miércoles, 24 de junio de 2015

miércoles, junio 24, 2015
Coming Home

Doug Nolan

Saturday, June 20, 2015
 
 
My Mac is on a moving truck somewhere between Pittsburgh and Eugene.  Moving cross-country entails some work.  But it’s exciting to be returning home after almost 30 years.  I was a young CPA slaving away at Price Waterhouse in Portland back in 1986.  I left for the better professional opportunities available at the time in Southern California.  It's been a heck of a journey.

A lot has changed since 1986.  I grew up in Oregon, the land of Steve Prefontaine, Tom McCall and “rugged individualism.”  By the age of 11, I was making money delivering the Eugene Register-Guard, mowing lawns and working the strawberry and bean fields during the summers.  My main source of reading was every word written about my beloved University of Oregon Ducks in the sports section.  It was the age of Dick Harter, my childhood idol Ronnie Lee and the “Kamikaze Kids.”  I didn’t realize it at the time, of course, but it was a special time to be a kid in Oregon.  My upbringing prepared me well.

I had the great fortune of playing two years of high school basketball for Coach Paul (“Hoops”) Halupa (with assistant coaches Rick Havercroft and Mike Parker), who played for Harter at Oregon.  To this day, I’m still fond of using one of Coach’s favorite lines: “It will quit hurting when the pain goes away.”

After two memorable seasons at Cottage Grove, we up and moved to Newport.  In this neat little town on the beautiful Central Oregon Coast, I had the good fortune of building a relationship with another one of the toughest men I’ve ever met,  basketball coach Tom Luther.  Mr. Luther was the foreman on a salmon processing ship in Alaska, where I spent four summers working my way through university.

When times get tough, I think back to my most challenging experience in Alaska.  Hit by an early run of salmon, we once worked 165 hours in a period of just over eight days.  I can assure you that it is possible.  I still have numbness in one of my big toes, a reminder of how my legs went completely numb from the knees down.  Everyone worked hard – really hard.  And no one ever complained.  That would have been a sign of weakness.

So it feels right to come home.  It’s the right time.  We dropped off our oldest son at Ann Arbor for student orientation.  He will be a freshman this fall at the University of Michigan.  While our older son is part of the “entitlement generation,” I hope to make some changes in parenting for the benefit of our seven year-old.  The world is changing, and surely not for the better.  I want him fully immersed in hard work and nature.  Riding bikes, fishing and simple things.  We’re going to plant lots of things and we’re pondering even raising a few chickens.  It’s going to be fun.

Over the years, I’ve given significant thought to where I wanted to move my family to ride out the global storm.  I love Australia and seriously considered taking the family to the land down under.  For a while, I thought about New Zealand.  In the end, however, we’ve decided to stay in the U.S.  I expect serious issues – but I plan on being prepared.  As an optimist and analyst, I have do doubt whatsoever that it will be a fascinating time.

It’s a nice spot.  We can be to the University of Oregon campus, Matthew Knight Arena and Hayward Field in 10 minutes - and Autzen Stadium in 15.  Yet it also feels remote – the type of place one would choose for hunkering down when things turn sour.

The past few weeks I haven’t had much time to write.  But packing boxes and such has afforded the opportunity to reminisce and think.  In a way, my life has come full circle.  The global Bubble has come full circle.  Much of my professional career has been immersed in analyzing a historic financial Bubble that at this point has gone beyond what I imagined even possible.

Thinking back, 1986 was a critical year.  The U.S. “twin deficits” (fiscal and trade) were spiraling out of control.  Loose financial conditions were also stoking a dangerous stock market Bubble.  Bubble Dynamics were as well attaining powerful momentum in Japan.  At the time, the common perception was that Japan – or at least their powerful banks and manufacturers – were going to take over the world.

It was a fateful period.  Our policymakers should have more forcefully acted to rein in fiscal and Current Account deficits.  Instead, financial conditions were aggressively loosened.  Worse yet, the U.S. put intense pressure on the Japanese to loosen their policies to help rectify our trade deficits.  The upshots were parallel U.S. and Japanese Bubbles.  The U.S. stock market Bubble burst in late 1987 – with post-crash reflationary policies setting in motion Serial Boom and Bust Dynamics that have persisted/escalated now for almost 30 years.  The damage wreaked from a prolonged “Terminal Phase” of Bubble excess in Japan is a quarter century later integral to the current “global government finance Bubble” – the Granddaddy of all Bubbles.

In hindsight, one could point to 1986 as the beginning of the end of the U.S. dollar as the world’s monetary anchor.  Japan was the first major developed country to fall into the trap of unfettered “money” and Credit.  They were the forerunner of the agony wrought from dysfunctional global financial policymaking and infrastructure.

By now, one would think that loose “money” would be recognized as the chief culprit for much of the world’s ills.  The Greeks cannot be absolved from responsibility.  But lost in the discussion is that the Greeks – like Japan, like Argentina, like Iceland, like millions of U.S. subprime borrowers and so on – were buried by dysfunctional global finance.  Of course, if not for the euro Greece would never had been able to borrow hundreds of billions on the cheap.  If not for a fundamentally impaired U.S. dollar, the euro and its cadre of “subprime” sovereigns would not have luxuriated in such easy Credit Availability.  Ditto China and EM.

And this is where it gets scary.  We now have a few decades of experience of The Perils of Loose Money.  Yet, today it’s literally everywhere.  It permeates.  Somehow the loosest monetary policy imaginable – in the U.S., Europe, Japan, China and Asia is supposed to be part of the solution.   Clearly it’s the problem – a very, very serious problem.  The Chinese Bubble has inflated completely out of control.  The U.S., Europe and Japan are not that far behind.  It’s an unmitigated disaster in the making.

So I’m happy and relieved to have the family in Oregon.  I’m excited to begin pursuing the next chapter of my career.  Through the good and challenging years alike, I’ve always considered myself “a small town working class kid from Oregon” – nothing more, nothing less.  The moving truck arrives next week.  I’ll need some time to unpack the boxes – including my Mac.  
 
And then I’ll be ready to get focused - to get my full attention back to the markets and to my analysis.  I'm thinking the timing could be just about perfect.  Thanks for reading.

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