The Morning Rant: Minimalist Edition

In news that anyone with a few functioning neurons and eyes that work already have, a hedge fund principal has noticed a few things.

In case you don't know who he is (and why would you?), Bill Ackman is considered an "Activist Investor," who is quite comfortable going against the status quo, and making a few (billion) bucks in the process. Or losing them, but he has done quite well over time.

So what has he noticed?

Government inflation numbers are crap.

Inflation is raging he says! Ya think? That's not news, but his analysis of the underlying data that the government uses is interesting, not just because it reinforces my suspicion that most of our federal government are a bunch of incompetent hacks, but that the metric was chosen specifically to keep the official inflation data as low as possible.

But it gets better, since he also noticed that the state and local tax deduction (SALT) doesn't benefit the poor...it benefits the wealthy in high tax states, who in a wild and unexpected coincidence, are Democrats! Who knew?

Back to inflation, which affects everyone, in every way. Consumer price inflation is what we see everyday, but obviously all prices are increasing, and that causes ripples throughout business. Imagine trying to plan pricing or purchasing or expansions or new products when the future prices for all of your inputs are unknown. Doesn't that sound like fun?

Now think about cash flow. Your current receipts fund future purchases, but those future prices are probably going to be higher, so your cash flow is insufficient to fund ongoing business operations. What do you do? You raise prices in advance! Yay! Isn't this fun!

How to fix it? Ask Ronald Reagan and Paul Volcker, although the answer is obvious. Raise interest rates. But in the current atmosphere of out-of-control money supply expansion, I wonder whether that would work the way it did in the early 1980s?

Regardless...expect pain.

posted by CBD at 11:00 AM

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