Monthly Merricks – Has “Normal” Ceased to Exist


“Ordinary or Usual; the same as would be expected:”

Source: Cambridge Dictionary

Has “normal” ceased to exist? This is what I’ve been questioning of late as events in recent years have been anything other than ordinary, usual or what would commonly have been expected.

Despite having moved firmly into February, we are still inundated with forecasts (aka guesses) about what to expect for the rest of the year. There are forecasts for a hard landing, a soft landing, no discernible landing, deep recession, light recession, no recession, higher interest rates, lower interest rates, plateaued interest rates, higher inflation, lower inflation, deflation…oh, and a BBQ Summer.

Some of these forecasts will be correct because they cover all bases and the issuers of the correct forecasts will bask in a period of glory until everyone listens to their next wrong forecast.

I thought I’d look back at forecasts made in January 2022 to check for accuracy and was interested to see this from the World Economic Forum on January 14th of that year:

“Almost two-fifths think a natural disaster will befall one of the main cities in their country, and a similar proportion think foreign government-backed hackers will cause an IT shutdown. The threat of nuclear attack poses a slightly lower perceived threat.

An asteroid collision is expected by 16% of those polled, up one percentage point from last year’s survey. Meanwhile, 14% of respondents expect aliens to visit Earth this year – a two percentage point increase from 2021 – with this view held most widely in India and Saudi Arabia, at around a third of those polled.”

Not that many were expecting a “normal” year ahead then.

What Does Normalisation Mean?:

The Global Financial Crisis of 2008 was not normal. Few would have expected “too big to fail” institutions threatening to fail, one after the other. I would argue that we are still working through the consequences today of experimental QE and more than a decade-long period where interest rates and inflation hardly existed.

There were persistent cries for rates to “normalise” throughout the decade that followed by bankers and economists whose “normal” was the era from the late 1970s to 2008 where a seemingly limitless supply of credit floated all asset price boats. Just as the world was beginning to accept that perhaps the non-inflationary state between 2008 and 2020 was sufficiently long enough to be considered “normal”, along comes an inflationary shock that sends interest rates back to levels that were previously seen as “normal” – with a subsequent fall in asset prices across the board that have been widely described as unprecedented. That is to say, completely unnormal.  

The inflationary shock, of course, was produced by a global pandemic that led to millions of people across the globe being paid by the state to stay at home and not work who then started to go back to work again.

This scenario was – yes, you’ve guessed it – not normal.

How long before we hear the pleas for rates and inflation to “normalise” to what they were after the GFC of 2008?  

It’s No Surprise Then:

It’s no surprise then to see investors struggling to forecast correctly what will happen next. The consensus as we moved into 2023 was that markets had further to fall, most likely on the back of a difficult earnings season that we are more than half way through at time of writing. It is a surprise to many that markets have generally been strong year to date, far stronger than most anticipated. And the forecasts keep coming.

It seems to me as an observer that those who are forecasting that markets are yet to bottom are those who have been caught out by the market’s resurgence and have failed to capture the current bounce. They hope the market will fall again so that they can participate more fully in any subsequent rally.

On the other hand, those who have successfully caught this year’s bounce either by design or by accident are forecasting that the trough has been reached and a new bull market is under way. They hope that this is the case.

The fact of the matter is that no one knows whether we’ve seen the trough or not. Only hindsight will reveal the answer (how great would it be to run a Hindsight Fund?).

The only thing that everyone seems to agree on is that the market reaction so far in 2023 is not “normal”.

So, Has “Normal” Ceased To Exist?:

So, has normal ceased to exist and, if it has, how do we deal with it? I once said that I had little time for idiots, particularly those who did not realise that they were idiots. To which the question was rightly asked, did that make me an idiot?  It’s a risk therefore that I now see a lot of human behaviour that to my mind is not normal, whilst believing that I remain normal!

When it comes to investment however, I still think that it is normal to expect better returns to be made by investing in what the world wants and needs in the years ahead. 2022 saw the better returns coming from what most people considered were sectors whose best years were behind them (oil, gas and tobacco, for example) which could, I suggest, be considered not normal. Time will tell whether this success will be repeated consistently but I prefer to overweight the future and underweight the past in the investment decisions that I make and so will continue to target themes such as cyber security, electric vehicles, renewable energy, healthcare innovation and online life for the fund that I run (the IDAD Future Wealth Fund).

Last year was a shocker for the fund but this year we have benefitted so far from remaining fully invested in these sectors. Whether our (very) recent outperformance will continue remains to be seen but it would be reassuring to believe that, in an era in which normal may have ceased to exist, profit can still be made from investing in a strategy that appears to me to be, well, normal.