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The turbulent global events of the past few weeks underscore the reason why I have maintained a cautious investment approach for the past year.

Through my lens, even the massive recovery we saw from the March, 2009, lows bore too much of a resemblance to the bungee jump in the market back in 1930. At one point two weeks ago, at the highs, the stock market had already achieved in barely more than a year what took five years to accomplish in the 2002 to 2007 bull market.

Driving the rally in equities over the past year or so has been the unprecedented government intervention into the economy and frequent incursions into the capital markets.

Now, the message coming out of Greece and many other governments in the European Union and across the globe, is that governments are willing to probe the outer limits of their deficit finance capacities.

History shows us that it is quite common to see sovereign default risks follow on the heels of a global banking crisis, which was the story in 2007 and 2008. We are now in a new chapter of this prolonged debt deleveraging story.

Cycles of balance sheet repair like these, alternating between the private and public sector, typically last six or seven years. We are barely into year three.

With a long roller-coaster ride ahead, it is extremely important to focus on capital preservation strategies that minimize the volatility in the portfolio.

Greece is the same canary in the coal mine that Thailand was for emerging Asia in 1997, which ultimately led to the Russian debt default and the demise of Long Term Capital Management; the same canary in the coal mine that New Century Financial in early 2007 proved to be in terms of being a leading indicator for the likes of Bear Stearns and Lehman Brothers.

So, the most dangerous thing to do now is to view Greece as a one-off crisis that will be contained.

Even with this new and aggressive EU-IMF financing arrangement that managed to trigger a wild short covering rally, the risks are still high that the contagion spreads to countries like Portugal, Spain, Italy and even Britain, which has already received warnings from the major rating agencies.

The problem of there being far too much debt on balance sheets globally has not gone away and in many cases has become worse, and the ability to service these debts – especially in countries that have weak economic structures like Greece, Portugal and Spain – has become seriously impaired.

It remains to be seen how Greece and the other problem countries in the euro area will manage to cut their deficits without controlling their monetary policy and their currency, which of course we were able to do here in Canada during the 1990s, but with the help of a 30-per-cent currency devaluation.

It is not necessarily a double-dip recession scenario, but I would not rule it out.

Speaking of Canada, the downdraft in our market and our dollar shows once again that we can be doing everything right, and in terms of fiscal policy we still look good on a relative basis, however, being a small open economy sensitive to commodity prices, this is one of those times where sudden shifts in global economic sentiment can hit us disproportionately.

With the benefit of hindsight, it is clear that the time to start to wade into the risk asset pool was a year ago after a 60-per-cent plunge in equities. However, 80 per cent later on the upside, it’s time to get more defensive and less cyclical with a keen eye towards taking advantage of this crisis if it presents opportunities in the equity market.

I, for one, am looking forward to having my temptation level tested if this market heads back into undervalued or even fair-value terrain, which it only managed to achieve for a few months early last year.

For an investor, what’s important to understand is that the uncertainty surrounding the macro outlook is much wider now than it was before. Over the near term, there is still more downside but the main message is that one should be prepared to take advantage of the springtime selling by using cash and near-cash as part of a tactical asset allocation strategy. One of the best ways to make money in this tumultuous environment is not to lose it and have it ready to put to use once things get really cheap.

David Rosenberg is chief economist and strategist for Gluskin Sheff + Associates Inc. and a guest columnist for Report on Business