Poised on the brink, but of what?

The economy and stock market are sending mixed and confusing signals. Recovery or double-dip recession? Inflation or deflation? At the moment, the economic weather vane is becalmed.

It seems that just as many respected voices are making the “glass is half full” argument as those who see emptiness.

For financial advisers, this uncertainty poses a problem.

Like others in the financial community — from portfolio managers and traders to bankers and researchers — advisers serve clients who want answers, or at least a sense of direction. In the absence of direction, investors appear to be defaulting to a state of caution.

Signs of the public’s insecurity abound. Last month, The Conference Board Inc.’s Consumer Confidence Index fell to 51.9 from a revised 62.7 in May, the steepest drop since February.

In a recent survey by the Pew Research Center, 61% of respondents said that the damage caused by the recession will be temporary, yet nearly half of respondents said that they plan to save more, and nearly a third said that they plan to spend less in the coming months.

In the past, of course, advisers’ typical prescription during periods of investor caution was a bracing dose of equity investment to catch the next wave of stock market enthusiasm.

To be sure, many respected investment minds espouse that position today. They note that equities are moderately priced by historical measures and that many large and midsize companies are extremely profitable and financially sound, providing excellent value.

Less sanguine observers make the equally compelling argument that corporate America has extracted about as much profitability as it can from downsizing and restructuring. They think that only top-line revenue growth will bring greater profits but that such growth is highly unlikely given weak demand, the lackluster employment picture, and economic problems in Europe and China.

As they can’t muster much conviction about broad equity trends and can’t find compelling arguments to dissuade investors from their caution, many advisers have taken to a smorgasbord approach to asset allocation, seeking profit and safety among a wider array of investments.

Investments geared to providing absolute returns have proven popular, as have commodities-related investments, currencies and various options strategies designed to limit risk and produce income. At the moment, these “alternatives” have become the main focus of attention for many advisers and clients unsure about the direction of equities and interest rates.

Because the inactivity on the part of investors has different roots than the languor typical of summer or the freeze that comes after a dramatic news event, it is likely to persist. Investors may not be able to articulate all the risks that they perceive, but they understand that the investment waters are swirling too wildly for safe entry.

Perhaps the best thing that advisers can do at the moment is acknowledge the risks and provide sensible ways to mitigate them.