1) Volatility is now the rule, and no longer the exception. Just look at the VIX and Sharpe Ratio as measurement tools. My college investment textbooks indicated that, ever since the Great Depression, the average annual return netted out to 10%. Even within the framework of the “traditional” eight-year boom-to-bust economic cycles, appreciation over time was generally expected. How I wish we were back in the ’80s! None of the experts at yesterday’s conference (annually organized by the firm which provides pension advisory services to the non-profit where I'm a Trustee) could either explain why certain events, and not others, had impacted the market so suddenly over the past six months or predict what’s going to happen next. Every day seems to be a new “risk on, risk off” adventure of best guesses. The only expectation, at least for the moment, is volatility. Their slides, submitted two weeks prior, were already out-of-date due to the market corrections in the past ten days. I do believe the broader US economic situation is gradually, and steadily, improving, but that we still have a long way to go.
2) One generation can indirectly affect a country’s economic culture: The keynote address at this same conference was entitled “Living in a Growth Markets World” and analyzed the relevance of GDP change across several emerging markets. I gleaned that the productivity of a country in the present day, or lack thereof, can dramatically propel or constrain a nation’s growth trajectory. Whether in Europe, Asia or even our hometown of Needham, I’m reminded that each generation, for better or for worse, has the power to indirectly affect a nation’s economic culture. Two Japanese friends have come through Boston in the past few weeks, both lamenting that the Japan we collectively experienced when I lived there, is now a relic of its former self. The concepts of “honorable overtime,” (i.e., not actually charging the company in the interests of taking-one-for-the-team), using post-work drinks as a conduit for more direct communication, and cradle-to-grave employment when the firm almost assumes the role of one’s parent in protecting and guiding the worker, are as foreign to the younger generation as the investment returns printed in my college textbooks are to Wall Street's realities. Regrettably, such changing beliefs are not endemic to the Land of the Rising Sun.