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With the continuing need by bankers to recapitalize their balance sheets, and the need for governments around the old world to replace or at least maintain needed infrastructure, the capital markets will be squeezed out unless the major central banks continue to print money.

The current capital flows are supporting high commodity prices, which is a drag on economic growth, everywhere, but particularly in the old world economies like the US.

I suspect this process to continue for at least the next several years, meaning that the average consumer in the US will struggle on, house poor and disappointed to be missing the American dream.

What tends to happen during challenging times like this is that people try to recover the easy way, through lotteries, gambling, stealing, and day-trading. That’s not a desirable or satisfactory retirement plan, but some people will do what they feel they must do.

I’ll leave you with a final thought, which is that most Americans will not admit (i) that as owners of capital they will have to accept lower returns, (ii) they are chattels of the debt system, and (iii) their country has generally disappointed them. I believe there will be an outpouring of emotion come the November elections, where people vote for ‘change’.

Translating that discussion to the capital markets, I see a difficult time in the bond markets for several years, and a flowing of capital from large cap companies into smaller, less seasoned companies with younger and more aggressive management.

Monday, the Russell 2000 small cap index (+1.84%) and the relatively smaller company-based, more youthful NASDAQ Composite (+1.73%) were head and shoulders the better performers than the DJIA (+1.01%) and S&P 500 (+1.09%). On the good days in the market, when traders will be reaching to make back some lost ground, perhaps too quickly, I foresee more of the same.

If you are going to try to be a player then during difficult market conditions, don’t ignore the risks that lie just below the surface.