Can we just go back to the good old days? The days when stocks went up every year? When we all talked "buy and hold"? When a 200-point drop in a day in the Dow Jones Industrial Average ($INDU) was unusual? When the challenge of investing in stocks was finding good, well-managed companies rather than predicting the direction of the dollar or when Greece would default?

Not a chance.

We have, in fact, entered a new era. It's not the "new normal" forecast by the leaders of Pimco in 2010. And it's actually more dangerous than the "paranormal" sketched out in January by Pimco's Bill Gross. Think of it as an "X-Files" economy.

This era is characterized by extreme swings between fear and hope. And we'd better get used to it. Remember 2011? The year before the current rally? That's the new era in a nutshell, I'm afraid.

And we'd better come up with strategies for investing through this period. The current reality is, after all, the only one we've got. I'm going to start this column by depressing all of us with the size of the challenge ahead. And then I'm going to give you five ways to change your investing in ways that can, I hope, make this era less painful and more profitable.

The new unreality?

Remember the "new normal?" It was the phrase bond-fund legend Gross and Pimco CEO Mohamed El-Erian coined back in 2010 to describe the financial world after the 2008 global financial crisis.

Everyone would deleverage to get rid of debt. Consumers would become frugal. Banks could forget profits, since borrowing would go way down. Houses would lose value, and renting rather than buying would be typical. Oh, and investors could forget about anything much better than a few percentage points of yield on their bonds and sluggish growth in stock prices. A 5% annual gain would seem like nirvana.

Image: Jim Jubak

Jim Jubak

I found that downright depressing -- not least because it wasn't obviously wrong.

In January, Gross replaced the "new normal" with what he called the "paranormal." Gross begins with the observation that rather than deleveraging as described in the "new normal" paradigm, most economies have not reduced debt (U.S. and eurozone consumers are global exceptions) but instead have piled it on.

The world's central banks are adding debt to their balance sheets -- 2.74 trillion euros ($3.65 trillion) at the European Central Bank alone after the most recent round of bank loans -- so they can lend to banks that would otherwise be broke, which can then buy bonds from governments that would otherwise be broke. This has worked to the extent that the global economy has continued to expand instead of experiencing a continued recession as everybody cut debt.

But the "paranormal" economy has grown past the one danger of the "new normal" with two potentially painful outcomes. There's still the previous "new normal" risk of deleveraging and recession. But there's also now the opposite risk that economic growth, based on global monetary stimulus, will result in runaway inflation and, finally, global financial implosion. (Gross' January letter about the "paranormal" economy is here.)

And, yes, as much of a downer as the "new normal" was, as an investor, I find the prospect of the "paranormal" even more depressing.

Partly that's because Gross' second risk -- that of runaway inflation and global financial implosion -- is scarier than a "new normal." Recession isn't as scary as implosion, and the meager returns of the "new normal" were at least positive. I don't think I'd make any money during an implosion.

Our swingin' future

Mostly, it's depressing because the existence of two radically different alternative outcomes -- with a decision between them put off into some unspecified future -- will create a financial market where a wild swing toward fear of recession is followed by a swing to fear of inflation/implosion, which is then followed by a swing back to a fear of recession. And so on.

What if the actual dynamic of Gross' "paranormal" economy and financial market looks a lot like the year we just finished? What if 2011, with its wild swings between what we called risk-on and risk-off, is the normal (or paranormal, if you prefer) that we can look forward to until . . .

Well, until the world has worked off its huge imbalances of debt and cash.

Why is that so much worse that Gross' description of the "new normal?" Because the kind of volatility inherent in a pendulum swinging between fear of recession and fear of inflation/implosion creates the potential for huge losses as investors buy high and sell low over and over again. A steady average of 3% returns in the "new normal" would be bad for anybody trying to reach a financial goal, but it sure beats getting beaten up over and over again.

I don't know about you, but I didn't find 2011 much fun as an investor. Trying to navigate through all those market swings was a lot of work, and I don't have much to show for it.

I'm in the process of finishing my Jubak's Picks portfolio calculations for 2011 -- I'm double-checking the data now, and I should have it posted shortly after this column is published. It looks like my returns are lower than, but within hailing distance of, the 2.1% return on the Standard & Poor's 500 Index ($INX). I've never been through a year where I did as much selling and buying and selling and buying just to hold my own. I finished the year with 40% in cash as I played intense defense. I haven't run a cash position like that since I started this portfolio in 1997.

Continued on the next page. Stocks mentioned include: Magellan Midstream Partners (MMP, news), Statoil (STO, news) and SeaDrill (SDRL, news).

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