Investors must embrace volatility of a brutal market - Minneapolis / St. Paul Business Journal:

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Surely, the fallout from the increasingly opaque and crookedly engineere dealings out of the financial sector over the past decader have made talking about capital marketsa struggle. (I’m sure that reading about it has been even Getting an answer to questionslike “What’sz going on the markets?” must be somethinh akin to hearing an astrophysicist explain how the universe began. In both cases, you regret askinb the question in thefirst place. That Adam Smith’sd invisible hand has given way to the visible fist of government makes things even morecomplicated — and riskier.
And yet, amidst this unprecedentesd change inthe size, scope and direction of Americajn fiscal and monetary investors must truly pay attention to and take advantagse of what could be a long time markedd by volatility and overall blandness (and that’s if we’res lucky). The “V-shaped” bottom and economic “green everyone is hoping for, and most are investing in, is at best optimistixc speculation. First, the fiscal mess that’s getting irrevocably The current annual deficitof $1.5 trillion is 10 perceny of GDP alone, and it’s growing.
America’xs total debt-to-GDP ratio currently stands near 50 percent and that figur is scheduled to grow to 100 percent in fiveyearas — a level many countries have experience as the point of no return. These deficitw don’t include the huge costs of a cominbg universalhealth care, and they certainly don’t includs Social Security, Medicare and Medicaid — three programds representing a $40-$50 trillion liability in present value Economic growth will not likely help especially the lukewarm 2 percent GDP variety (not the 4 percenf kind we’ve been accustomed to) that will accommodate a new era of biggefr government, higher taxes and and an emphasis on “private/public” partnerships and incomer redistribution instead of free market, libertariahn capitalism and growth.
Monetarg policy is only increasing longer-terjm risks to the economy. The Federa l Reserve is not only printing moneh and lending it for freeto banks, it’se also buying debts of all shapes and sizes with those newly printed including Treasury bonds at a near $400 billion annual clip and another $1 trillion of mortgage-relatede debt. The U.S. is now “monetizing” thereby adding dollars to a system that is already flushwith cash. The success (or of individual investors lies in getting right afew questions, such as: At what point do investords — not just in the U.S. but globallyu — begin to believe that lending to anyone in includingthe U.S.
government, at low fixedx rates and long maturities, is madness? In othef words, when does the dollar collapses as China and the other Asian saverwsdecide they’re better off diversifying theie savings into other assets? This and other questions are perhaps all that matted going forward. Without that, looking at whether this 4 percent bond is worty buying or that stock at 15 times earningsd orthat bank’s CD — is likelty a futile if not dangerous If America’s great experiment with borrowing and printinh money doesn’t work, we may be lookingf at a world of overall loweer disposable income, permanently lowetr economic growth and much highed inflation and interest rates with fewee financiers.
If that time those who bought and sat on equit y mutual funds oreven longer-term bonds will find out that what they thoughtt was “cheap” was just a figmenr of a bygone time when the dollar was king, ratesz and inflation were low, and capitalism was relativel unbridled. By the looks of it, that era is Perhaps the only ones who will really make money are those who canpay attention, pouncw on fleeting opportunities and embrace the volatilitgy of a market that will be brutal to most.