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Historical Perspective

Today’s world is interesting, and while it is similar in ways to times past it is very unique in most.  There is a somewhat familiar significant bubble in the prices of financial assets.  However, unlike times past this bubble has a lot to do with Federal Reserve’s heavy interventionist hand both in managing interest rates towards zero (ZIRP) as well as printing money and using it to buy financial assets (QE).   There is somewhat familiar geopolitical instability with Russia acting in an imperialist manner, Israelis fighting Palestinians, and more than a few in less affluent nations chanting “Death to America,” or some reasonable facsimile thereof.  But there are also significant differences, as something called ISIS has attracted Islamic fundamentalists from many parts of the world to come and form a new nation that seems to be very aggressive and intolerant of other ideologies.  Today this is movement may be more a blob of anger than a nation but it aspires to become the latter and, if you believe the rhetoric of politicians and the media (a very big “if”) is making great and surprisingly rapid strides.  As an aside, it is somewhat wondrous how what appeared to be a rag-tag group of angry twenty-something’s so quickly became an organized and well-armed movement.  It makes me think that they are state-sponsored, yet no media seems to be suggesting this or even pursuing this line of reasoning.

What I find fascinating to reflect upon is that there is a large portion of the adult population that only really knows a truly “new normal.”  What is expected, or is considered to be standard or OK for this group is generally stuff that was unheard of for my generation or the ones prior.  There was always government involvement in the residential mortgage business, but never like it has been the past 15 years, let alone what it has been the past five when something like four of every five mortgage loans in the U.S. are government-owned and/or government-guaranteed.  The Federal Reserve has always influenced rates, largely through gentle policies such as moving the Fed Funds rate by 25 basis points, or executing repurchase or reverse repurchase agreements to add or drain liquidity from primary dealers.  The heavy hand of the Fed that we’ve seen in the past five years is unprecedented, and yet its become something that the market and citizens are very cavalier about – as though the Fed’s printing trillions of dollars of new money and buying up (read: out-bidding the market with its own money) bonds and mortgage products is a benign event.  In the 20 years leading up to 2000 interest rates in the U.S. swung rather wildly as did stock prices.  In fact, stock prices actually declined a rather significant percentage of the time and sometimes took many years for subsequent gains to retrace their declines.  For the past 15 years, the only declines have been what anyone would rightly consider brief and aberrant periods and any losses from those were quickly wiped out and more than made up for by an inexorable climb in prices. 

I wonder what is the mindset of the massive amount of professionals in the investment world, or of the adults in the U.S., who came into their own these past 15 years, who are in the age range of 25-40, and who only know the lessons learned from this period?  And, with that group now moving into leadership roles, how will their vision as informed by their experiences lead to a very different world than the one led by those whose expectations were informed by a very different set of experiences?

For some reason, as I write this it causes me to recall Hillary Clinton’s reaction to the accusations related to the Benghazi murders.  When confronted with insinuations that she was responsible and may not have taken the correct actions, or might have hidden the truth of what took place from the public, she said something like “I have accepted responsibility for this.  Let’s move on now.”  And, it seems like so many seem to have said to themselves that that is ok and that it is bad manners or an example of the evil partisanship in politics to even bring it up again.  These people are genuinely ready to accept her apology and her “accepting responsibility” and make her the next U.S. President.  What a joke!  Accepting responsibility for something so horrible must mean paying a price.  Words alone mean nothing.  What is the price?  Richard Nixon was forced to resign when it was discovered that he had used listening devices to hear what his political opponents were planning in their campaign.  For this comparably benign act he remains a highly polarizing figure to this day, and his name carries with it a badge of shame.  Nixon’s crimes led to no deaths, and yet he was forced to pay a real price, as was right.  In today’s strange world Mrs. Clinton can say that she’s taken responsibility and then insist that “it’s over now and it’s time to move on,” without paying any price at all.

We live in a time that is indeed unusual, superficial, unaware, and thus troubling.  Mr. Putin seems to understand this quite well and realizes that bluster will not stop him from achieving whatever his objectives may be.   So do Mrs. Clinton and the Kardashian clan.  

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