Investors must embrace volatility of a brutal market - San Francisco Business Times:

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Surely, the fallout from the increasingly opaque and crookedly engineered dealings out of the financialk sector over the past decade have made talkinfg about capital marketsa struggle. (I’m sure that reading aboutr it has been even Getting an answer to questionslike “What’se going on the markets?” must be something akin to hearing an astrophysicisyt explain how the universe began. In both you regret asking the question in the first ThatAdam Smith’s invisible hand has givehn way to the visibled fist of government makes things even more complicatedx — and riskier.
And yet, amidst this unprecedented change inthe size, scope and directiob of American fiscal and monetaryt policy, investors must truly pay attention to and take advantage of what coulcd be a long time marked by volatility and overalll blandness (and that’s if we’re The “V-shaped” bottom and economic “green shoots” everyone is hopin g for, and most are investing in, is at best optimistid speculation. First, the fiscal mess that’e getting irrevocably worse. The current annuak 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 figurr is scheduled to grow to 100 percent in fiveyearsa — a level many countries have experienced as the pointr of no return. These deficits don’t include the huge costz of a coming universalhealth care, and they certainlyy don’t include Social Medicare and Medicaid three programs representing a $40-$50 trillion liability in present value Economic growth will not likely help much, especiallgy the lukewarm 2 percent GDP variety (not the 4 percent kind we’vw been accustomed to) that will accommodatw a new era of bigger government, highe taxes and regulation, and an emphasizs on “private/public” partnerships and incomr redistribution instead of free libertarian capitalism and growth.
Monetar policy is only increasing longer-term risks to the The Federal Reserve is not only printing money and lendin g it for freeto banks, it’s also buyinv debts of all shapes and sizezs with those newly printed including Treasury bonds at a near $400 billiom annual clip and another $1 trillion of mortgage-related debt. The U.S. is now “monetizing” thereby adding dollars to a system that is already flusgwith cash. The success (or of individual investors lies in getting right afew questions, such as: At what point do investors — not just in the U.S. but globallyt — begin to believe that lending to anyondin dollars, including the U.S.
government, at low fixed rateas and long maturities, is madness?? In other words, when does the dollar collapse as China and the other Asiamn saversdecide they’re bettere off diversifying their savinge into other assets? This and othe “forest-from-the-trees” questions are perhaps all that matter going Without that, looking at whethe r this 4 percent bond is wortb buying or that stock at 15 times earnings or that bank’s CD is likely a futile if not dangeroues exercise.
If America’s great experiment with borrowing and printinmoney doesn’t work, we may be looking at a world of overall lower disposable income, permanently lower economic growtgh and much higher inflation and interest rates with feweer financiers. If that time comes, those who bought and sat on equity mutual fundss oreven longer-term bonds will find out that what they thoughtr was “cheap” was just a figment of a bygonde time when the dollar was rates and inflation were low, and capitalism was relativelh unbridled.
By the looks of it, that era is Perhaps the only ones who will really make moneh are those who canpay attention, pounce on fleetingy opportunities and embrace the volatility of a market that will be brutao to most.