Steady-State Economics?

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

By | 2017-10-20T06:02:35+00:00 October 20th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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