It's a different stew of uncertainties on the front burner today. Stirred in with these usual earnings forecasts are things we don't know how to model: cross-border bailouts, protectionism, bold interventions by regulators and legislatures, and out-of-left-field mandates by dictators. These sorts of policy surprises tend to rattle investors' confidence and cause them nightmares.

Policy decisions that would have been Page 10 news when the private sector dominated the economy have a front-page impact when the ratio is inching toward 50/50. As a result, a lot of investors refuse to play at all. Those still in the fray are easily spooked, and deep-pocketed, mainframe-wielding, volatility-loving professional traders take over the game.

Since government's share of the economy is unlikely to suddenly contract anytime soon, we'll need to get better at political calculus and learn to cope with the volatility. I offer these few reflections to broaden our thinking on this important subject.
Debt management versus economic recovery. Across the developed world, we are seeing market pressure to manage down the public debt. At the same time, the recovery from a serious recession still seems to depend on government support.
Economic recovery and government debt management are conflicting goals, and the recent micro-volatility in the stock market reflects this stress. In hindsight, perhaps the macro-volatility of the past decade is related to the same issue.

When appraising the strength of the recovery and mulling your stock-bond allocations, be sure to give serious weight to the long-term political calculus related to debt management, both public and private. If you think businesses are going to grow and government spending will retreat, at least assign targets to some of your favorite mile markers (jobs, consumer spending, productivity) that you can monitor. If they're not unfolding as expected, you may want to make portfolio adjustments sooner rather than later.

It's political now. The struggle is about access to a limited global pool of capital. Government's desire for capital to fund its various initiatives is every bit as strong as businesses' motivation to fund their growth. Both teams in this competition have legions of supporters rooting for their side. Often as not, the government's cheerleaders are its employees, suppliers, pensioners and other beneficiaries of its outlays. Private sector growth tends to be championed by owners and employees of businesses, by their citizen customers and by investors in mutual funds and 401(k)s.

In countries with representative governments, all these participants vote, so elections are a key indicator of how the contest is going. Pay attention to elections and to interest rates-that's how we'll see which way the energy is flowing.

What's the ideal balance? We're someplace near the middle of the game, and the government seems to have the momentum in the U.S. In Europe, where government has been ahead, we see signs that capital is pushing back (spreads have widened in the credit markets and austerity budgets have been approved).

Most investors believe the private sector is the engine of growth and prosperity and that we'll all be better off with government in its traditional role as protector of the commonwealth and enforcer of reasonable game rules. And (here follows a personal opinion) that role is more affordable when it's closer to a quarter of the GDP than a half.

A dominant role for private activity seems appropriate because government needs the private sector's risk-taking, drive and innovation to fund its activities, not the other way 'round. Business needs strong government to ensure the safety of its citizens and enforce just laws designed to protect their right to life, liberty and the pursuit of happiness (which has traditionally included the notion of profits). And because investors are also citizens, the private sector should gladly fund a vigorous government. The question of the moment is, "What's the appropriate balance?" This is game day; the players are on the field. And the outcome matters, especially if you're a retiree depending on the productivity of your life savings.

Trading is for traders. While we're awaiting the outcome, it's pretty dangerous to trade the short-term swings. Board volume is apparently dominated by high-velocity trading models, momentum traders and hedge funds with monster turnover. Those of us who operate outside those information flows are well advised to get comfortable sitting on the sidelines. From time to time, though, the fast traders and momentum players unwittingly create pricing extremes which the rest of us can take advantage of. Keep your buy list fresh so you are ready to pounce when volatility creates extraordinary fundamental values in securities that you understand.