The Slope of Hope (But I don’t want to be the 2nd derivative, I want to be 1st)

• Government and Organizations

With four months in the rear-view mirror (seven if you count the election) the audacity of hope has been redirected to the new Administration and Congressional agendas. Choosing to act with all possible speed because “the stars are aligned” (who knew our President was an astrologist? Is that a course at Harvard Law?), or just because like Commodore Vanderbilt said “I got the power, ain’t I?” our nationally elected officials seem committed to expanding the deficit to a size never before seen in this country, and doing it for several years to come. Yet governments’ estimation of revenues are as naively optimistic (let’s give them the benefit of public school grading on the curve) as their plans for health care utopia. You certainly don’t want to think they would miss estimates on purpose so they would have this as an excuse(I mean rationale) to raise taxes more to ‘fix’ their (oops, the) mistake of lower receipts.

Little substance has been directed toward the real drivers of the American economy. Small businesses have been an afterthought in the economic strategies thus far articulated. On the other hand, these same businesses are (and will) being told it is their “patriotic duty” to pick up the burden so that ‘all’ may share in the profits of capitalism.

The trouble is profits are shrinking and will continue to shrink further as overhead costs of labor, capital and materials rise. Our new political engineers aren’t aware that hope is not a strategy.

Be wary of the new national edifice being erected in Washington. The building blocks are being appropriated and there are wonderful plans for the grand opening. But the architects have never been certified, nor do they have successful experiences on their resumes. Construction itself is not taking place on a firm, proven foundation, and the structural framework is theory only, the mortar of success is nonexistent. And remember, they’re building a skyscraper, not a shed.

• Markets – Deflating the Instant Gratification of Inflation

The financial press keeps describing how multiple government actions by multiple countries are fanning the flames of inflation. The only air being moved are the hot winds coming from the pundits and promoters. The reality is inflation is alive but is currently a collection of glowing embers (we’re trying to keep the analogy consistent).

These embers of inflation are real and they are growing. It will take the better part of a year for the various components (monetary excess, diminished material supply and/or shortages, living wage pressure, investor sentiment rotation) to combine and exert a much greater than normal long-term upward force on prices. Once started, this will be a 4 to 5 year event. For now, the water in the big pot the frog is in is still cool. But the burner is on and it's being turned up. After the first of the year don’t be surprised if that pot of water is starting to resemble a hot tub.

Till next time