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The “New Normal” is Not New

Looking around at the rows of trees and the old brick warehouse, I didn’t see much that was new - but what was new was old. A couple of years ago, after a forty-year absence, I returned to the grounds and orchards of the Abbey of New Clairvaux where every spring I had placed bees to pollinate the prune blossoms. What was new was a building that was being reconstructed from old stones originally brought to this country in 1931 by William Randolph Hearst, the newspaper magnate. Due to financial and other circumstances, Hearst abandoned his project in 1941 and the 800-year-old stones lay neglected in San Francisco’s Golden Gate Park until the monastery obtained them in 1992. Now this 12th century Spanish Chapter House is being rebuilt by the monks of New Clairvaux.

Until my recent return trip, I never knew the official name of the abbey. I, along with all of my friends, always referred to it as the Vina Monastery after the small town located nearby. The only sign I have seen displaying the ‘New Clairvaux’ name is posted at the main entrance of the monastery. But I never went in that way. Whenever I entered the property, it was always through a back gate that would be opened for me by the orchard manager, Brother Pierre.

Brother Pierre wasn’t what I expected in a monk. Instead of being all somber and solemn, he was always happy and grinning. Four decades later I didn’t recognize his face, but there was no mistaking that smile. Standing in front of me, offering a sample of one of the Abbey’s fine wines, was my old friend Brother Pierre. The new winery was established in 2000, housed in the old familiar warehouse that I was surprised to find out had been built originally as a winery by Leland Stanford over a 130 years ago.

Seeing the new winery in the old building and the old Chapter House on its new site, I thought of the book of Ecclesiastes, “What has been will be again, what has been done will be done again: there is nothing new under the sun.” As we face tough economic times and difficult financial markets, as much as it feels different this time, nothing is really new. Not that long ago, the euphoria of the dotcom boom had the “smart money” believing we had entered a “new economy” of limitless growth. Now, the fears of a double-dip recession have the “experts” talking of a “new normal” of limited growth.

In reality, the “new economy” and “new normal” are anything but new. Like other boom times, the “new economy” did not last. And neither will the current tough times, according to Bryan Harris in his article, What’s “New” About a New Normal. “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.”

What the monks of New Clairvaux saw was a new Chapter House where most other people only saw an abandoned pile of stones. What successful investors see is that markets will recover and prosperity will return, while the crowd and the “experts” are convinced things really are different this time. If you step back and look at things from a historical perspective, you will see that not much is new and what is new is best handled with the old risk management strategies (of modern portfolio theory) that have been validated by decades of testing.