Since 1999 when I first met Harry Dent he has warned investors” that bear markets are trickier to play than bull markets, although the profits are much higher because bear markets tend to crash twice as fast and hard as bull markets build, especially in bubble booms.”
VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30 day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options, according to Investopedia.com. The Streetmakes the definition easier, the VIX “is a mathematical measure of how much the market thinks the S&P 500 Index option, or SPX, will fluctuate over the next 12 months, based upon an analysis of the difference between current SPX put and call option prices.
“You’d rather be a buyer into weakness, than have to be a seller in a weakness, and that’s why hedges make sense here,” said UBS’s Julian Emanuel on Bloomberg Markets, May 3, 2017. The article went on to say the VIX has been at its lowest level since 2007. “That seems strange in light of the geopolitical anxiety surrounding the saber rattling with North Korea and the mixed fiscal and economic signals coming from the U.S.” The concern becomes a bear market may be lurking in the woods.
Dent said on August 3, 2017, “The market boom from late 1982 through late 2007 was based on real fundamentals: the spending wave of the largest generation in history; falling interest rates from rising productivity after the greatest peak in history in 1980 to 1981; the movement of internet and portable computing into mainstream markets. But since the economy collapsed in 2008, it’s been all about endless QE and stimulus measures to fill the gap of unprecedented debt and slowing demographic trends in spending and productivity. The retail apocalypse we’re witnessing is more than simply a case of Amazon and internet retailers taking over market share. They only command 8% of the market. It’s really all about the aging Baby Boomers slowing their spending before the Millennials fully enter the workforce and ascend.’ Look at this chart on volatility in the stock market where Dent Research compared the VIX and the S&P 500.”
“In the 2008 crash the VIX went up 7.7 times what the S&P 500 went down. The highest ratio was in late 1987, at 15.4 times. In the brief 1998 crash, it was 8.9 times and the double spikes in 2001 and 2002 saw ratios at 6.6 and 5.5 times, respectively. Even in the 20% crash in late 2011, the VIX went up 11.7 times what the S&P 500 went down,” submits Dent.
When Rodney Johnson joined Dent Research one of the points he made that I will always remember is on a per capita basis, more Americans became millionaires than any time in history. My takeaway was my, that’s really good news. If one can do well during a depression, there may always be a way to make money. My second observation was, when everything gets cheaper, that’s a good thing for those with fixed income. Thanks to sahistory.org we see that “American’s ‘Great Depression’ began with the dramatic crash of the stock market on ‘Black Thursday’, October 24, 1929 when 16 million shares of stock were quickly sold by panicking investors who had lost faith in the American economy.” At its height nearly 25% of the nation’s work force, were not employed. “There is no cause to worry. The high tide of prosperity will continue,” stated Andrew Mellon, U.S. Secretary of the Treasury, in September, 1929, according to mi2g.com. From the same source, by the end of summer 1932, the DOW suffered a loss of 89% from October 29, 1929.
Had anyone told me in 2015 that my fellow Gemini, Donald John (Wayne), would be President of these United States I would have told that person they were out of their mind. So in the interest of great surprises, let me give you three things to consider, Remember, preparation trumps predictions.
1. With October around the corner, what do you do now to prepare for any economic earthquake(s)?
2. Since cash is king, (not equity, not debt) what cash can you amass to take advantage of opportunities?
3. How can you participate in upward volatility while protecting your portfolio in severe downward volatility?
The proof is in the planning.
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The information presented here has been provided by HS Dent. HS Dent is an economic research company that uses various techniques to study the potential impact of various changes in demographic trends in our economy. No one person or strategy can accurately predict market movements. Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be place on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. The opinions in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is no guarantee of future results. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against a loss in periods of declining value.