By Justin Spittler and Joe Withrow
Investors have never been more complacent.
Just look at the CBOE Volatility Index (VIX).
The VIX, or what most people call the “fear index,” measures how volatile investors expect the market to be over the next 30 days.
When the VIX is high, it generally means investors are fearful. When it’s low, it means they’re complacent.
You can see below that the VIX has been trending lower for years. It’s now hovering at around 10.
That’s 49% below its historical average. But that’s not even the scariest part…
• Two weeks ago, the VIX closed at 9.19…
That’s its lowest level ever.
Not only that, the VIX has only closed below 10 nine times between 1990 and 2016. That’s about one day every three years.
This year, the VIX has closed below 10 on 33 separate occasions.
In other words, 2017 has been the least volatile year ever for stocks.
• This is a big problem…
You see, when markets are this calm, investors put their guards down. They take huge risks. They set themselves up for big losses.
In a second, I’ll tell you exactly what I mean by this. I’ll also show you how to avoid falling into this trap.
But let me first turn back the clock to 2007…
• Back then, the U.S. housing market was roaring…
It was so hot that people thought housing prices would rise forever.
So, they did what folks always do during asset bubbles. They got in over their heads.
The average American borrowed obscene amounts of money to buy houses they couldn’t normally afford. Some folks even flipped houses like hotcakes.
It was one big party…until housing prices stopped rising.
But it only took a few months for the euphoria to turn into a full-blown panic.
By the time the dust settled, more than a million people lost their homes to foreclosure. Unemployment shot through the roof. And the average large-cap U.S. stock plunged 57%.
• Today, investors are doing the same exact thing…
Only this time, they’re doing it with stocks.
They’re paying sky-high multiples. They’re chasing fad stocks higher. And they’re loading up on “dream companies” that have never made a dime.
It’s complete insanity…especially since there’s absolutely no reason to be complacent right now. Think about it.
Europe’s splintering like a windshield in a hail storm. Relations between the U.S. and China are souring. And it looks like we could go to blows with North Korea any day now.
• In short, we’re living in very uncertain times…
And most investors couldn’t care less.
But this calm won’t last forever. Eventually, the financial hurricane that Doug Casey’s been warning about will make landfall.
When it does, it’s going to clean out a lot of investors…just like the last housing crisis did.
Unfortunately, I can’t tell you when the next crisis will begin. But I do know that investors usually only feel this invincible at the tail end of a bull market.
So, be sure to “crisis proof” your wealth if you haven’t already. Here are three ways to do that today…
Take some chips off the table. It’s no secret that U.S. stocks aren’t cheap. In fact, by some measures, they’ve never been more expensive. So, take a good look at your portfolio. If one of your stocks is trading well above its historical valuation, get out of it…or, at the very least, take some profits.
Have an exit strategy. Stop losses are one of the easiest ways to do this. A stop will automatically sell a stock when it closes below a predetermined price. They’re a way to lock in profits when the market turns on you.
Own physical gold. This one’s a no-brainer. You see, gold has survived every financial crisis in history. Because of this, investors take shelter in gold when things get dicey. We encourage every investor to keep 10% to 15% of their wealth in gold at all times.
Investors who take these precautions will protect themselves from catastrophic losses while still having “skin in the game.”
Justin Spittler and Joe Withrow
October 24, 2017
Today, readers flood our inbox with their thoughts on Doug’s recent interview on the NFL protests…
As a subscriber to your newsletters, I usually don’t agree with Doug Casey’s opinion on political and social issues, but I think he’s right on target with his comments on the NFL protests!
Please stick to finances. Your ignorance on issues around race and racial injustice is astounding. Thank you.
Most of the time I agree with Doug. He's wrong on this. It’s between the players, owners, and fans. Players would be nothing without fans. You are a statist, Casey. Misinformation. Trump is not what you say he is. Rock the status quo, he continues to do. You're jealous, dude…
Wow! Now I know that Casey is really an opportunistic liberal! With no respect for the USA! The national anthem is really beautiful to hear—not like this Casey said, “discordant”!
He really knows jack about music! The anthem is to bring together people to have respect for their country! I plan to unsubscribe from this money-hungry opportunist who should get out of the US. Bet that if the sh*t hit the fan in Argentina or elsewhere, he would return here in a minute, just like Clooney the phooney!
Doug, I can't believe you have used the word "ghetto" rather than slums…? Always enjoy the communiqués!
Doug, I know you are a brilliant man and I subscribe to your letter, but I feel you missed the entire point of the anthem. I don't know if you served in the military or not. I feel perhaps you did not or your heartfelt views would have been different, I think. Sorry to have read your take on this situation. Perhaps you should stay out of the political arena with your thoughts.
And despite our proof that the marijuana bull market is only getting started, this reader will be sitting on the sidelines…
You constantly promote pot stocks without even a mention of what it will do to society, especially the youth. You are soulless lovers of money. You claim to love freedom but how free are you when you cannot function without pot. And you suggest governments will profit from this. It is both irrelevant if it destroys society but it's also highly questionable whether the government will save money.
If you studied the issue, you will notice that the government is creating such rules and thus a bureaucracy around pot regulations, you are so easily fooled into thinking that it will make money for the government and society. In the end, you favor legalization of all drugs. You wouldn't care if there was a homeless heroin addict on every street corner as long as you made money off their destruction.