- The flat COLA is reality…
- … and so is a massive Medicare premium increase
- Phony inflation numbers: The mainstream tries on our tinfoil hat
- Earnings misses, slowing factory activity: Bad news is good news again!
- The Fed plants a market-moving story… Rickards readers, pro and con… more millionaires next door speak up… and more!
That’s that — no COLA for you next year, if you collect Social Security.
The wonks at the Bureau of Labor Statistics regaled us first thing this morning with their latest consumer price index. It fell 0.2% in September. Year over year, it’s flat.
But that’s not the number the Social Security Administration uses to decide what cost-of-living adjustment Social Security recipients get each year. Instead, it relies on CPI-W — a measure of the cost of living for urban workers. (Never mind that most Social Security recipients aren’t working — this is the government we’re talking about.) CPI-W has fallen 0.4% over the last year.
Moments after the BLS issued its report, the Social Security Administration confirmed what we forecast three months ago — no COLA for 2016.
At the risk of repeating ourselves, any resemblance between the CPI and your own cost of living is purely coincidental.
John Williams at Shadow Government Statistics runs the inflation numbers the way the government did during the Carter administration — when inflation raged north of 10%. He says this morning the year-over-year increase works out to 7.6%.
How did the numbers stray so far from reality during the ensuing 35 years? It started with one of those “bipartisan blue-ribbon panels” the government forms now and then to “solve” urgent problems. In this case, the Greenspan Commission was named by President Reagan to fix Social Security’s looming insolvency.
One of the panel’s solutions was to jigger the way inflation was measured. A lower inflation rate means a lower COLA — which buys more time before Social Security goes broke.
Pardon us if you’re already familiar with the methods used to rig the numbers, but if you’re a newer reader, you might find methods like these and the “reasoning” behind them rather eye-opening…
- Hedonic adjustments. If the price of a new car goes up, but the manufacturers add new features to the new models, well then the price of a new car hasn’t really gone up, has it?
- Substitution. If you start buying hamburger because steak is too expensive, well, your price of beef hasn’t really gone up, has it?
How times have changed: A decade ago, it was only cranky newsletter editors who deigned to suggest the government’s inflation numbers were rigged. “Respectable” journalists and think-tank types suggested the likes of us be outfitted for tinfoil hats.
Now those very same journalists and think-tank types are coming around: “Inflation has fallen sharply over the past year mainly because of a plunge in gasoline costs,” says a no-COLA dispatch this morning at MarketWatch. “Yet while all Americans benefit, seniors tend to drive less and not save as much because of cheaper gas.”
Also not buying into the BS is an outfit called Social Security Works: “You would be hard-pressed to find a senior who has not seen the cost of medical care, prescription drugs, food and other necessities go up,” writes its co-founder Nancy Altman at Huffington Post. “The shortcomings of the measure for Social Security are obvious.”
Ms. Altman belongs to the crowd that insists Social Security isn’t going broke. We disagree strongly on that score — David Stockman figures it has only until 2026 before payments have to be slashed — but there’s no arguing about understated inflation.
And then there’s the Medicare screw job that results from the flat COLA — something we mentioned last month.
Under the law, if there’s no COLA in a given year, about 70% of Medicare recipients are spared the usual annual increase in Part B premiums.
But Medicare’s Part B costs keep going up… and it’s the remaining 30% of Medicare recipients who have to eat all of those additional costs. As a practical matter, that means a leap in Part B premiums from roughly $105 a month to $159 a month come January — even more if you have a high income.
The exact figures haven’t been announced yet. If you’re unsure whether you’re among the unlucky 30%, you can examine our original expose.
Don’t expect a quick fix from Congress — not when they’re still at loggerheads over the debt ceiling. (This morning, the Treasury moved up the drop-dead date when Uncle Sam might default on a debt payment — it’s now Nov. 3.)
These falling dominoes of bad news only reinforce our enthusiasm for a solution whose virtues we’ve been extolling for months now — “piggybacking” Canada’s version of Social Security.
The Canada Pension Plan is nothing like Social Security. It’s professionally managed. It runs a surplus. Its reserves are growing. Do it right and you can collect monthly checks as high as $4,700.
And you don’t have to worry about a COLA that doesn’t keep pace with your actual cost of living. Back in June, we found a typical “piggyback” play delivers an annual COLA of 7%.
It takes only three simple steps to get started. They’re laid out for you at this link.
“Stocks up on Hopes Rates to Stay Low for Longer,” says the Financial Times website.
A confession, dear reader: We were hasty two weeks ago when the government delivered lousy job numbers for September and the market tanked. That was a reversal from most of the last seven years — when poor economic numbers meant the Federal Reserve would keep the easy-money spigots open, juicing stocks ever higher.
We said the tide had finally turned. Bad news really was bad news again.
The reality is more complex: We are now in a transitional period when bad news will be bad news on some days… and good news on others.
This morning, there’s bad news everywhere you look — read on for the details — and the major U.S. stock indexes are all solidly in the green.
The Dow is back above 17,000, and the S&P back above 2,000 — if only barely. The Nasdaq and the small-cap Russell 2000 are up even stronger, about two-thirds of a percent. Gold has rallied to another three-month high, at $1,188.
Traders woke up to a front-page Wall Street Journal article that began thus: “The chances of a Federal Reserve interest-rate increase in 2015 are diminishing amid new signs of anemic economic activity.” The byline on the article included Jon Hilsenrath, the Fed’s preferred conduit for “authorized” leaks. It’s as official as it gets outside an actual Fed statement.
Change “diminishing” to “dead and buried” and the Journal has affirmed what Jim Rickards told you here a month ago. Actually, he said last November the Fed would leave rates untouched all this year, but we won’t split hairs today.
Speaking of “anemic economic activity,” we have our first read on manufacturing in the month of October. Two Federal Reserve surveys are out this morning… and they’re both awful.
The Empire State survey for New York state clocked in at minus 11.4 — worse than the most pessimistic guess among dozens of economists polled by Bloomberg. Within the survey, new orders have been shrinking for five straight months. Shipments have been shrinking three straight months.
The Philadelphia Fed survey of factory activity in the mid-Atlantic registers minus 4.5 — again, worse than the most pessimistic “expert” guess. The good news, if that’s what you want to call it, is that it’s a slight improvement on September.
This morning’s rally is even more stunning in light of two major “misses” early in earnings season.
After the close yesterday, Netflix disappointed the vaunted “analyst expectations.” NFLX is down more than 7% today. And before the open, Goldman Sachs also missed — by only a penny, but a miss is a miss. Goldman freakin’ Sachs — how does that happen!?
Still, GS shares are up about two-thirds of a percent. That vampire squid is a resilient creature.
Jim Rickards, tweeting from a conference in South Africa, sums up the state of play thus…
“I quit the service,” writes a dissatisfied reader of Currency Wars Alert, “when I realized it was not Jim Rickards personally, based on his strategy, but someone else (1) who is conventional, (2) who is only one more Chartered Financial Analyst (study texts and regurgitate), and (3) whose failures of particular options are not publicized, while (4) only his wins are shouted out.
“I have given away copies of two of Jim’s books to the governor and treasurer of this state.
“I will look for your publishing this in The 5.”
The 5: What, you think Dan Amoss’ recommendations somehow get slapped onto the bottom of the email alerts without Jim’s knowledge?
Fact is, more than once, Jim has referred to Dan as his “doppelganger” — that’s how highly he thinks of Dan’s analysis. Among other qualifications, Dan studied under the anything-but-conventional economist Tom DiLorenzo at Loyola University Maryland. (Which reminds me, I need to read his Hamilton’s Curse one of these days.)
Dan and Jim trade emails several times a week as they figure out who might fire the next shots in the global currency wars and formulate a strategy accordingly. You don’t think two minds are better than one?
“I am a very small operator, but I want to say to all the unhappy subscribers: Are you not making a lot of money with Jim?” writes a new subscriber to Currency Wars Alert.
“I’ve already made more (%) than anybody I know! Most are wishing for breakeven right now. Jim’s service has me up 30% since early September when I joined!
“Would you feel better if he tripled his price and gave you all three together? I could not have gotten in at that price, so I am glad the way he’s doing it. Why should you care if you are going to make 100%-plus returns over a year? Keep up the good work, Jim!”
“My 3 cents, Dave (inflation, dontcha know?)” writes a charter Platinum Reserve member, weighing in on our millionaire-next-door discussion.
“While it’s always nice to have luck on your side, hard work and thrift is the key, despite your comments to the contrary. Today’s problem is that the typical wannabe thinks all he has to do is show up.
“When times get tough (and they always do), the entrepreneur has to be willing to cut his personal income so that the business bills get paid first. Too many business owners today continue to pay themselves first at the expense of the investors/lenders.
“I always lived three years behind my then-current income so that when inevitable downturns did arise, they had very little impact on my standard of living. Today’s wannabe tries to live three years ahead of his current income and then complains about the economic conditions beyond his control — NOT!
“I’ve never bounced a check nor paid a penny in credit card interest. How many wannabes can say that? Luck my rat’s petunia — been there, done that.”
“As a boomer,” writes a reader after we suggested good timing enabled the boomers to build a fortune more easily than Gen Xers and millennials, “I’d argue that the difference between boomers and millennials is not lucky timing.
“Maybe it’s that we boomers as a group weren’t the financial ‘suckers’ that the millennials are! One day, the age of personal financial accountability will re-emerge, and the age of entitlement, instant gratification and hyper-consumerism will fade away.”
The 5: Wait a minute — which generation raised most of those millennials?!
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. This just in: One of the biggest medical breakthroughs of your lifetime is set to begin unfolding this coming Tuesday.
Early movers have the potential to make 10 times their money… and that’s just for starters.
More coming in tomorrow’s 5. But if you don’t want to wait for the details, you should check this out right away.
