2013 Guild Basic Needs Index

June 2013 Index

June 2013 Index July 25, 2013 Today’s CPI Doesn’t Resemble Your Grandfather’s CPI It is important, when viewing the U.S. Government’s Consumer Price Index (CPI), to understand that the CPI tracks consumer spending and not the cost of living. According to an article in Barron’s this past weekend, the current CPI basket includes prices of 71,000 goods and services — and doesn’t resemble the consumer basket of goods and services from prior decades. Both the calculations and the selection of data itself have undergone many changes, and in our opinion many of these changes have been done to report a more modest rate of inflation. The CPI is based on data collected from spending surveys given by the U.S. Bureau of Labor Statistics to approximately 14, 000 urban families. Among the 71,000 items the CPI includes other expenditures, such as recreation, insurance, taxes, personal care services, entertainment purchases, and consumer electronics. The Bureau of Labor Statistics also periodically alters the contents of the basket, making adjustments to the weighting of the components, and smoothing seasonal patterns. Such tinkering with data, as we have mentioned over the years, usually results in an understatement of the inflation rate and creates an unreliable, misleading cost-of-living index. Guild Investment Management has long believed that the existing indices used to measure cost of living changes in the United States are inadequate. The Guild Basic Needs Index TM (GBNI) concentrates on four categories of primary and essential living needs: food, clothing, shelter, and energy (which is

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May 2013 Index

May 2013 Index June 20, 2013 Prices Have Been Rising in Other Areas as Well An article from Lisa Scherzer, finance editor for Yahoo Finance’s The Exchange, earlier this month listed ten items that have risen significantly in price over the past 10 years. In the article she noted that: 1. Fuel oil and other fuels (for home) have risen 145% 2. Gasoline is up 108% 3. College tuition has risen 88% 4. Hospital services have risen 85% 5. College textbooks are up 83% 6. Elementary and high school tuition and fees are up 67% 7. Beef and veal prices are up 64.8% 8. Eggs are up 58% 9. Veterinarian services are up 63% 10. Tax return preparation and other accounting fees have risen 51% due to increased tax complexity. We will continue to monitor and discuss price changes in the economy. You will find these frequent reports on this website and in our weekly letters. Stay tuned.

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April 2013 Index

April 2013 Index May 30, 2013 Government Inflation Data May Show Prices Are Lower; the Prices of Basic Essential Needs are Not In countries around the globe, the April 2013 official inflation data tended to show falling inflation rates. In the U.S., the official data showed consumer prices as measured by the Consumer Price Index (CPI) actually declined 0.1 percent during the month. However, when we measure the prices of certain food, clothing, shelter, and energy components in our Guild Basic Needs IndexTM, we see that the prices of items that people have to consume every day actually rose about 0.8 percent. Over the last 12 months our GBNI is up about 9.4 percent while the CPI is up a mere 1.1 percent. We have often discussed how the federal government — which makes hundreds of billions in payments that are based on its own calculations of inflation — would like those calculations to show a lower number. That being said, there are different agencies within the government that calculate inflation. The popular CPI is calculated by the Bureau of Labor Statistics (BLS). The government’s Bureau of Economic Analysis (BEA) also calculates inflation rates. In 1996, the BEA adopted a chain weighted price index. Chain weighting refers to the process of continuously updating the index to reflect spending patterns and substitution. Often this substitution lowers the weight of higher priced items and replaces them with lower priced replacements. In 2002, the BLS also adopted chain weighting in it CPI, but

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March 2013 Index

March 2013 Index May 16, 2013 Inflation — Still Held at Bay The April 2013 inflation data in the U.S. are being released, and it shows that prices are falling…not what the Federal Reserve wants to see. Wholesale Prices, sometimes referred to as the Producer Price Index (PPI) data yesterday showed a decline of 0.7 percent in April, primarily due to a drop in energy prices. These wholesale prices, which are supposed to track the underlying costs of certain raw materials and producer costs showed an increase of only 0.6 percent for the twelve months ending April 30, 2013. There is a lot of talk about the ‘tapering off’ the Federal Reserve’s continued asset purchases, or the end of QE – a lot of it due to the strong performance of financial markets. However, in our opinion the cessation of their QE seems unlikely as long as the inflation data remains so muted. We believe it will take more than rising stock prices to get the Fed to stop. The Fed has indicated that it wants to see much stronger employment and higher inflation. When will the Fed see inflation numbers pick up? It doesn’t look like a 2013 issue. Nonetheless we are vigilant; and we will use our Guild Basic Needs IndexTM (GBNI) to track the costs of basic, essential needs that Americans must buy every day. We expect the prices of food, clothing, shelter, and energy contained in the index will be a harbinger for rising inflation. Having

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