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The King Report
M. Ramsey King Securities, Inc.
Wednesday Oct. 20, 2004 - Issue 3020"Independent View of the News"

From the BLS on CPI:"Energy costs declined for the third consecutive month--

From the BLS on CPI:"Energy costs declined for the third consecutive month--down 0.4 percent in September--after advancing sharply in the first half of the year. Within energy, the index for household fuels decreased 0.9 percent, while the index for motor fuel rose 0.1 percent. The index for food was unchanged in September, as a 0.2 percent decline in the index for food at home was offset by a 0.3 percent increase in the index for food away from home." http://www.bls.gov/news.release/cpi.nr0.htm Please reread the BLS line about energy prices declining for the 3rd consecutive month. Who possibly could believe this crap? Yet we know many, particularly Wall Street shills and permabulls, do. You cannot make up stuff like this; it’s tantamount to Orwell’s"1984".

Here is more altered reality foisted on the uninformed and gullible. BLS has energy prices +6.7% y/y. On 9/30/03 oil was $29ish; on 9/30/04 it was $49ish, +69% y/y…And Fed clowns keep trying to sell the notion that inflation is tame. The way CPI is compiled, there can never be meaningful inflation.

Wait, the assault on one’s intelligence is worse than above. For the past three months, BLS has its CPI energy component DOWN 9.8%!!! (Check the table at above link to BLS) Thank you sir, may I have another! We’d love to administer a test to anyone involved in financial decision making that asks them that given the evidence of the past 3 to 4 months do they believe the BLS’s CPI, and in particular the energy component…BLS has the CPI energy component up only 18.6% for 2004.

In our letter on Monday, we noted the following increases over the past 3.5 months:"Oil is +50%; heating oil is +54%; gasoline is +24% and natural gas is +6.5%. But the increases have not shown up in PPI or CPI." So either this month’s CPI energy index must soar or the incorruptible BLS is full of it.

BLS has used vehicle prices down 1.8% y/y. Mannheim, which doesn’t sample but counts all transactions, has them +0.4%. But Mannheim does not employ hedonic adjustments. Mannheim explains the problem with BLS’s used vehicle methodology at: http://manheimvalueindex.com/contro...04-t34m4m3r1c4/comparisonCPI.php

There is more hilarity in other categories of the CPI release and tables, but we don’t feel the need to delve further to prove the obvious.

How come in BLS substitution policy, there is never upward substitution if prices fall? If steak prices soar, the BLS assumes people will ‘substitute’ ground beef; and then there is no CPI increase. But what if beef prices fall? Does the BLS assume people will substitute ground sirloin for hamburger? It’s just like hedonics - there never is an adjustment for worse service or anything that might raise the CPI.

Yesterday’s WSJ had some analyst downplaying hedonic adjustments. We love analysts and reporters that suddenly have to address issues like hedonic adjustments and the Biz B/D Rate when they have ignored or were not aware of it for years. Most Wall Street analysts loathe ‘doing the work’, so they ignore troubling details. If economists and analysts acknowledge the problems, they must ‘do some work’ instead of just plugging dubious data into their ‘models’ and/or making specious forecasts on spurious data…As we annually note, Q3 (July to August) CPI is one of the most massaged numbers because it is the basis of COLAs. And we are pleased that others now report that fact…We’d love to hear the WSJ’s reporter and his featured analyst’s explanation for energy in the CPI.