VIX hits 3-1/2 year low of 15.40% (Perhaps Too Low)

The recent decline in the VIX (volatility index) to a 3-1/2 year low occurred because stock prices moved sharply higher in December and just posted a new 2-1/4 year high.  Stocks have performed well, primarily because of the improving economy, strong corporate earnings and the reasonable valuation level of the S&P 500 at 14.7 forward earnings (vs. the 5-yr average of 14.9x and 10-yr average of 16.7x).

However, there are four probable events that could cause some extreme volatility over the next 1-2 years:
1)  Geopolitical crisis  (War, Terrorist event)
2)  United States Fiscal woes unresolved/worsened
3)  Chinese economic slowdown leading to global slowdown
4)  Fear of U.S. inflation lead to high bond yields and pullback in stocks