There is a genuine threat of prices falling below fundamentals. Tremendous oppportunities lurk over the horizon.
On the way up, prices overshoot levels warranted by the exceptional funding that markets obtain.
On the way down, prices fall below what would otherwise prevail on the basis of fundamentals.
This behavior is likely to continue in the short-term, shifting the opportunities for higher monthly/quarterly returns away from conventional strategic long-term portfolio positioning and toward more short-term trading and volatility trades.
A constructive policy response would require a transition from the excessive reliance on central banks to a set of policies that reinvigorates growth engines, deals with aggregate demand imbalances, addresses excessive pockets of indebtedness and makes progress in completing regional and global economic/financial architectures (which also would counter the rise of political extremes on both sides of the Atlantic). If this approach were successful, range-bound trading would yield to genuinely higher financial asset prices that are firmly supported by strengthening fundamentals.
It is however, getting to the horizon that will test both our patience and skill.
