Our technician showed me this chart of the VIX since 1990. Note that when volatility slumbered in the 10-20 range from 1990 to 1997, we then experienced 7 years of eye-popping volatility from 1997 to 2004. After that we had another 4 years of slumbering in the 10-20 range again before all hell broke loose in 2008. 2010 marks the third year of huge swings in the VIX from 17-60 on this chart. If this were to continue to 2015 it would match the 7 wild years in the previous period. It would also line up with other indicators and historical cycles we follow suggesting this secular bear period could be with us until at least 2015. In the meantime, constant equity allocations will continue to be at the holders severe risk.
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Danielle You’ve had me convinced to listen to you for a good many years now. I first spoke with you at a convention in Vancouver and at that time you said the hardest thing to do as a money manager is wait on the side lines until the time is right. I must say sitting with my entire portfolio in cash is a lot harder with the current rally. Looking at today’s graph truly shows why one should do this.
Phil, I have never said you have to sit in cash with your entire portolio: bonds, currencies, commodities, real estate, equities and cash are all strategic allocations that can be used in these periods. Its just that timing has to be very tactical and carefully controlled with buy and sell rules. If you lack such a method to control risk, then yes cash like deposits are likely to fare you better than passive buy and hope allocations..