Plan For an Economic Meltdown

Does the market feel calm to you?

Probably. The fastest way to measure "fear" in the market is to look at the Volatility Index – usually abbreviated VIX.

Take a look at this 20 year chart of the fear index:

Measuring Market Fear

The market tends to run counter to the fear index. I've highlighted the chart above to show that the VIX peaked whenever the market was bottoming out. Those red circles coincide with the beginning of the dot-com bust, 9/11, the recession of 2002, the financial crisis of 2008, the slowdown of 2010 and the raucous market of late 2011.

Measuring Market Fear

But as you can see, the best time to be a buyer, and the worst time to be a seller is always when the VIX is at its highest.

If you're an index investor, you can do very well by solely paying attention to the VIX.

But that's not what I'm writing about today.

The subtext is that the market tends to feel the safest when it's not. This latest market rally should convince you to stay away from the market, not jump in.

And a recent story in the Financial Times signals a dire warning from the World Bank.

The story is mostly about emerging nations – but the message should catch everyone's attention: "plan for a global meltdown."

And we all know why the World Bank fears a global meltdown. That's because the entire financial system is significantly impaired. There's a reason the Euro is still making headlines – it's because the entire Euro-zone is completely broke, and they can't fix the problem.

If they were at all able to fix it, they would have already fixed it.

And I'm sure you're tired of hearing about it. And you're tired of hearing me tell you that the Euro is doomed.

But it's true. And the fact that folks AREN'T scared right now, should be a cause of concern.

If you're looking for solutions – and if you're interested in what the World Bank has to say – you should be preparing "for the worst."

I don't know what that means if you're a government. The World Bank might know. I'm certain that such preparation will not be pretty for individual citizens.

But for the individual citizen, the trend is clear. While governments are preparing for the worst in a variety of Orwellian fashions, you should be deleveraging yourself from the tools of your likely demise.

Of course you know my personal solution is gold. That's just my preference.

Gold isn't a salvation or a god to worship. It's simply money. Money in arguably its best and most pure form.

If you have the means, your solution could be a second home abroad. Or a working farm off the beaten path.

But in any event, your solution should probably include some measure of gold.

The VIX is speaking to us right now – and telling us that all is well. It's time to be fearful, because others are being greedy.

Good investing,

Kevin McElroy
Resource Prospector

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