*oh sorry, did I say “official?” I meant to say “unofficial.” And I don’t mean “unofficial” as in “unsupported by official data.” I mean “unofficial” as in “our governments are deceiving us.”

Is it just me, or when the government keeps telling us that they’ve “reduced” inflation to 4.1%, does it sound like complete and utter garbage?

Does anyone truly believe that the cost of living in year of 2023 only rose by 4.1%?

And I’m not talking about the government officials who manipulate and publish this data, nor am I talking about the politicians who are claiming an early victory on the “war on inflation.” I’m talking about YOU, the hard-working Australians who are paying astronomically higher prices for housing, food, water, electricity, transport, education, utilities, rates, insurances, and for those fortunate enough to have any money left over, fun and recreation.

4.1% inflation… give me a break!

A quick analysis of my personal and business expenditure reveals a 15%+ rise in personal essentials, and a 20%+ rise in business essentials. For the purposes of my analysis I excluded all luxury items, although the luxury items have gone up even more than the essentials, which is a classic sign of an increasing wealth gap.

The deception starts with the terminology of the measuring device: Consumer Price Index. Governments refrain from using the words “annual rise in cost of living” because if they did, the claim of 4.1% wouldn’t be just misleading, it would be outright lying.

But the beauty of an “index” is that they can invent rules and methodologies to support their desired narratives.

I implore all taxpayers who care about the Australian economy to read the drivel on CPI methodology here: https://www.abs.gov.au/methodologies/consumer-price-index-australia-methodology/dec-quarter-2023

I also implore you to read how our government manipulates how much impact each expense category has to the official CPI figure here: https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/annual-weight-update-cpi-and-living-cost-indexes/dec-2022

Some of the most notable tricks include the government’s decrease to the weighting of housing, alcohol and tobacco, during the heaviest increases to the cost of housing, alcohol and tobacco in history. And a heavy increase to the impact of recreation and transport, during a time where disposable incomes can no longer afford much in the way of fun or travel.

Understating the rise in the cost of living is not the most sinister abuse of data. It is how the government gets to avoid responsibility for putting the economy into RECESSION. Nothing loses political popularity like recession. As soon as the “R word” gets out, the responsible government is TOAST. No government in Australia’s history has ever survived more than one full term following a heavy recession.

Economic growth (or decline) is usually expressed in terms of Real Gross Domestic Product (GDP). Real GDP is Nominal GDP, which is basically the net value of goods and services produced by a nation, less inflation. The reason we subtract inflation is to represent the “Real” intrinsic growth or decline of an economy as money loses value.

This distinction is important because a RECESSION is a period of Real GDP decline, usually two consecutive quarters.

All a government needs to do in order to avoid responsibility for a RECESSION is to understate inflation (CPI) or overstate economic growth (GDP).

I accuse the Australian Government, and while I’m at it the US Government, of doing both.

Not only are both governments claiming obscenely low rates of inflation, but they are both also overstating the value of economic output.

If you’ve made it this far, congratulations! You belong to the “well read” minority of our species, and I commend you! Given how astute you are, there is one more piece of literature I would like you to read (or skim read) please, and that is the difference between Gross Domestic Product (GDP) and Gross Domestic Income (GDI) here: https://www.investopedia.com/terms/g/gdi.asp

The most striking difference between these two measures is how GDP is mainly concerned with “consumption,” while GDI is mainly concerned with “incomes and profits.” Given that income makes up some 50% of most advanced economies, a divergence between a consumption-based economy, and an income-based economy, is a sign of an economy surviving on borrowed time.

Check out the below chart.

US GDP vs GDI

If this chart doesn’t give you goosebumps, then you either don’t care, or don’t fully grasp the importance of the global economy.

According to GDP, the US economy is booming. According to GDI, they are in a heavy recession.

See the massive divergence between the blue and red lines? What happened last time there was such a gap? Today’s gap is almost DOUBLE that of the 2008 Global Financial Crisis. Holy smokes!

I couldn’t find an up-to-date chart on Australia’s GPD vs GDI, but I was able to download a spreadsheet from the Reserve Bank of Australia (RBA)’s website today. Here’s a screenshot with the most breathtaking cells highlighted yellow:

Like the US, if we measure Australia’s economy by its GDI, we are in recession.

Further, given our governments’ propensity to manipulate data, you can rest assured that both the GDP and GDI data will be on the most optimistic side.

If you combine the reality of our cost of living crisis with our economic decline, you will see that our markets are in serious trouble. Our governments, our economies, and our financial markets are all surviving on borrowed time, and borrowed money, and both are running out. Something’s gotta give, and when it does, our markets will combust in spectacular fashion, like they always have.

I repeat from last month’s blog: 2024 will NOT be the year we should begin to ignore the fundamentals.

I’m staying defensive through these deceptive and ludicrously overpriced times, and our strategy for “The VCo Tuna Salad Wrap” a.k.a. The VCo Defensive 50, reflects this stance.

Beware those who try to entice you AWAY from diversification. Beware those whose interests are conflicted. Beware anyone who promises you exceptionally high returns this year. We’ve enjoyed above-average returns for way too long. 2024 is the year for capital preservation, not speculation.

Stay nimble. Stay liquid.