Connelly does not believe in betting everything on a single economic scenario. Rather, he makes forecasts by considering a range of economic scenarios and assessing the probability of each.

Connelly says there's about a 30% chance over the next three to five years that the economy will be hobbled by deflation while also suffering low growth or shrinking gross domestic product. But it is just as likely, he says, that we will experience a Goldilocks economy in which we muddle along with sluggish growth and markets with low returns. He puts the chance of a high-inflation scenario at 20% and the chance for breakout growth at 20%. Right now, Connelly says he is coming to believe that the deflationary scenario is unfolding as he has watched leading indicators from the Economic Cycle Research Institute turn negative in recent weeks.

However, that does not mean he has abandoned stocks. Connelly says he's managing money to capitalize across the spectrum of scenarios he regards as likely. "It's true that an economic shock is likely to make all stocks tumble," says Connelly. "But you cannot think in terms of black and white and bet all your chips on either deflation or inflation. We just don't know enough to have that kind of certainty."

So large-cap stocks with established brands and franchises remain part of Connelly's client portfolios, alongside gold ETFs, farmland, energy and agricultural companies.

Connelly calls himself a "right-wing creature" but nonetheless believes the economy probably needs another government stimulus. "I don't think supply-side economics makes sense right now, even though I've been in that camp historically," says Connelly, adding that he doesn't thinks the current stimulus was totally wasted. "We're in a liquidity trap. The Keynesians are more right on right now."

Jerry Gray, chief investment officer at MAI in Cleveland, which manages about $1.6 billion for high-net-worth individuals, including some of the world's best athletes, expects average annual returns on stocks over the next five years in the 4% to 6% range.

"Because of all the consumer debt and government debt created to provide stimulus and prevent a steeper drop, we are likely to experience an extended period of below-average growth," Gray says. "We'll have a recovery drawn out so long that we won't feel like we're in recovery."

Gray, also a CFA, says the hangover in housing shows no signs of letting up. Even as housing prices have stabilized, banks still own a "shadow inventory" of real estate they cannot sell and have not put on the market. Meanwhile, many individual home owners are in the same situation, holding back on a sale and waiting for a rebound. "It will take many years for a recovery to occur in housing prices," says Gray.

A slow recovery, says Gray, is the most likely scenario, with an 80% chance of occurring, but he says there is about a 5% probability of a hyperinflationary period in which interest rates become uncontrollable and the national debt becomes unsustainable. There is excess capacity in manufacturing, and emerging market economies are coming online with new manufacturing plants they are willing to run at lower profit margins, so Gray believes the world will be awash in excess capacity for years to come but is unlikely to face deflation.

Yet he says there is still a 15% chance of a deflationary cycle. With the Tea Party movement in the U.S. putting increasing pressure on the government to stop spending to clean up its balance sheet and governments across Europe now committing to austerity programs, he says excessive retrenchment could smother the fragile economy.

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