The "Bush tax cuts" are set to expire at the end of this year. At the same time, the annual federal budget deficit is unsustainably high and must be addressed. Of course, strong economic growth would help policymakers fix our budget shortfall, but that doesn't appear to be in the offing. The eventual solution may affect the value of municipal bonds, and that impact could be either positive or negative.

Not in our view. Although we recognize that the US and global economies continue to be scarred by the credit crunch that began in 2008, we think stock prices already discount the risks. Investors today have good reason to worry about stocks. Europe, the US and emerging markets are facing real problems todayand economic recoveries after financial crises almost always take longer than recoveries after ordinary downturns.

The Wall Street Journal published an article on August 1 headlined: "Bill Gross: Equities are Dead." In fairness to Gross, what he actually wrote in his August "Investment Outlook" was, "the cult of equities is dying." We agree with most of Gross's argumentbut not with his unsupported forecast of extremely low stock returns. Let's take a look at Gross's claims...

Some experts today argue that the world has entered a New Normal condition in which stocks have permanently lost their return edge. We've heard this before. It was wrong then, and we think it's wrong now, too. In 1979, BusinessWeek published a cover story famously called The Death of Equities. now, stock market returns had lagged 10-year Treasury returns for a decade, although for somewhat different reasons.

Individual and institutional investors alike have been shifting their capital from stocks to cash and bonds at a rapid rate in recent years, despite extraordinarily low interest rates. But if investors stop to weigh the importance of two different types of risk, they'll see they still need stocks. We think that 10 years from now, investors who don't will wish they had stayed in stocks or added to them

As US Treasury yields continue to plumb record lows, some have quipped that government bonds have gone from offering risk-free returns to return-free risk. Indeed, when interest rates inevitably rise from their current levels, bondholders face the prospect of poor or even negative returns. One way for investors to mitigate such a risk is by globally diversifying their bond holdings.

The 2008 market crash has given variable annuities (VAs) a new lease on life. As clients search for ways to rebuild retirement nest eggs with less downside risk, US financial advisors are increasingly prescribing VAs as part of the solution. These were some of the key findings of a recent AllianceBernstein survey of more than 500 financial advisors to learn more about how and why they use VAs in their practices.

The US economic recovery is progressing in fits and starts. Short-lived risk-on periods, when companies and consumers invest more, seem to constantly give way to risk-off periods, with anxiety and fear restraining economic activity. I think the choppy growth trends may have been triggered by a big change to business behavior since the financial crisis of 2008.

Today, New Democracy (ND) leader Antonis Samaras will try to form a government. If he succeeds, an immediate disaster scenario will have been avoided. The question is: for how long? Yesterday, the centre-right ND party narrowly defeated the radical left wing Syriza party in the second Greek election. A coalition between ND and the center-left Pasok party would command enough seats in parliament to give it a small working majority (a target that the two parties just missed in the May election).

A credible recapitalization of the Spanish banks is now a necessary, though not sufficient, condition to stabilize markets. But there is disagreement about how to achieve thisincreasing the risk of a damaging standoff and further volatility in European sovereign-debt markets.Spain was always going to be a key battleground in the sovereign-debt crisis. At 1.1 trillion, Spains economy accounts for 11% of euro-area output. It is almost twice as big as the combined economies of Greece, Portugal and Ireland. More pertinently, it has total banking assets of 3.7 trillion.

Planning to sell your business? Try to wrap up the deal before year end, when todays highly favorable US capital gains tax rate is scheduled to expire. The federal long-term capital gains tax rate now tops off at 15%. If Congress does not act, on January 1, 2013, it will shoot up to 23.8%, including a 3.8% healthcare surcharge for individuals with incomes over $200,000.

Is the municipal bond market on the verge of collapse? You might think so, given the blaring headlines about a few big disasters in the last year. But as my colleague Joe Rosenblum explains below, poor decision making, not systemic issues, has caused the most serious problems. There is no question that state and local governments are facing financial hardship as a result of the weak economic recovery and its impact on tax receipts. But this is not the first time local governments have been challenged or have defaulted on their debt or filed for bankruptcy protection.

Although we think financials will be a potential driver of volatility of high-yield returns in the coming year, were not suggesting that investors should shun the sector altogether. Its true that, in some cases, the expected returns may be outweighed by both systemic and idiosyncratic risks. For example, we might have a negative outlook on both a financial institution and the country in which it is domiciled. But in many cases, levels of country and idiosyncratic risk may be acceptable.

Job growth slowed in March and April from a robust pace early in the year. People also appear to be leaving the labor force. Both trends suggest that the US economy may be losing momentum. However, I think preliminary employment figures dont tell the whole story and that you really need to wait for revisions to get a more accurate picture of underlying trends. In April, payroll employment rose by 115,000. That fell short of the consensus estimate of 150,000 and was the smallest jobs gain since August 2011. But initial payroll estimates are based on only a sample of business establishments.

Popular strategies for hedging against deflation and hyperinflation are likely to be disastrous if the economic outlook grows more benign as we expect. With the economic and policy outlook still uncertain, investors fear two contradictory but equally negative possible outcomes: deflation/deleveraging on the one hand and hyperinflation/currency devaluations on the other. As a result, instruments that can deliver protection in one or the other of these scenarios have enjoyed substantial inflows. Many investors have snapped up Treasuries, REITs and high-dividend-yielding stocks for insulation.

The stagnation of consumer spending and the weakness of wage growth in Germany over the past decade deprived Greece and other peripheral European countries of their most important trading partner. Expansionary German policies could help correct imbalances in the euro area, and remove the need for bailouts.

Productivity gains have exceeded real GDP growth by 3 percentage points during the economic recovery as companies have slashed payrolls and other costs. These productivity gains are critical to overall economic performance, including profitability and standard of living improvements, and will offset any risk of weak employment.

The sell off in Greece this week has taught the country a tough lesson in the urgency of getting its debt under control. Although several risks remain and Greece may eventually require outside support, we believe it will not be allowed to fail, largely because of the risk of contagion to other weak euro-area countries.

The private sector financial balance moved into surplus in 2009, as households and companies saved more and invested less. In our view, the unprecedented shift in the balance of private sector saving and investment suggests that the US recovery is on a stronger footing for a sustainable recovery in early 2010.

This is a mostly bullish survey of global capital markets.