Investors Face Long-term Structural Changes of Lower Growth, Higher Volatility and Unemployment

"...What do we get when we put the three structural breaks together? Higher volatility and lower trend growth produce more frequent recessions. More frequent recessions and stubbornly high unemployment rates mean that recoveries will not be long-lasting enough to put everyone back to work who would like to work. This in large part explains why high unemployment is currently so problematic.
What are the investment implications for the Muddle Through Economy? Investors will have to adjust to this new reality. Reducing leverage is one way. Another is to reduce the average holding period of investments. Investors will have to become more nimble. This in itself may add to market volatility.
For longer-term investors, this change of paradigm will mean achieving consistent returns is even more difficult. However, investors with a shorter-term, more tactical outlook may find these new, more volatile conditions a source of great opportunities.
The End Game
John Mauldin and I are writing a book called The End Game, about how government policies around the world will likely play out.
The End Game will be about the structural changes affecting the US and many other developed economies and how this impacts you, the reader. Currently the world is caught in a tug of war between deflation and inflation. The global economy faces powerful deflationary forces, which have induced equally powerful responses from governments around the world. Governments have ratcheted up the creation of monetary reserves and increased public spending across the board. Much of the spending is unsustainable, and the monetary reserves may eventually become a problem, resulting in inflation. The outcomes are binary, and they are not good.
Policymakers have not even begun to deal with the problems. As Chairman Bernanke has pointed out, "A variety of projections that extrapolate current policies and make plausible assumptions about the future evolution of the economy, show a structural budget gap that is both large relative to the size of the economy and increasing over time." He stated that "the federal budget appears to be on an unsustainable path." Those are strong words for a Fed chairman. I hope Congress is listening.
In the current economic environment, there are bad choices and worse ones. We hope governments around the world will know how to choose wisely..."

at http://www.marketoracle.co.uk/Article20249.html