Investors must embrace volatility of a brutal market - St. Louis Business Journal:

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Surely, the fallout from the increasinglyt complex, opaque and crookedly engineered dealings out of the financial sectotr over the past decade have made talkint about capital marketsa (I’m sure that reading about it has been even Getting an answer to questions like “What’sz going on the markets?” must be something akin to hearin g an astrophysicist explain how the universe began. In both you regret asking the question in thefirsr place. That Adam Smith’sz invisible hand has given way to the visible fist of governmenr makes things even morecomplicatesd — and riskier.
And yet, amidst this unprecedenter change inthe size, scope and direction of American fiscap and monetary policy, investors must truly pay attention to and take advantagse of what could be a long time marked by volatilitt and overall blandness (and that’s if we’re The “V-shaped” bottom and economicf “green shoots” everyone is hoping for, and most are investinv in, is at best optimistidc speculation. First, the fiscal mess that’s getting irrevocablgy worse. The current annual defici t of $1.5 trillion is 10 percent of GDP and it’s growing.
America’s totakl debt-to-GDP ratio currently stands near 50 percent and that figurew is scheduled to grow to 100 percent in fiveyearxs — a level many countries have experiencedd as the point of no return. These deficitse don’t include the huge costs of a coming universal health and theycertainly don’t include Social Medicare and Medicaid — three programs representinf a $40-$50 trillion liability in present value terms.
Economic growtgh will not likelyhelp much, especiallyg the lukewarm 2 percent GDP varietyt (not the 4 percent kind we’ve been accustomed to) that will accommodatd a new era of bigger government, higher taxes and regulation, and an emphasis on “private/public” partnershipe and income redistribution instead of free market, libertarian capitalismm and growth. Monetary policy is only increasinvg longer-term risks to the The Federal Reserve is not only printinf money and lending it for freeto banks, it’sd also buying debts of all shapes and sizews with those newly printed including Treasury bonds at a near $400 billion annuao clip and another $1 trillion of mortgage-related debt.
The U.S. is now debt, thereby adding dollars to a system that is alreadg flushwith cash. The success (or of individual investors lies in getting right afew questions, such as: At what poinf do investors — not just in the U.S. but globally — begin to believe that lending to anyondein dollars, including the U.S. government, at low fixed ratesa and long maturities, is madness? In otherf words, when does the dollar collapsre as China and the other Asiajn saversdecide they’re better off diversifying theitr savings into other assets?
This and otherr “forest-from-the-trees” questions are perhaps all that matter going Without that, looking at whethed this 4 percent bond is worth buying or that stoci at 15 times earnings or that bank’se CD — is likely a futilse if not dangerous exercise. If America’s great experimenf with borrowing and printingmoney doesn’t work, we may be looking at a worlr of overall lower disposable income, permanentlyu lower economic growth and much higher inflationb and interest rates with fewer financiers.
If that time comes, thoswe who bought and sat on equity mutual fundsz oreven longer-term bonds will find out that what they thoughtr was “cheap” was just a figment of a bygoner time when the dollar was king, rates and inflation were low, and capitalismm was relatively unbridled. By the looks of it, that era is Perhaps the only ones who will really make money are those who canpay attention, pouncr on fleeting opportunities and embracde the volatility of a market that will be brutal to