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Robert Fitzwilson continues:


“OPEC raised the price of oil and at the time we were making gas guzzling automobiles.  We had been encouraged in the ‘50s and ‘60s that energy was basically free and we should use a lot of electricity and natural gas.  So it really threw a monkey wrench into the economy when oil spiked. 


Meanwhile, we were all trying to figure out what the right investment strategy should be, but the truth was, at least in the equity markets, everything was going down....


Continue reading the Robert Fitzwilson interview below...  




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“I remember vividly the fixed income area.  Investors would buy the new bond for that year and then 12 months later you would sell that bond at a loss because interest rates were in a secular increase.  Then, investors would buy the new bond hoping things would change.


This went on for several years.  So, virtually every time you bought fixed income you would lose.  Eventually, the Treasury rate peaked at somewhere between 14% and 16%, but it was a long and painful ascent.  


The people who trusted fixed income as a wealth preservation asset, not only were severely damaged by the price changes, but when the inflation really kicked in toward the end of the decade, the purchasing power of what was left over was pretty much decimated.


We believe that our experience in the '70s provides a useful template for thinking about the current situation.  However, there are differences.  This time, the problems are global and governments believe they have learned from their mistakes in that decade.


Instead of a secular change in interest rates, gold and energy prices, we could well see a sudden, catastrophic shift in these metrics as control is lost across a broad front.  This is why it’s so important for investors to be properly positioned ahead of that catastrophic shift.”


Fitzwilson had this to say about oil and mining shares: “The thing about the HUI (Gold Bugs Index), people have to remember the HUI is up over 3 fold since the lows in late 2008.  I hear people saying they are frustrated that index hasn’t performed well or it hasn’t done what they expected.  


But you just can’t have those kinds of moves without some sort of pause or consolidation and this is what we’ve been experiencing for about the last 15 months.  In the 1970s, a lot of the mining was underground.  The labor costs were also kept under control. 


This time around, a lot of the mining is open pit and the cost of energy has been rising.  This is particularly important because open pit mining is energy intensive.  Rising labor costs have also been a factor.  


The important point here is that investors need to be very savvy about what mining shares they purchase and they must consider the rising energy and labor costs which have been a challenge for the sector.


Speaking of rising energy costs, investors need keep an eye on the oil market.  We still believe the spare capacity is extremely tight.  This week the Saudis said the price of oil was too high and they have the capability to increase production 25%.


Our belief is that’s greatly overstated, and in fact the Saudi spare capacity could well be zero.  The conclusion is, barring a global meltdown, the price of energy should continue to rise inexorably.”


© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.


Eric King

KingWorldNews.com

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