If you thought that the surge in the U.S. unemployment rate to 5.1% last month was a shock, consider John Williams' Shadow Government Statistics.

First, Williams points out that the total job loss the government reported on Friday the 4^th of April wasn't just 80,000. It was 147,000. Reason: The previous two months of job losses had been greatly understated, forcing the government to revise them by a combined 67,000.

Second, he argues that these huge revisions are no accident. They are the consequence of the government's continuing misuse of seasonal adjustments.

"If the process were honest," he writes in his Flash Update, "the differences would go in both directions. Instead, the differences almost always suggest that the seasonal factors are being used to overstate the current month's relative payroll level, as seen last month and the month before."

Third, his analysis shows that the job numbers have a built-in bias based on a model that makes assumptions about birth and death rates. Without those distortions, he calculates there would have been additional job losses of 135,000 in February and 142,000 in March.

Fourth and most important, as you probably know, the government excludes "discouraged workers" from its count of the unemployed; and the definition of "discouraged" is highly questionable anyone who has not looked for a job in just the past four weeks!

His conclusion: The true unemployment rate in America is not 5.1%. It's 13%, or over two and a half times worse than officially reported.

The government's distortions of other critical data are no less egregious, says Williams.

Inflation: The government reports that the Consumer Price Index (CPI) is essentially the same as it was two decades ago: It was approximately 4% in 1987, and it's near 4% right now.

But without the cumulative affect of a series of questionable adjustments made in recent decades, Williams calculates that the CPI has actually risen to almost 12%, or about three times higher than the official figures.

Economic growth: The government reports that, except for a brief interlude in the early 2000s, the U.S. economy has escaped recession throughout this decade, growing by 2% to 4% each year.

But Williams shows how, without the government's distortions of the GDP data, the opposite would be true: Except for brief interludes of mediocre growth in 2000 and 2004, the economy has been stuck in a recession throughout the entire decade.

Last year, the United Kingdom became the first G-7 economy after the United States to suffer yield-curve inversion for the better part of the year until last fall. For the record, the U.K. is now slowing sharply in 2008. Several British banks have come under pressure, one mortgage bank has failed and the housing market is unravelling.

Currently, six industrialized markets are mired in yield-curve inversion. These include Australia, New Zealand, Austria, Norway, Portugal and Switzerland. Two other markets now sport the same interest rates along the short and long end of the yield curve, including Denmark and Italy. This strongly suggests that an increasing number of mature economies are gradually being infected by America's sub-prime slowdown as interest rates narrow.

Historically, the Anglo-Saxon economies have typically followed similar economic cycles. Expansions or contractions in economic activity have been simultaneous events that happen within months of each another.

From Money Week --  Oil Myth #1: Demand for oil will go down in a recession

Cobblers.

In the last 58 years, according to Worldwatch estimates (based on sources such as BP and the International Energy Agency), year-on-year demand for oil has grown every year, except for two brief periods. Between 1973 and 1975, amidst a global energy crisis, global demand decreased annually by a whopping 0.01%. And between 1979 and 1984 consumption growth levelled, the biggest annual decrease being in 79-80 - down a devastating 0.04%.

If you factor natural gas into the equation, these declines were even smaller.  Demand for oil will not fall by any significant amount, even if the US goes into recession.

Oil Myth #2: Increased production will meet demand

Really? And where are these discoveries that will lead to new production?

The last major oil frontiers were discovered as long ago as the late 1960s the North Sea, the North Slopes of Alaska and Western Siberia. Since then there has been some reduction in the number of discoveries, but, more significantly, a huge reduction in their size. In the 1960s over 500 fields were discovered; in the 1970s, over 700; in the 1980s, 856; the 1990s, 510. But in this decade just 65 oil fields have been discovered!

The chart says it all.

Of the 65 largest oil producing countries in the world, up to 54 have passed their peak of production and are now in decline, including the USA in 1970/1, Indonesia in 1997, Australia in 2000, the North Sea in 2001, and Mexico in 2004.

DEBT WATCH

The April 18^th headline of Australian read, "Credit card debt slows to 13-year low." That would lead you to believe that something good has happened in the economy. But has it?

--A look at the actual numbers from the Reserve Bank yesterday tells a slightly different story. Total credit card debt actually grew at 9% in February, from $39.5 billion to $43.25 billion. Interest-bearing debt grew by 9% to $31 billion. Even worse, the average interest rate Aussies pay on credit card debt leapt from 17.6% to 19.4%.

--Thanks to the rise in rates, credit card interest rates are 20% higher than this time last year. And it means, with current balances, Aussies are paying about $500 million in interest on stuff they already bought.

Commodities are in a bull market, they will be volatile, things do go down in bull markets. Look at the last bull market in commodities. There were big corrections, but they went on to make new highs. Gold went up by a multiple of 25 in the last bull market from 35$ to 800$. Gold is only up 3.5 times from its low at the start of this bull market.

This is not a commodity bubble, nowhere near it. It is a money printing bubble. The USD is being debased by the FED and will continue to be. The prices of commodities are relevant to what currency you use. It's a bubble in USD terms, but it's not a bubble so much in other currencies, especially if one uses gold as a currency.

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FMG FUND MANAGER COMMENTS

March was a miserable month.  The first quarter was one of the worst in my memory with markets down from 10 to 30%. Close to the bottom? We believe so.

The Bad News

* S&P 500 down 10%, Europe down 16%, China down 14%, India down 27%

* Sub-prime problem does not seem to be over in the USA and Europe

* Inflation is heating up, but not out of control

The Good News

* Valuations in China, India and Russia have come down to a P/E level of 10-15 times with earnings growth rate in excess of 20% p.a. We would argue that it is cheap valuations, especially compared to the USA and Europe.

* The average Bear market in Emerging markets over the last three decades were down 33% and lasted 7 months. We are already down more than 33% during the last 7 months. The Bear Markets were followed by a Bull Market that gain on the average 124%, please draw your own conclusions.

* Compared to the last Western World bear market of 2000-2003, stock market valuations are today reasonable or low and balance sheets are much healthier with a lot of corporate cash.

* Russia, Middle-East and Africa are weathering the storm.

Conclusion

* This in an opportunity to buy into the markets FMG focuses on at very reasonable prices that will reward the patient investor.

* The Sub-prime problem is most likely discounted and forced selling by hedge funds and mutual funds have soon run its course.  Sub-prime have only had a marginally effect on emerging markets earnings but been "a killer" as to their share prices.

* Africa and Middle-East seem to remain fairly uncorrelated to the rest of the world.

Personally, I have added a substantial addition to my account in March and April.

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Things to consider;

Food riots have taken place in Egypt, Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan, Yemen, and elsewhere. In Pakistan, a much-afflicted country, armed soldiers deployed to guard wheat and flour deliveries enforce government-imposed sales quotas. Taking a page from the common syllabus of economic errors, President Arroyo of the Philippines has begun a government crackdown on people accused of  hoarding rice and other grain.

The World Bank confirms the above and says 33 countries from Mexico to Yemen have already experienced unrest because of spiralling food costs, and 37 countries may face more social upheavals if food prices continue to rise.

Time to start thinking about planting a garden . . . and adding DBA, RJI, COW or RAW to your portfolio.

Finally, an amazing website - free streaming TV, movies etc . .  http://www.surfthechannel.com/  enjoy . . .

The newsletter is designed to highlight and examine various topics in the Markets to assist you in making decisions with your investing. It is not designed to replace meetings and discussions with us and we welcome any questions or comments - feel free to give us a call if you would like to discuss your finances and learn more on how we can work together.

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