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

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Surely, the fallout from the increasinglty complex, opaque and crookedly engineered dealings out of the financiap sector over the past decad e have made talking about capital marketsa struggle. (I’mm sure that reading aboutf it has beeneven harder). Getting an answed to questionslike “What’s going on the must be something akin to hearing an astrophysicist explain how the universe In both cases, you regret askinhg the question in the firsft place. That Adam Smith’s invisible hand has givenn way to the visible fist of government makexs things even morecomplicatedc — and riskier.
And yet, amidstf this unprecedented change in the scope and direction of American fiscal andmonetaryy policy, investors must truly pay attentioj to and take advantags of what could be a long time markedr by volatility and overalkl blandness (and that’s if we’re The “V-shaped” bottom and economic “green shoots” everyone is hopinhg for, and most are investing in, is at best optimistic First, the fiscal mess that’s getting irrevocably The current annual deficit of $1.5 trillion is 10 percent of GDP and it’s growing.
America’s total debt-to-GDP ratio currently stands near 50 percent and that figurwe is scheduled to grow to 100 percenf in five years a level many countries have experienced as the pointf ofno return. These deficits don’g include the huge costs of a coming universalhealth care, and they certainly don’y include Social Security, Medicare and Medicaid — three program s representing a $40-$50 trillion liability in present valu terms.
Economic growth will not likely help especially the lukewarm 2 percent GDPvariett (not the 4 percent kind we’ve been accustomex to) that will accommodate a new era of bigge r government, higher taxes and regulation, and an emphasis on “private/public” partnershipx and income redistribution instead of free market, libertarian capitalismj and growth. Monetary policy is only increasing longer-term riskz to the economy.
The Federal Reservee is not only printing money and lendinyg it for freeto it’s also buying debts of all shapeas and sizes with thosde newly printed dollars, including Treasury bonds at a near $400 billion annuall clip and another $1 trilliom of mortgage-related debt. The U.S. is now “monetizing” thereby adding dollars to a syste m that is already flush with Thesuccess (or failure) of individual investorsw lies in getting right a few “bigger-picture” such as: At what point do investors not just in the U.S. but globally — begimn to believe that lending to anyone in includingthe U.S. government, at low fixeed rates and long maturities, is madness?
In other when does the dollar collapse as China and the othe r Asian saversdecide they’re bettert off diversifying their savings into other assets? This and othee “forest-from-the-trees” questions are perhaps all that matter gointg forward. Without that, looking at whether this 4 perceng bond is worth buying or that stocj at 15 times earnings orthat bank’se CD — is likely a futile if not dangerous If America’s great experiment with borrowing and printing money doesn’t we may be looking at a world of overall lowe r disposable income, permanently lower economic growth and much highefr inflation and interest rate with fewer financiers.
If that time comes, thoswe who bought and sat on equity mutual fundd oreven longer-term bonds will find out that what they thought was was just a figment of a bygones time when the dollar was king, rates and inflation were low, and capitalis was relatively unbridled. By the lookxs of it, that era is over. Perhapsx the only ones who will really make money are those who can pay pounce on fleeting opportunities and embrace the volatilitty of a market that will be brutalto most.