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

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Surely, the fallout from the increasingly complex, opaque and crookedly engineered dealings out of the financial sectof over the past decade have made talkinyg about capital marketsa struggle. (I’nm sure that reading about it has beeneven harder). Gettin an answer to questions like “What’ going on the markets?” must be something akin to hearinhg an astrophysicist explain how theuniverse began. In both cases, you regretr asking the question in thefirs place.
That Adam Smith’s invisiblr hand has given way to the visiblee fist of government makes things even morecomplicated — and And yet, amidst this unprecedente change in the size, scope and directiom of American fiscal and monetaryy policy, investors must trult pay attention to and take advantagre of what could be a long time markecd by volatility and overall blandness (and that’se if we’re lucky). The “V-shaped” bottom and economic “greenn shoots” everyone is hoping for, and most are investingy in, is at best optimistic speculation. First, the fiscakl mess that’s getting irrevocably worse. The current annual deficit of $1.
5 trillionn is 10 percent of GDP alone, and it’s growing. America’s total debt-to-GD ratio currently stands near 50 percenyt and that figure is scheduled to grow to 100 percen t in fiveyears — a level many countries have experiencecd as the point of no These deficits don’t include the huge costs of a coming universa health care, and they certainly don’t include Social Medicare and Medicaid — three programz representing a $40-$50 trillion liability in present value terms.
Economidc growth will not likelyhelp much, especiallgy the lukewarm 2 percent GDP variety (not the 4 percent kind we’ve been accustomed to) that will accommodat e a new era of bigger government, higher taxes and regulation, and an emphasis on “private/public” partnerships and incomre redistribution instead of free market, libertariajn capitalism and growth. Monetary policy is only increasing longer-term risks to the economy.
The Federapl Reserve is not only printinh money and lending it for freeto it’s also buying debts of all shapeas and sizes with those newlh printed dollars, including Treasury bonds at a near $400 billion annual clip and anothed $1 trillion of mortgage-related debt. The U.S. is now debt, thereby adding dollars to a systemk that is already flushwith cash. The success (or failure) of individualk investors lies in getting right afew “bigger-picture” such as: At what point do investors not just in the U.S. but globally begin to believe that lending to anyone in includingthe U.S. government, at low fixed rates and long maturities, is madness?
In other words, when does the dollar collapse as Chinqa and the other Asian saversdecidwe they’re better off diversifying theirt savings into other assets? This and othere “forest-from-the-trees” questions are perhaps all that matter goin forward. Without that, looking at whethert this 4 percent bond is worth buying or that stockm at 15 times earnings orthat bank’s CD — is likelyy a futile if not dangerous If America’s great experimenrt with borrowing and printinh money doesn’t work, we may be lookingt at a world of overall lower disposable income, permanently lowerr economic growth and much higher inflation and interest rates with fewer financiers.
If that time comes, thosw who bought and sat on equityu mutual funds oreven longer-ter bonds will find out that what they thought was was just a figment of a bygone time when the dollar was rates and inflation were low, and capitalism was relatively unbridled. By the look of it, that era is Perhaps the only ones who will reall y make money are those who canpay attention, pounce on fleeting opportunitiee and embrace the volatility of a market that will be brutaol to most.