When all else fails, just shop!

By DAVID MOON, Moon Capital Management
March 12, 2006

I suppose it's just an old, harmless clich', but I have long joked with my wife about women using shopping the same way an alcoholic might use a bottle of whiskey: as a coping mechanism.

I remember an episode of the Flintstones when Wilma and Betty were trying to deal with their grief from the latest harebrained actions of Fred and Barney. Rather than drown their sorrows, the girls climbed into their four-feet-drive convertible and headed for the mall, with a military-like battle cry: 'Chaaarge ' it!'

Were they from Bedrock or Berlin?

Had Wilma been born a few thousand years later, she might have been a candidate to become Chancellor of Germany.

German Chancellor Angela Merkel just introduced a new budget that includes a deficit that exceeds the Eurozone's agreed-upon limit of 3 percent of GDP. Badly needed corrections to the government's ramshackle budget, including tax cuts, were postponed, continuing a regime of bloated pensions and poor productivity.

How did Ms. Merkel propose correcting the economy's ills? With a Wilma and Betty plan. She is encouraging Germans to go out and spend more money.

No matter that the consumer may be the only segment of the German economy showing any restraint. If consumers will just dip into their savings and buy more TV sets or blue jeans, the government won't have to make any hard decisions about its own finances. Ingenious.

For the sake of my marriage and email servers, I will resist the temptation to make a sexist tongue-in-cheek remark. Feel free to provide your own.

You should also feel free to make fun of your own government for the way it reports inflation statistics in this country.

When the Labor Department reported that the January Consumer Price Index increased 0.7 percent, the magnitude of the increase was more than a bit disturbing. But don't worry. The government experts, along with their willing accomplices, private analysts and commentators, were quick to point out that the 'core inflation rate,' that is the rate of increase in prices of things other than food and energy, increased a quite modest 0.2 percent. And if you ignore changes in construction costs, there were hardly any increases in consumer prices.

Food and energy are the most volatile components of the CPI calculation. Excluding these items provides a smoother look at changes in prices. This is probably useful for economists or academicians to do macro or theoretical analysis.

But it is not useful in trying to analyze the real-life effects of changing prices. Most people buy groceries every Tuesday, not on a 72-week moving average.

Looking at the CPI excluding food, energy and construction costs does very little to explain your real-life experience if you are try to build a new high school in Hardin Valley and your construction costs increase to the point you can't afford to put desks in the school. The folks at my neighborhood gas station apparently didn't get the memo about low inflation.

Governments are useful for many things, I suspect. But giving financial advice is not one of them.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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