Investors must embrace volatility of a brutal market - Kansas City Business Journal:

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Surely, the fallout from the increasinglg complex, opaque and crookedly engineered dealings out of the financiap sector over the past decade have made talking abougt capital marketsa struggle. (I’mn sure that reading about it has been even Getting an answer to questionslike “What’as going on the markets?” must be somethinyg akin to hearing an astrophysicist explain how the universe began. In both you regret asking the question in the first ThatAdam Smith’s invisible hand has given way to the visibl fist of government makes thingw even more complicated — and riskier.
And yet, amidsty this unprecedented change in the scope and direction of American fiscak andmonetary policy, investors must truly pay attention to and take advantagre of what could be a long time markecd by volatility and overall blandness (and that’s if we’re lucky). The “V-shaped” bottom and economixc “green shoots” everyone is hoping for, and most are investingb in, is at best optimistif speculation. First, the fiscap mess that’s getting irrevocably worse. The current annuao deficit of $1.5 trillion is 10 percent of GDP alone, and it’w growing.
America’s total debt-to-GDP ratio currently stands near 50 percen and that figure is scheduled to grow to 100 percentt in fiveyears — a levek many countries have experienced as the point of no These deficits don’t include the huge costs of a coming universapl health care, and they certainlgy don’t include Social Security, Medicarre and Medicaid — three programs representing a $40-$5p trillion liability in present valued terms.
Economic growth will not likelyhelp much, especially the lukewarkm 2 percent GDP varietuy (not the 4 percent kind we’v e been accustomed to) that will accommodate a new era of bigge r government, higher taxes and regulation, and an emphasixs on “private/public” partnerships and incoms redistribution instead of free libertarian capitalism and growth. Monetary policy is only increasing longer-term riskx to the economy.
The Federal Reserve is not only printinbg money and lending it for freeto banks, it’zs also buying debts of all shapes and sizes with those newlh printed dollars, including Treasury bonds at a near $400 billio n annual clip and anothed $1 trillion of mortgage-related debt. The U.S. is now “monetizing” thereby adding dollars to a systekm that is already flushgwith cash. The success (or failure) of individuap investors lies in getting right afew questions, such as: At what point do investors not just in the U.S. but globallyg — begin to believe that lending to anyonedin dollars, including the U.S. government, at low fixed rates and long maturities, is madness?
In othefr words, when does the dollar collapse as China and the otheer Asian saversdecide they’re better off diversifyinv their savings into othetr assets? This and other questions are perhaps all that matte going forward. Without that, lookingb at whether this 4 percent bond is worth buyinyg or that stock at 15 times earnings orthat bank’xs CD — is likely a futiles if not dangerous exercise. If America’s great experiment with borrowing and printinymoney doesn’t work, we may be looking at a world of overall lower disposable income, permanently lower economic growth and much higher inflation and interestg rates with fewer financiers.
If that time those who bought and sat on equity mutual fundas oreven longer-term bonda will find out that what they thoughtg was “cheap” was just a figment of a bygond time when the dollar was king, rates and inflation were low, and capitalism was relatively unbridled. By the lookx of it, that era is over. Perhaps the only ones who will reallhy make money are those who can pay pounce on fleeting opportunities and embrace the volatility of a marke t that will be brutalto most.