the dollars haven’t made their way out of the banks into the economy yet. We could even see more strengthening of the dollar as investors “rush” to its so-called safety due to the disaster that is the euro right now.

However, once the euro crisis gets “solved” (or at least tabled enough to allow investors to focus on other issues), it’s look out below for the dollar.

Think for yourself, dear grasshopper

Most importantly, I bring this to your attention to urge you to continue to think critically and think for yourself (and you hereby have my permission to completely ignore all government statistics!).

Here is one final “critical” statistic for you…

Now there is an important statistic!

LOL. And with that, I bid you adieu for today!

Please let me know what you think about government (and other) statistics in the comments, and send in your questions for QnA Friday…I love hearing from you (although I am sometimes slooow to reply)!

To your financial success,

— Kung Fu Girl

Tagged as: BLS, CPI-U, inflation, John Williams, lies, Shadow Stats, statistics

About the Author:

Susan Fujii, aka kungfugirl, is an SEC Accredited Investor who believes that anyone can learn to be financially independent.

Susan has authored 199 posts on Kung Fu Finance, and you can connect with her on Google+.

Want to master your finances? Join us now.

Why don't you join our community on your journey to financial mastery.
Sign up below for the FREE Kung Fu Finance newsletter.