Socially Responsible Investing and the “New Normal”
By Scott Secrest, AAMS®
There is an economic principle know as “rational expectation” which is the assumption that individuals, companies and governments make financial decisions rationally by evaluating the possible results of each course of action they might take, and choosing the best (most rational) choice. This rational expectation assumption is built into economic models which are used to make policy decisions in the public and private sectors.
Enter the “new normal,” a term coined by Bill Gross, a major bond investment manager in the U.S. According to his research and opinion, nearly a half-century of global economic prosperity has ended, and investors must gird themselves for muted returns from the investment markets for years to come.
Today we live in a billion-bits-per-second world. Money and investments are exchanged in rapid-fire transactions happening around the clock. Borrowing money is cheap and fast. Definitions of “value” have become imprecise. Belief in the principle of rational expectation has become more suspect as the financial world becomes too fast, opaque and complex for anyone to evaluate and fully comprehend.
Among the byproducts of this new global financial reality are dramatically expanded levels of public and private debt and unrestrained consumption in the developed world. Deflated financial expectations are what the new normal is all about. Gross estimates economic growth of 1-2% annually with ongoing unemployment in the 7-8% range is a reasonable expectation, well below and above the historic averages respectively. Correspondingly, he expects stock and bond returns to be lower than historical average for the foreseeable future.
In large part these reduced expectations are result of the necessity for the inflated public and private debt to be paid down over the coming years which will reduce new purchasing (demand) which is a major economic driver. The result – less demand for goods and services therefore higher unemployment and slow growth.
Socially responsible investors have acknowledged that industrial finance as it exists today is inherently limited in its ability to nurture the long-term health of our communities and environment. Now there is expanding evidence that the ever-accelerating, ever-more-complex financial practices have reached their structural limits. Call it the new normal.
We believe that there is another and more hopeful aspect to the new normal – it is in an updated definition of the “rational expectation” principle. Many believe that no informed and rational financial decision can be made in the billion-shares-traded-a-day, financial flywheel of today. We believe that the new rational expectation is defined by a “ground up” view of the financial needs of our communities, leading to regional, national and global systems to support them.
Socially responsible investing, mission-related investing by foundations, green and social entrepreneurship, local economies and consumer demand for organics and green products are the first stages of a profound fiduciary realignment. Of course ambiguities still exist and may for some time. But, the only reasonable “rational expectation” is that we move toward a more sustainable society and economy.
This model may mean a less profitable future for gigantic banks and brokerage houses, but could mean more profitable investing for the millions of smaller investors – particularly investors in the sustainable economy. The slice of the economic pie the financial giants have been taking was enormous, and their control of capital indefensible. Profitability is returned to value-creators when control of capital is open and more local.
While the transition to the new normal may be uneasy, the result may be a more decentralized, sustainable and prosperous world.
Scott Secrest, AAMS®
Financial Advisor
Natural Investments, LLC.
3591 Sacramento Dr., Ste. 110
San Luis Obispo, CA 93401
Ph. 805-235-3031 toll free 877-861-4161
scott(at)naturalinvesting.com
Natural Investments, LLC., an Investment Adviser registered with the SEC.
Please visit us on line at www.naturalinvesting.com
