February, 2011

A popular buzz phrase heard in the financial world these days is "The New Normal". Often, the phrase is used to refer to a present and future world of low interest rates, business retrenchment and equity market volatility.

Sorry, I am not buying it. If The New Normal refers to the increased globalization of the world economy, the relentless onslaught of Internet and related technologies, and the advances in energy and medical technology, then I am in total agreement. But any national and world condition that has its roots in people's attitudes, fears, and greediness is by its nature cyclical. That applies to interest rates, the CPI, and the equity markets.

Inertia is a dangerous thing. When one is in the middle of a deep, dark forest, everything looks like a tall sequoia. But interest rates will stay low until they aren't, and they won't be when the attitudes of investors and consumers intersect at a point where their expectations put a different value on future dollars. History almost guarantees us that this will happen. The stock market will drop until it doesn't, and it will be volatile until it isn't – that is, people around the world will dictate what the current snapshot is – but let us not be confused that the snapshot is any kind of permanent New Normal.

Tim Pfeifer
President