Everyone’s waiting for the economy to get back to normal. But what if normal doesn’t exist?
Illustration: Kyle Forinash: Source: Wikipedia
Ten years ago, the wheels came off the bus. Housing prices fell, and levered financial institutions began to blow up: first Bear Stearns, then Fannie Mae and AIG, and you know the rest.
Since that time, we’ve had the Euro crisis, the immigration crisis, the collapse and recovery of oil prices, retail armageddon, the rise of nationalistic populism, and other disruptions. Our slow-growth, low-inflation economy has been labeled the “New Normal,” the “New Abnormal,” the “New-New,” and the “Old, Old Story.” But what’s normal?
Before the financial crisis, the run-up to the housing bubble wasn’t normal. Prior to that, we had the Iraq war. War isn’t normal. Prior to that, we had the growth and bursting of the dot-com bubble. Before that – 20 years ago – we had Russia’s bond default and the Asian Contagion. Prior to that … you see what I mean?
Some say the market is an evolutionary mechanism, always adapting to new conditions. But lately it’s more like quantum physics, with jump conditions and measurement failures and uncertainty principles. And like quantum mechanics, the market frequently violates some of the most elegant mathematical models. As Einstein said, if you want elegance, go see a tailor.
Don’t wait for a mythical steady state. The market we see is the market we have. The trick is to be ready for what’s coming next, without going broke.
Douglas R. Tengdin, CFA