The world’s worst defender of statistical manipulation is the government, followed closely by the financial press. Yes, I guess that counts me too. We are two years away from our nation’s next presidential election, which has historically been good for stocks, so I thought I would normalize some of the government’s economic data to give you a better understanding of the true strength or weakness in our economy. I am not trying to persuade you one way or the other, I am merely trying to remove the deception from the data. I will present a case for the bears followed by the bulls, as there are two sides to every argument and I encourage you to make up your own opinion based on the facts.

Most people hear the word inflation and think that it is some kind of natural economic event that has occurred throughout human history. Long-term inflation has occurred throughout human history but inflation rarely has anything to do with rising prices, but rather is caused by currency devaluation. Short-term supply and demand disruptions can make prices go up and down short-term, but long-term costs are normalized and have roughly remained the same since the age of civilized man.

On March 18, 2009 the Federal Reserve announced that they were going to purchase 300 billion dollars in treasuries in the Fed’s Permanent Open Market Operations (POMO). The days which the Fed does these purchases are now famously known as POMO days. Over that time, the Fed purchased an average of 50 billion dollars in treasuries per month over six months. All POMO months in 2009 were positive for U.S. equity markets. As a matter of fact, U.S. equity markets climbed faster and higher during the treasury’s buying binge than any other time since the 1930’s.

This month we’ll take a look at the reasons why. We will then discuss the latest programs being touted by many or our politicians, which have a high probability of failure. Next we’ll examine the sector that has historically generated all new jobs in our economy over the last quarter century and examine what the government is doing to help it.

It seems like every data point we turn over we find nothing but slimy snails and worms, and my general comment after massaging the numbers is yuck! When I think about the unconscionable amount of my children and grandchildren’s future that has been mortgaged to produce the worst economic recovery since the Great Depression, it makes me want to pull my waste basket out from under my desk and purge my lunch.