From current levels those investors interested in a speculative play should look no further than the VIX.
This trade in only for a small part of a portfolio, there are many other core positions that are better suited to take advantage of the declines that lie ahead in a prudent manner (find ideas). But this trade could increase by as much as 200% in the next handful of months.
The basis is the risks that exist in our economy + the risks that exist in Europe + my longer term macroeconomic work (The Investment Rate) + the economic headwinds coming at the end of the year (higher taxes and lower spending) + the ineffectiveness of central banks + I could go on ...
The risks are vast. My models tell me we could see a 50% decline from current levels (this might take years but we are likely to get hit soon as well), and if that is true I expect volatility levels to skyrocket and the fear gauge to be a great reward for speculative positions.
Specifically, iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) is a great buy from current levels in my opinion. I know it has deterioration, and if you prefer to buy options on the VIX directly go ahead. But my outlook is for substantially lower market levels, substantially higher volatility levels, and my work suggests that anyone embracing this side (the downside) of the market will make a tremendous amount of money in the months and even years ahead. Anyone buying and holding has another thing coming.
The writing is on the Wall.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.