The Case For Market Volatility

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Signs of Struggle
With an economy which generates almost 18 trillion (US) dollars of goods and services, the European Union is the largest economy in the world.  In the video, Larry Berman gives the litany of problems facing that economy, and consequently, the world economy, as well.  The level of European debt, demographics, and fiscal austerity all add up to a struggling economy and higher than usual stock market volatility for a very long period of time to come.

Volatility; Not Demand
Sovereign debt levels world wide mean political and economic volatility unlike anything we have seen in generations. All this, just at the time the Baby Boomers are beginning to ease back on their spending as their need for housing, and everything that facilitates going to work every day decreases.

New Paradigm
We have just experienced the peak of a period of economic growth unlike anything the world has ever seen.  The engines are low on fuel.  I hate to be the bearer of bad news, but we are not going to see the markets return to all time highs (at least not new highs after adjusting for inflation).  Still, the financial services industry continues their steadfast and unwavering support for the Buy and Hold approach despite the fact it makes a better marketing strategy than it does an effective portfolio management strategy.  As long as they receive sufficient participation, they aren't going to be the ones to tell us the bad news, let alone admit the hoax they have funded all of these years at their clients' expense.

The alternative to Buy and Hold?  Buy lower, and sell higher.  What a concept!

Have you, or are you making changes to your approach?

Economic Update.

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The original economic forecast from Craig Alexander at TD Bank that I blogged about generated a bit of interest, so I thought when I saw him give an update on BNN that I would include it here. 

He says it is not a question whether Greece will default, but a question of when, and that sovereign debt is the number one issue for the global economic outlook, at the moment.  Second would be the political unrest in the middle east, if oil prices get too high.

In Canada, he sees a major correction in oil prices as being bad for Canada's economy.  Another potential issue would be reduced commodity demand from China.  Currently he sees the Canadian GDP slowing to 2 to 2 and one half percent in the second half of 2011.

Personally, I still think the U.S. has a long way to go before they will see any real, lasting, economic growth.  As long as that is the case, I think our economy will suffer since we are so closely tied to them.  The government stimulus has been very good for the stock markets, but it remains a major question as to how long they might be willing to throw good money after bad.