"Cassandra" - If You Can't Tell Who The Sucker Is....
Thumbing through the sell-side research from their multitudes of Strategists, I notice some recurring phrases, small and innocuous as they may be, that trouble me. Time and again, they repeat, in various contexts, the mantras: "when things return to normal", "when markets return to normal", and "when x, y or z normalizes" with "normal" implied to be that which has been common over the past decade-or-so in respect of liquidity, leverage, asset prices, equity risk premiums, speculative activity, growth. Mulling this over, I wonder to myself: "is this not just the perfect "recency bias" example, defined by wikipedia as "a cognitive bias that results from disproportionate salience of recent stimuli or observations"? For as I consider what precisely is meant by "normal", it seems to me that there is a reasonable good chance insofar as this IS "The Big One" (as Bridgewater Associates precsiently termed it nearly a year ago) that all these things - debt, leverage, consumption vs. income, relative asset prices - are ALREADY returning to normal, and the strategists, demonstrating the old poker joke about "if you look around the table and you don't know who the sucker is, its you....", simply haven't yet fathomed the appropriate interval frame of the normality to which things are returning towards. -
