This was a week that could have been worse, given all the data that came out. Sure, we had a rough day on Monday, with the Dow giving up 680 points, but with all the negative information coming into the market this week, I see the relative lack of volatility (well, relative to recent history at least!), as a somewhat positive sign.
And here's an even more positive sign. When I logged on to the online version of the Wall St. Journal today, the highlighted headline wasn't about the jobs data (533,000 fewer jobs in November, the highest job losses since 1974). The focus article wasn't about Chrysler hiring bankruptcy counsel (they did), the arguments over a proposed auto industry bailout, or even anything regarding finance or economics. The title of the article? "How Southern Football Reflects Nation's Shift".
Which brings me to the topic of this week's blog posting. "Normal" is being redefined. In discussion with a number of clients we've explored this idea, and the more I see articles like the one referenced above, the more I believe that the concept of what is "normal" is changing. The realignment of expectations is occurring faster than I expected. What I mean by this is that what was previously considered "out of the norm" is now considered almost commonplace. For example, the Dow Jones Industrial Average climbed 259 points today, representing a 3.1% move. Six months ago that would have been newsworthy. In the first eight months of 2008, only 5 trading days had moves of 3% or more. Since September 15th, we've had 31 that met that qualification (more than half of the trading days).
And people aren't just readjusting "normal" in terms of the market. People are becoming accustomed to the idea of one of the weakest economic cycles we've seen in years. They don't like it, but they're becoming used to the idea. A month or so ago, the fear of how bad it might get caused people to panic. Today, people still aren't comfortable, but the fear has largely been replaced by a sense of "well, it's coming, I can't avoid it, so I'll just have to deal with it".
In some ways, this is healthy. Dealing with it changes habits. The lavish night out with the spouse may have occurred more frequently last year, but given the current environment, frugality is more common. Spending habits get changed, credit gets used less, or at least more judiciously. This is the healthy part, at least for the individual. For the economy, it makes things worse, at least in the short run. My reduction in spending is someone else's reduction in income.
So where does this realignment take us? Toward an end to the mess. Maybe not quickly, maybe not without bumps along the way, but it gets us closer to the end. When the volatility is presumed to be normal, then eventually the fear subsides, the emotion is quelled, and eventually, the volatility itself will be lessened. I've been wishing for a series of 50 point days back to back - when we see those, I believe we can begin looking for the old norms to come back into the market.
But in the meantime, I suggest taking a look at what "normal" means to you. Have you changed your concept of "normal"? Are you doing it inadvertently, or is it something you are purposely doing in reaction to the current environment?
We welcome your comments and questions. Please feel free to contact me at nsnodgrass@evanstonadvisors.com
