I thought the “new normal” was just a PR gimmick. At one level it justifies how supposedly smart folks didn’t call the 2007-08 crisis, so that now it is ok to do some Monday morning QBing to say, ok, the world changed after 2008.
Here comes another view that the new normal is idiotic because the “old normal” is still around.
Both views are probably misguided. Obviously, the financial world had had its 9/11, and things will never be the same. But to offer pablum while continuing to play the legal Ponzi Buffett-PIMCO game is, well, at the very least, morally reprehensible. Yeah, yeah – as they say in the Street, “Greed is good.” Milton F must be turning in his grave.
There is no new normal because there was no old normal to begin with. The old normal was the view that risk could be contained within statistical models using the Gaussian (or normal) distribution. Taleb and Mandelbrot have pretty much shown that the distribution has to be other than normal because there is a fat-enough tail that means that those using Markowitz-Black-Scholes models would eventually lose their pants. If there were a new normal, it would just have different values for the statistical parameters of mean and variance, but it would not be a fundamentally different probability concept. And those who didn’t learn their lessons from 2008 (or even 1987) would continue to lose money for themselves and their foolish clients.
My best guess is that big money managers are simply competing for the lemmings. Now, that’s a case of old dogs not learning new tricks.