Montreal, Canada

At the Agora Financial Symposium in Vancouver last week, I heard my colleague and friend, Karim Rahemtulla, deliver an insightful speech just ahead of Dr. Marc Faber. I spoke after Faber, and was followed by the boss, Bill Bonner, right after my presentation. Our Sovereign Society Chairman, Jack Pugley, spoke ahead of Karim – probably the best talk on the history on money and currency debasement I've ever heard.

Karim and I have always been good buddies and see eye to eye on just about everything. We dined together last Thursday night in Vancouver.

Karim believes we're in a protracted environment of market volatility and illustrated this point by handing out a document showing how we've been overwhelmed by a series of financial shocks since the bursting of the NASDAQ bubble ten years ago; in fact, over the last decade, we've suffered more global market dislocations than at any other point in market history. Go back even further to 1997 and we've got an even bigger list of crashes and crises.

Karim, who specializes in options trading, referred to the VIX, or the CBOE Volatility Index, during his presentation. The VIX is widely known as the "fear gauge," measuring 30-day price volatility on the S&P 500 Index, or the U.S. broader market. The higher the VIX trades, the higher the fear among traders; conversely, the lower the VIX, the more complacent traders become.

What caught my attention was how often the VIX has traded at extremely high levels since 2000. What's also interesting is how traders and portfolio investors can mitigate stock market risk by applying VIX hedges at market extremes or when the VIX is trading below 20.

Karim believes the VIX is a "buy" below 20 and a "sell" above 40. No-man's land for the VIX lies between 20 and 30. Right now, the VIX is trading at 23.47, or 49% below its 52-week high of 45.79 in June.

More market dislocations lie ahead as the odds of "getting it right" on behalf of Western policymakers is next to nil. One or more countries will bungle fiscal and/or monetary tightening at a time when draining excess liquidity or fiscal spending is a juggling act. Economic growth is not balanced and is slowing in the West and in parts of Asia, including China. Volatility will respond.

Watch the VIX as it declines below 20. If it falls to 15, dig in deep and buy the VIX or its retail investor equivalent, VXX. Market complacency is a dangerous habit.