Things That Make You Go Hmmm...

John Mauldin  |

I sat on a panel at Mines & Money in Sydney, and a gentleman in the audience asked me a very pertinent question that highlighted the major problem facing savers and investors. I shall paraphrase him here as the question was a little longer, but essentially he was asking this:

"How do I, as an investor, correctly assess the risk of a given investment in the current market environment? How do I invest my money when traditional valuation metrics no longer seem to be effective?"

Luckily, I have no need to paraphrase my answer:

You can't, because the market is broken. Every day, we sit in the boardroom at Vulpes in Singapore and try to figure out where and how to invest the partners' capital, and every day it gets harder and harder to do. Equity markets have thinned out to the point of emaciation. There is no volume going through in which to trade, and the interference in all markets (particularly those of sovereign debt) is so heinous as to hinder any form of price discovery. The trickle-down effect of this intervention on commodities and real assets is only just beginning as investors are finally coming to understand that what they must do is protect their wealth from confiscation by governments.

What are equally unpalatable are the clearly manipulated figures that are released by government agencies.

Case in point, the weekly initial US jobless claims—the latest of which showed a drop to 339,000 to, conveniently enough 30-odd days before an election and the very day of a presidential debate, its lowest level for four years.

The delightfully named "Politcal Woman" takes up the story:

The weekly initial jobless claims dropped to 339,000, the lowest in four years. ZeroHedge reports that, "ironically, not even the Labor Department is defending it: it said that 'one large state didn't report some quarterly figures.'"

Source: Zerohedge

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Last week, we had 25 broad-based economists who avidly follow the U-3 Unemployment Rate, predicting the U-3 coming in at 8% lowest. Instead, we were given a pre-election rate of 7.8%, while the U-6 rate, which counts everyone unemployed, under-employed, discouraged/stopped looking, remained at 14.7%. Jack Welch, roundly criticized for his viral tweet about the numbers, said in a recent Wall Street Journal article,

But I’m not sorry for the heated debate that ensued. I’m not the first person to question government numbers, and hopefully I won’t be the last. Take, for example, one of my chief critics in this go-round, Austan Goolsbee, former chairman of the Obama administration’s Council of Economic Advisers. Back in 2003, Mr. Goolsbee himself, commenting on a Bush-era unemployment figure, wrote in a New York Times op-ed: "the government has cooked the books."

I worked and lived abroad for three years in Moscow, Russia, during the early '90s, just as the former Soviet Union was wrenching itself out of the 70+ year quagmire of Communism. Through my experience, I worked with govt. representatives, bankers, other expats, Russian business people trying out capitalism, everyday shop owners, etc. And what was the one prevalent underlying theme: no one trusted their government. The statistics merited laughter, the pronouncements met with shrugs, their newspapers, Pravda and Tass, were good for coffee grounds. People were living and seeing the truth through their own daily lives.

So America, any of this starting to sound familiar?

The post-revision number clearly demonstrates just how false unreliable the initial numbers (which grab ALL the headlines) are while the quiet revisions in subsequent months come and go with litle fanfare.

The mispricing of assets as a result of the misrepresentation of data and the misdirection of political leaders that results from a misunderstanding of the severity of the problems facing them have all combined to make it nigh-on impossible to work out what the "right" price is for anything.

By Grant Williams

This is an outtake from Things That Make You Go Hmmm, a free weekly newsletter by Grant Williams, a highly respected financial expert and current portfolio and strategy advisor at Vulpes Investment Management in Singapore. Each week Grant draws on his 26 years of financial experience in the Asian, Australian, European and US markets to bring readers his analysis of economic and world affairs. Register today and get Grant's insights – ranging from eye-opening to mind-boggling – delivered free each week to your inbox.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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