The “New Normal” phrase was used sporadically until the financial crisis in 2008, when Mohammad El-Erian, the CEO of PIMCO, used the term stating that the post-subprime economy could mean subpar growth as new normal. Since then, “New Normal” has meant everything from mass shootings to low interest rates to wearing masks to working from home. One of the more recent “New Normal” was challenging what it means to be a socially responsible company. That was until a bunch of rioters stormed the Capitol building. Now, the rioters are the “New Normal”. We can all agree that there was nothing normal about any of the thugs that stormed the building.
Many “New Normals” have been predicted for years since El-Erian’s speech but it’s unclear whether any have actually materialised. In the wake of the 2008 financial crisis and ensuing recession, subpar growth was quoted by him as the new normal. But growth. since then, has been anything but subpar. COVID-19 has changed the way we live, work and interact. But, we may revert to old habits in weeks, months or years. ESG investing was boldly predicted as the new normal but it is but a sliver of the overall market. And many of the rioters who created the new “New Normal” are going to find themselves in new surroundings – the State Penitentiary.
Future Wealth’s View
The penchant for creating new catchy phrases or paradigms often sways the public and investors alike. Wall Street falls prey to these flashy but largely meaningless phrases. The most recent go-to phrase to get higher valuation was “Artificial Intelligence” or AI. Companies that little to do with AI began to put that as their next big investment opportunity in all their press releases and presentations. And they were very quickly rewarded by a spike in their stock price. Cloud computing is another one that saw a similar following before AI usurped it. When the enthusiasm for AI dies, it is on to the next “what’s hot now” phrase.
From an investment standpoint, it is quite the rush to be putting money in companies in a hot sector and see it soar. But, if the investment is not based on fundamental analysis, it is unlikely to be repeated over and over again. If one does succeed in nailing the latest trends every time, very soon he will be become the poster child for the next “New Normal”.