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VIX – Volatility Index Hits Highest Level Since 1987

What we are seeing is a perfect example of capitulation. It is a very rare thing to see people give up on the market and sell relentlessly because they are so afraid they will give up at any price. It is a truly historic time.

The VIX is evidence that we are seeing panic selling and the market is seeing huge volume. This is emblematic of the market finding a low. But to find that low and move up, something systemic needs to happen.

Over the weekend, world financial leaders have been hard at work flooding the world's financial system with liquidity. The Fed announced that they are starting to pay interest on bank reserves and increasing its term auction facilities to $900 billion. This will matter – it won't be immediate, but it will make 2009 a good year to own equities.

We should begin to see some worldwide interest rate cuts – I expected to hear that Asia and Europe had cut overnight when I woke up this morning. That didn't happen – maybe tomorrow. When it does, we should see the buyers come into the market.

These sorts of actions by world leaders are systemic turning points, and panic selling always proves to be the wrong course of action in the intermediate term.

Bottom fishers and bear-to-bull converts have started to enter the markets in anticipation of it finding the bottom. This is natural and all a part of the process. In the meantime, it is truly painful to live through this market.

History has shown that not panicking is the right action, and using times like these as an opportunity to realign portfolios for the next upward move in the market. We are in the process of determining our realignment and will communicate it very soon. Until then, hang in there.