What's New?

01 May 2011

I just recently read a paper by Dimensional Fund Advisors titled “What’s ‘New’ about a New Normal?” The article confirmed absolutely nothing! I’d like to share a few facts from the paper with you.

Quite a few of us remember 1974. We had just experienced the worst two-year market decline since the 1930s. We were in our second year of recession―is this sounding familiar?―and the Middle East war triggered the oil embargo in late 1973, resulting in long gas lines and price controls. Nixon resigned over Watergate. Inflation in 1974 averaged 11% and mortgage rates were at 10%. The housing market was experiencing the worst slump in decades and unemployment and prices were rising. Economists were predicting another depression.

Most of us remember 1987. On October 19, 1987, or Black Monday, the Dow Jones plummeted and lost 22% of its value during the worst single day in the market’s history. That fateful day shook investor confidence and worries about a destabilized market and recession.

Investors endured three years of negative performance by the end of 2002. A new generation of investors experienced their first down market.

Today, we are recovering from the 2008 bear market and the housing bubble. We are dealing with high government spending, surging inflation, rising oil prices, economic stagnation, high unemployment, market volatility, unrest in the Middle East, and the continuing wars in Iraq and Afghanistan.

“The concept of a new normal is anything but new. In fact, throughout modern history periods of economic upheaval and market volatility have led people to assume that life had somehow changed and that new economic rules or an expanding government would limit growth. What they could not see was how markets naturally adapt to major social and economic shifts, leading to new wealth creation.”[i]

For a copy of the full paper, please contact our office.

This information is for educational purposes only and should not be considered investment advice.