The stock market is up big today on two pieces of news.
First of all, Freddie Mac only lost $151 million last quarter. This news has pushed their stocks up nearly 10%.
The other piece of news was that consumer price inflation was only 0.2% higher last month.

And if you believe these pieces of news then I have a bridge in New York City to sell you.

Let's start with the giant mortgage company Freddie Mac. It seems that their "less than expected loss" last quarter can be attributed to just one thing - accounting changes.

Freddie said Wednesday its first-quarter earnings beat Wall Street expectations, but it also reported that the "fair value" of its net assets fell to negative $5.2 billion at the end of March from $12.6 billion at the end of December. That reflected a drop of nearly $32 billion in value for its mortgage assets and credit guarantees that did not affect the company's net income.

So while Freddie Mac's assets dropped a stunning $32 Billion, they can still report a tiny $151 million loss. I wonder if I can use these accounting tricks for my portfolio?
And this isn't the only warning today about Freddie Mac.

Richard Shelby, the senior Republican on the Senate banking committee, said Fannie Mae (NYSE:FNM) and Freddie Mac were "thinly capitalised, highly leveraged and pose a systemic risk to taxpayers".
"I worry about the failure of the institutions," he said.

So short of capital is Freddie Mac that they just announced that they have to raise $5.5 Billion in equity issues, thus diluting current stock holdings. And yet Wall Street is buying this company with both hands today. What drugs are stocks traders on?

But now for the bigger economic news today, the CPI.

U.S. consumer prices rose less than forecast in April, reflecting cheaper costs for cars and hotel rooms that offset the biggest jump in food in 18 years.
The consumer price index increased 0.2 percent after a 0.3 percent gain in March, the Labor Department said today in Washington. So-called core prices, which exclude food and energy costs, climbed 0.1 percent, compared with 0.2 percent.

I'm not sure what planet that the labor department lives on, but 0.2% inflation isn't the price inflation rate on Earth. So let's break down these numbers a bit.

Since gasoline prices normally rise significantly in April, the 5.6 percent rise in prices for the month turned into a 2 percent drop after the government adjusted for normal seasonal changes. That was little comfort for motorists now paying record prices at the pump, which are nearing $4 per gallon.

The decrease in gasoline prices reflects government efforts to adjust the numbers for seasonal variations, said Dana Saporta, an economist at Dresdner Kleinwort in New York. The increase in prices at the pump was smaller than usual during April, causing the adjustment process to show a drop.

Ah, so you see the labor Department lives on the Planet Seasonal Adjustment. I'm not certain where in the night sky I might find that planet, but it seems like a very nice place. Maybe we can all visit it one day.
On Planet Seasonal Adjustment transportation costs actually dropped by 0.7% last month.

As for the rising price of food being offset by the cost of cars and hotel rooms, that can be explained by the idea of "weighting". The concept behind it is that if the price of something goes up then consumers are less likely to buy it. And if the price of something goes down, consumers are more likely to buy it.
So applying that idea to today's numbers, the rising price of food meant that you ate less last month. Thus you dropped weight, and might I say, you look spectacular!
And since so many of you are getting your homes foreclosed on, the lower cost of hotel rooms comes in very handy.

And on a related note, you may have noticed that plenty of homes are still getting sold in America today. Well, it sort of depends on how you classify a "home sale".
I want to introduce you to the concept of an REO. (no, not the band)

real estate owned (REO) -- real estate owned by a savings institution as the result of default by borrowers and subsequent foreclosure by the institution.

Mr. Mortgage enlightened me to a little-known fact about the home sales numbers - bank REO sales are counted in existing home sales numbers. Thus if a home that has been foreclosed on and fails to sell at auction, the bank must buy the home back from the auction (from itself), and this counts as a "existing home sold".

97.75% of the homes failed to sell at auction so the banks bought the rest back. That percentage was in line with last month. Bank REO is quickly becoming ‘The Real Estate Market’.

So you can see how things on planet Seasonal Adjustment, and its sister planet Weighting, things are going very well.
However, on planet Earth, things aren't doing as good.