Five years have passed since the beginning of the Great Recession. Growth is slow, joblessness is elevated, and the knock-on effects continue to drag down the global economy. The primary difference between today and the 1930s, when the U.S. experienced its last systemic crisis, has been the response by policymakers. Having the benefit of hindsight, policymakers acted swiftly to avoid the mistakes of the Great Depression by applying Keynesian solutions. Like the last depression, we are likely to live with the unintended consequences of the policy response for years to come.

More granular analysis of the line items in the fiscal cliff tells a less harrowing story than what Congress and the media are presenting. The official projections are showing scary numbers for the fiscal cliff, but when we dig into the details we see that the real impact will likely be materially less significant. According to the Congressional Budget Office, the fiscal cliff adds up to a total increase in tax revenue of $631 billion, which is approximately 4% of GDP. Going through the report line by line tells a different story.

Investors should understand the recent transition in the credit market and the implications it could have for the trajectory of asset prices over the long-term.

The Federal Reserve faces the risk of inducing a sell-off in bonds similar to that which occurred in 1994 when Dr. Greenspan tightened credit conditions after maintaining an artificially low interest rate environment for an extended period.

Hurdles and hold-ups are inevitable but recent policy developments in Europe indicate that the ECB and the Bundesbank are cooperating and greater federalization is likely.

"Super-Storm" Sandy will distort economic activity and data over the coming months.

The eventual return of leveraged buy-outs (LBOs) and an uptick in mergers and acquisitions (M&A) should give investors further reason to be bullish on stocks.

Uncertainty continues to weigh on European markets but the continent is still drifting toward federalization. Recent trends and political developments are constructive for an eventual return to growth for the region.

The leveraged credit market turned in an impressive Q3 with high yield bonds and bank loans returning 4.3 and 3.1 percent, respectively. Unprecedented accommodation from central bankers across the globe has alleviated much of the macroeconomic tail risk that we highlighted in last quarters publication. Presented with a seemingly insatiable demand for new issue bonds, issuers returned to the torrid pace of issuance that characterized the start of 2012 by raising a record $99 billion during the third quarter.

With nominal growth rates falling faster than expected, the possibility of a hard landing for China country's economy appear to be increasing. More importantly, however, there is more to this situation than is immediately observable.

The gold-convertible U.S. dollar became the global reserve currency under the Bretton Woods monetary system, which lasted from 1944-1971. This arrangement ended because foreign central banks accumulated unsustainably large reserves of U.S. Treasuries, threatening price stability and the purchasing power of the dollar. Today, central banks are once again stockpiling massive Treasury reserves in an attempt to manage their currency values and gain advantages in export markets. We have, effectively, returned to Bretton Woods.

In Goethe's 1831 drama Faust, the devil persuades a bankrupt emperor to print and spend vast quantities of paper money as a short-term fix for his country's fiscal problems. As a consequence, the empire ultimately unravels and descends into chaos. Today, governments that have relied upon quantitative easing (QE) instead of undertaking necessary structural reforms have arguably entered into the grandest Faustian bargain in financial history.

After a strong first quarter for high yield bonds and bank loans, the mixed performance of the second quarter has conjured up memories of 2011s volatility. While the lack of clarity in Europe and the looming U.S. fiscal cliff will continue to weigh on the economy, the current macro-induced price dislocations present attractive long-term opportunities for investors with patient capital.

The leveraged credit market began the year strong with yields across the credit spectrum approaching historical lows. Investors should realize that it is no longer early in the credit market rally. We are coming into the seventh inning stretch and it is getting tougher to find opportunities. It is also important to watch for signs of overheating and to remain focused on fundamental credit work and security selection. As we look ahead, we continue to see room for further price appreciation as investor demand should remain robust, while new issue supply wanes from its record first quarter pace.

Given my view on the global liquidity glut, it probably will come as no surprise that I remain bullish on U.S. investments, including equities, high yield bonds, bank loans and other risk assets, as well as art and collectibles. I believe the United States has entered a period of self-sustaining economic expansion, driven primarily by the aggressive monetary policy of the Fed, which is now being reinforced by the ECB. U.S. growth is necessary to reduce domestic unemployment and to provide support to the struggling economies in Europe and Asia.

Over the course of history there is a certain triumph of optimism. Betting against the column of progress of human history and the innovation of mankind has always proven to be a losing proposition. In the short run, there are times to become cautious, as the past five years have exemplified. Broad-based economic expansion and its attendant outsize investment returns follow contraction and panic just as the day follows the night. As dark as the current environment may seem, the sun will come up tomorrow. When it does, I believe it will shine favorably on the optimists of today.

The U.S. remains the least-dirty shirt in the bag. In fact, its looking comparatively better all the time. In the stock market, I believe fundamental and seasonal factors could push the S&P 500 to new highs before the end of the year, despite the drama in Greece. The market has discounted some pretty nasty events that I dont believe will come to fruition. When more certainty comes, especially regarding events in Europe, investors will likely look back and wish they had paid more attention to fundamentals rather than emotions. On a historical basis, stocks are attractively valued.

The jobs data this morning is very encouraging. Total jobs increased by about 202,000 after a gain of 103,000 in September and upward revisions of 99,000 jobs for August and July. Additionally, average hours worked rose by 0.1% of an hour and hourly wages grew by 0.2%. The increase in total hourly earnings alone will add significantly to private-sector income growth, which increases disposable income. Add to this the gain in payrolls and it is clear that the economy was gaining momentum as we closed the 3rd quarter. Making recession unlikely in the 4th quarter.

The markets overreaction has created an incredible opportunity in U.S. equities. In particular, I see value in high-dividend stocks. Many companies with strong cash flows and stellar credit ratings pay more in dividends than the yield on their bondsa situation that hasnt existed for such a large number of stocks since the 1950s. Without doubt, Europes problems indicate that further turbulence, even a retest of recent lows on the S&P 500, cannot be ruled out. Nevertheless, for investors with 2- to 5-year horizons, price dips represent buying opportunities.

The latest bailout program should be successful in one regard: buying more time. Unfortunately for Europe, time is no longer an ally, and it most certainly is not healing all wounds. Across the European periphery, economic data are degenerating as the calendar marches forward. Year to date, Greeces debt burden, budget deficit, cost of funding, and unemployment rate have increased. Its economic output and tax revenues continue to depress.

Ive noticed a critical mass of groupthink growing around the expiration of the Feds asset purchase program dubbed QE2. After tripling its balance sheet in 2.5 years, the conventional wisdom is that the era of quantitative easing should now give way to the era of inflation. As a result, the foregone conclusion is that U.S. interest rates will rise and bonds will underperform significantly. While I acknowledge the potential for rising rates, I dont think the expiration of QE2 is the catalyst that most believe it to be. In fact, I believe U.S. rates should remain at historically low levels.