Now is the time, to be prudent, discipline and creative. 

Are we running on borrowed time?

At this point, you may or may not be nodding in agreement. But you have also probably heard countless arguments like this over the pass 6 years and all the major markets equities have done is continue to set record highs. Finally the USD recently hit an 11 year high against a basket of currencies and is approaching on parity with the euro.

Virtually everyone, gets held back by inertia at one time or another. It can happen with anything, including investments. Inertia will weights on an investor, trapping him in a state of paralysis and freezing his portfolio, almost forcing him to hold on to whatever he already owns -- for no better reason than that he already owns it.

Maybe people hope that, every one of their old shoes will will go upwards. Even if the reason for the purchase is long forgotten or the environment in which the investment might have prospered has vanished. People who substitute hope for cold blooded analysis almost inevitably wind up losing money. 

The return of volatility since October was no surprise. Quantitative Easing had been the driving strength behind the major market boom since 2008. The easy money policy had also served as a soothing agent for market's volatility. Should it be a concern to investors in the coming months?

The major Central Bankers understand that lifting rates too much and too soon, could shock the financial markets, so don't be surprised if they will take its time. Nonetheless, the mere prospects of has put the market on high alert. Now that the QE gravy train has ceased. Investors are finding it harder to ignore weak economic data and geopolitical instability. 

Some of the major market indices just celebrated six years without a major correction. Bull market doesn't die of old age, but fatigue is more likely to set in if the major policy makers stay its course. A Major corporation may struggle to attract investors if cheap credit dries up and prevents companies from juicing eps figures through share buybacks. 

Point taken but this time is different, the FED no longer props up stocks through asset purchases. The market has to adjust to $45 or lower price of oil. The ingredient for a volatile year are in place. However, it's important to realize that there's nothing inherently bad about volatility. Unpredictability is the trader's best friend. It produces loads of opportunities. On the other hand, the average investor is less fond of price swings and for good reason. Periods of extreme volatility usually precede a downturn or occur during a bear market. We obviously are not experiencing the latter.

Still a correction is not guaranteed even if 2015 turns into a roller coaster ride. The lady from the FED could calm the market by merely dropping a word patient in Her next address. Same like Bernanke did the same thing in 2007, when the crisis is about to strike. Remember, they run the shows these days.

Rising inequality, declining wages and low interest rates.

By virtually any standard, wealth inequality has soared to historic level in the six years of " recovery " since the great recession of 2008/09. Even the most educated have declining wages. That maybe the reason many people are investing heavily directly or indirectly investing in other financial assets to check on the rising inequality.

The only trick is to expand debts and lowering interest rate. There are only two ways to support additional debts -- either increase net income or lower the rate of interest on new and existing loans to free up disposable income.

Using this trick to enable further expansion of debt, thus create a systemic risk that borrowers will ever borrow and lenders will not have sufficient reserves to absorb the inevitable losses as marginal borrowers default and other borrowers suffer declines in disposable income that trigger further defaults.

In other words, the trick of lowering interest rates, yields diminishing returns; the more debt that is enabled, the thinner the margin of safety and thus the greater the systemic risks rise in direct correlation with rising debt loads. The vast expansion of debt on the back of marginal borrowers and the expansion of risky investments have greatly increased the systemic risk of losses from defaults arising from over extended borrowing. 

No wonder every attempt to expand the debt based economy is yielding diminishing returns, net income is stagnant virtually everywhere in the bottom 95% of the populace and further declines in the interest rates are increasingly marginal as rates are near zero in major economies nations that isn't suffering a collapse in its currency. 

The unraveling is speeding up is not just perception, it's reality. 

Can the stocks keep hitting new highs even as profits and sales fall?  One classic precursor of corrections is weakening market leaders and narrowing of breath, liquidity and volume. Another classic precursor of a the debt based economy line is a high level of complacency which is reflected in the low VIX index. When fear has been vanquished, the VIX declined to the 10-12 range. This level reliably indicates level top. Is the S&P acting rather tired? Despite the declining VIX the major S&P market only managed a tepid small percentage gains in the past 3 months that are typically the best in the calendar year for a strong equity gains.

This characteristic, I believe,  not of a robust Bull trend, but of a topping process -- a process that typically takes several months to manifest. Perhaps the VIX will soon awaken from its slumbers, reflecting a surprise plummet in stocks. So it's all smooth sailing even the global economy slides into a slowdown? That's a disconnect from reality that beggars believe. 

The signs of global slowdown are so plentiful that the most ardent bulls should start feeling cautious. Yet the central banks in the UK and Germany are hitting new highs. History suggests we might hit peak central banking -- the faith that their quantitative easing can push market higher for a long, long time, regardless of fundamentals has reached near euphoric levels. Few fears of decline or increase in volatility.

In any case, it's critical that investors, prepare for the unexpected. To stay afloat in these choppy waters, the investor must be prudent, discipline and creative.

Happy  investing.