VCU news

By Tom Gresham

Uncertainty and volatility have gripped financial markets in the United States and likely will reign for years to come as the country struggles to regain its economic footing, according to Cory Bunting, associate director of the Capital Markets Center in the VCU School of Business.

Bunting, who spent 20 years working on Wall Street as an equity portfolio manager, said the current volatility of the stock markets can be traced to questions about the state of the U.S. and world economy and whether policy changes can be made that will provide genuine long-term solutions. So far, Bunting said, moves to aid the economy have been focused on the short term and lacked the strength and scope “to ease the market’s nerves.”

“We can try short-term solutions to the problems but until we address the real structural problems that we have in our global economy, it’s going to be very difficult to please the markets,” Bunting said.

In particular, Bunting said the global banking system needs to be re-liquified and individuals and governments need to wean themselves of the excessive consumption, spending and debt that became commonplace in the country during better times.

Bunting said paring down the country’s debt, both public and private, will be a multi-year process that will be “painful” but necessary for a successful, sustainable growth path. A rapid recovery does not appear to be a likely possibility.

“I think we may be in for a prolonged period of below-trend economic growth on a global basis, and probably, sadly, a continuation of the persistently high unemployment that we suffer here in the United States,” Bunting said. “I think the rest of the decade may be very difficult.”

Among the complications to the recovery are the country’s high unemployment rate and the continuing struggles of the housing market – both of which serve as drags as the country attempts to put the recession behind it, according to Bunting. The two feed each other, he noted, as high unemployment keeps people from buying houses, keeping prices low, and a depressed housing market limits the flexibility of the workforce to move and seek out new jobs because they cannot afford to sell their homes at prices below their mortgage cost.

The contemporary nature of the world economy will complicate a recovery. Over the past 50 years, globalization has developed and been a boon for many countries, according to Bunting, stimulating growth and improving productivity. However, “the downside is that now we’re extremely integrated and what happens in Greece or what happens in Italy does have an impact on our own country, our banks, our financial system, and we cannot detach ourselves from that.”

For investors, Bunting said it is important to maintain diversified investments, as is always the case, and to look to reduce risk across the board. Also, it is important for investors to determine precisely what their risk tolerance is and to adjust their portfolio accordingly. He said the notion of buy-and-hold investments has been on the decline during the economic downturn and that people are increasingly seeing value in being agile in their investments, adapting to cycles and trends. For instance, he said, these days more people are seeking safe haven investments, such as bonds, at the expense of riskier investments, such as stocks, as they place a greater focus on the safe return of their capital and not just on seeking the high yields.