Is this really an investment twilight zone?

Bank of America has come out with a provocative phrase for the period between the end of QE and the beginning of the normalization of rates by the Fed - the Twilight Zone. The twilight zone is an economic environment of "secular stagnation" and  low inflation. The economy may not be strong enough to cause the Fed to act nor is it at place where it can handle a rise in interest rates. 

The twilight zone does not have more securities added to or taken away from the Fed's balance sheet. The twilight zone has abnormally low interest rates, continued use of leverage, and further risk-taking, but also a sense of dread concerning asset prices.  It is a time when plans do not want to be made because the true discount factors are not apparent. The twilight zone has markets addicted to zero rates and cannot support financial markets in another interest rate environment.

This is a no win environment. If the economy does not show more robust growth, risky assets will not be able to be held on a fundamental basis. On the other hand, early action by the Fed will force asset   prices lower as leverage and risk-taking is reduced. It is no wonder that the Fed wants to wait before leaving the twilight zone and entering a new reality.

The course of action for many investors should be to prepare for tail events now. Raise cash levels, hold any cheap liquid assets, and look for uncorrelated opportunities. Stay away from the traditional assets which have been the receivers of capital flow looking for yield.