Inflation Production Act

Inflation Production Act

The deceptively titled "Inflation Reduction Act" is right out of Saul Alinsky's "Rules for Radicals" playbook. It is more accurately an "Inflation Production Act" than anything. How Joe Biden can claim otherwise is pure malfeasance. What's even more troubling is that ALL 50 Democrat Senators AND the Vice President went along with the lie. But isn't inflation just a "First World" entitled problem?

As the famous Janus God of investing Warren Buffett recently quipped, "Inflation swindles us all." And up until recently, high inflation was actually almost always a Third World problem. That is because there is a strong correlation between inflation and corruption. Where there is high inflation, there is almost always rampant corruption. The two are joined at the hip. Consider the lowly penny for example.

Pictured at the top of this blog post today is a penny from 1845. It is 4X as heavy, almost 2X thick, and nearly 2X as wide as the corresponding 2022 penny. Oh yes...and the 1845 version is also 100% copper. The modern penny is almost all zinc. The penny provides a nice visual example of inflation over the past 77 years.

Generally speaking, when too much money is printed not backed by physical value (think gold), then the cost for goods increases because too many people have too much money chasing too few goods. That is the textbook definition of inflation. This is how a nation robs its people of value. It increases the money supply without increasing the value behind the money. You pay more for less.

The "Inflation Reduction Act" accomplishes this at scale by spending dollars we don't have on things we don't need at a price point that is too high. Even more troubling, it acts as a government clearing house for picking winners and losers rather than embracing a free market system where citizens are the deciders on how best to allocate their own capital. And then there is the IRS issue. 87,000 new armed tax police.

If this country is going to escape from a self-inflicted recession, then we need smart economic and monetary policies. Elected representatives should embrace the principle on which this country was founded, namely a "wide horizon, free range" mentality of low regulation, few laws, just enforcement, and a focus on self-reliance; from energy independence to USA manufacturing to leading the world in engineering, medicine, and free thought in all its forms...movies, painting, poetry.

The only thing holding this country back from enjoying a long stretch of uninterrupted Halcyon Days is hypocrisy...that failure to recognize, accept, and act on truth. Financial farmers would do well to concentrate on identifying ownership opportunities where truth reigns paramount.

Absolute Alpha

Absolute Alpha

What better day to launch a new investment strategy than D-Day? 78 years ago today, America launched the largest offensive the world has ever seen to help defeat Nazi Germany and the Axis powers. Men dropped from the sky, motored on boats, and stormed the beachheads of Normandy. By sunset, blood-red tides lapped the sands...but we were victorious.

D-Day marked the beginning of the end of World War II. Nearly every freedom we enjoy today was defended and secured that day through enormous sacrifice. Much of this "paid-up capital" came at the cost of lives unlived. Thousands that day, and millions of progeny this day are not with us because of past battles. And almost every meaningful battle in history had at its core the fight for truth: What is right? What is wrong? What is the truth?

What better way to pay this sacrifice forward than a search for the truth? One of the greatest challenges investors face is trust. Indeed, a hallmark of our era is the collapse in public trust in both government and various "experts" of all types. Who do you believe? What are their qualifications? What is their track record? These questions beget another: Why should we care?

Traditionally, stock return estimates are predicated upon using macroeconomic variables, financial ratios, and to a large extent, data provided by corporations themselves. The summation of these forces has formed the bedrock of the financial industry throughout the world. CNBC, Bloomberg, Wall Street Journal, etc., etc. 

The list of established mediums of "trust" is long. Absolute Alpha strives to relieve investors of dependence on traditional stock market "trust" such as financial commentary, corporate messaging, or even Government reassurances. These data may or may not be accurate. Absolute Alpha is interested in sustained market movements, regardless of direction. Commentary, forecasting, and assurances be damned, Absolute Alpha seeks the truth!

The Absolute Alpha trading goal is simple: Seek a positive yearly return (absolute alpha), regardless of market conditions. Consider the chart below showing the performance of the S&P 500 from Jan '22 until May '22:

From a pure date-to-date perspective the S&P 500 was down 13.85%. Yet look closer and you will see something else entirely. Buried in this chart is an abundance of "truth." Rather than struggling with emotional turmoil experienced on a regular basis worried about whether XYZ will beat earnings, or how many units were sold, or if FDA approval was granted, investors can potentially benefit from a broad market approach focused solely on momentum vectors.

As previously discussed, Absolute Alpha's goal is to consistently produce alpha, regardless of market conditions. But how? By being on the right side of longer-term momentum vectors. In the chart above there are MULTIPLE (most likely infinite) vectors during this 5-month snapshot. The trick is capturing as many sustained momentum vectors as possible, while limiting downside losses by being late to a trade.

If we were to "cut" this chart into various date ranges there would be both negative and positive momentum vectors whose cumulative absolute total would far exceed the negative 13.85% value if timed correctly. Why not capture alpha on BOTH the upside and downside? Simply put, when the wind changes, a sailboat tacks. Investors need to do the same. Therein lies the truth.