There’s only one way to say it: investment risk in this market is high. The sovereign debt issue keeps rearing its head every other week or so and the developments in Europe are having a material effect on the domestic equity market. This entire issue is related to the mortgage financial crisis in that it illustrates that even countries can’t go on forever with spiraling amounts of debt. Eventually, you are going to get called out—even as a country.

No one quite knows where this issue will lead global financial markets, but you can bet that large, institutional investors are making plans for how to deal with it if investor confidence in the European bond market begins to unravel. There’s no greater risk to your investment portfolio than the sovereign debt issue. It will be with us for the rest of this decade and it must be addressed by policy makers.

This is why the spot price of gold hasn’t corrected nearly as much as other precious metals and other commodities. It’s the store of value and risk-haven trade keeping the price of gold solid. If the status quo remains with these two realities and we add in a declining U.S. dollar relative to other global currencies, $2,000 gold seems like an easy price target.

Financial markets are currently experiencing a well-deserved consolidation/correction. Most assets have been due for this and it’s no big surprise. A new trend in commodities is waiting to develop and all that remains is the catalyst required for investors to jump on board. As I’ve mentioned, debt defaults and/or country rating downgrades could be the next big thing.

So, with investment risk high and economic data showing lackluster numbers, all the market has to trade on over the near term are corporate earnings and visibility. If what companies report doesn’t make the grade, then we should be in for more downside in stocks.

Things are the way they are because of a lack of austerity, both at the individual and country level. The fact of the matter is that austerity hurts, but it’s exactly what’s required over the next few years to get things back on an even keel. What goes around comes around. For far too long, governments have been borrowing on the future of their own citizens in order to get elected. It’s happened in all Western countries and now all that debt is starting to bubble over.

As I’ve been writing for quite some time, I wouldn’t be in any rush to jump into the marketplace with any new bold vision or investment theme. There’s too much uncertainty out there to be making any big plays. I’d be a buyer of gold assets and select large-caps with solid dividends after we get a look at second-quarter numbers. Right now, it’s a waiting game, with the hope that things don’t actually fall apart.

Most economic analysis hasn’t been accurate over the last several years, and it’s partially due to the severity of the financial crisis, which almost brought about the complete collapse of the stock market. While history is replete with all kinds of recessions (some more severe than others), memories are short on Wall Street, because that’s what most people are doing there—working for short-term gains.

Imagine if you were a Warren Buffett type of investor; you’ve already made enough money to live comfortably and you’re running a large investment portfolio, the purpose of which is to invest in businesses at good prices for the long term. Your holdings would reflect the general state of the economy, but you would relish the opportunity to buy more companies when prices retreat. That’s your business—to invest in good businesses and good managers. The returns are the returns. They can’t be predicted and that’s why the entry price is so important.

Big investors like Buffett and hedge-fund managers like George Soros invest a lot of money in a lot of different types of securities. They also trade around their positions as market conditions warrant. Soros has been selling gold recently, but still has a very large net long position. My favorite investment analyst, Jim Rogers, makes big, calculated investments based on a theme or trend, and then trades around the position as market valuations change. Before Rogers makes a big investment, however, he waits for the marketplace to achieve extremes in prices. In the absence of market extremes, he just waits. That’s how you have to be as an investor—patient and flexible.

We know we’re in a period of slow economic growth. We know the economy is sputtering, as are employment and the housing market. These are all structural issues that take a good deal of time to correct in the business cycle. So, from my perspective, it’s a hurry-up-and-wait kind of market.

Predicting the stock market is an irrelevant endeavor. Predicting earnings and cash flow from a business—now that’s a different story. I think we’re likely to see share prices continue to drift until second-quarter earnings season begins. Once again, the market will expect its numbers to be met and, more importantly, it will want to see improved corporate visibility for a stock to go up in price.

Predictions are just guesswork, but expectations for returns from stocks are currently being driven down. This makes the near-term outlook weak. But, it also makes outperformance later that much easier. Barring any major new shocks to the system, the market is setting itself up for an earnings rally at some point within the next nine months. That, by the way, is just a guess.