The awesome level of volatility that investors have experienced this year in the US stock market has caught many people by surprise, including myself. Is this volatility due to severe investor skepticism, bad economic fundamentals, poor economic management, or something else? I would venture to answer that it is due to all of the above, but even more important, volatility is a signal to investors around the world that the world is changing. Commerce, innovation, and societal change is happening faster and in more uncertain ways than humanity regardless of pedigree is used to. Take cell-phones for example, 15 years ago one could scarcely find a cell-phone in Africa and even in the USA these devices were relegated to the very wealthy and large corporations. But today there are very few households in Africa who do not have a cell-phone. A friend of mine doing translation work in the middle of Indonesia was awed by how no matter how deep into the jungle he went he could still get great cell-phone coverage. A culture whose language is barely known by the rest of the world can feasibly and relatively economically call across the world! While a single example cannot seal the case on why there is so much volatility it does shed light on how the world is changing. A millionaires toy 15 years ago is now used by close to 3 billion people. The ability to communicate ideas and plans across the country and across the world is now available to almost everyone on the planet. And if ideas are the driving engine of innovation, and innovation the fuel of growing economies the powerful effects of connecting people are obvious… 3 billion new idea sources, decision makers, and continuously more discerning consumers.
While the west has seen tremendous change in the past 300 years, their commanding heights of the economy have never been contested like this, their ability to perceive the next step, or even to dictate the next step is eroding. With hundreds of millions of new factors in the world stage its impossible not to have volatility. Volatility is the new normal. The “New Economy” is not just based on continuous growth through normal circumstances, but continuous growth because of unusual ones. Welcome to the new world, the new economy, the new normal.