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Investors Are Unprepared For The Coming Detour
With continued volatility in many of the key global markets, 40 year veteran, Robert Fitzwilson wrote this piece for King World News. Fitzwilson is founder of The Portola Group, one of the premier boutique firms in the United States. Here are Fitzwilson’s observations: “With markets becoming increasingly volatile, it is important to maintain perspective regarding what has transpired since the 2009 bottom in the equity and commodity markets.”
Robert Fitzwilson continues:
“Successful investors develop and follow an overall strategy. If one doesn’t have a strategy, it is easy to get whipsawed as volatility creates wide swings in prices. The volatility causes unprepared investors to liquidate declining holdings in a panic.
Indeed, market bottoms are usually characterized by a step-down, or ‘waterfall’ decline on heavy volume. In essence, the ‘flight’ emotion takes over and people tell their brokers and advisers to ‘get me out at any price.’ That pattern usually signals the end of an intermediate move. What serves to end the emotional panic, generally coincides with a negative effect on the person’s future financial condition....
Continue reading the Robert Fitzwilson piece below...
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“Since early 2009, we predicted that the central banks of the world would engage in massive printing and stimulus in order to avoid the only other alternative, a global depression. Over $20 trillion of stimulus was promised by the major countries. Our TARP program was mostly used to recapitalize the global banking system; the primary stimulus in the last round came from China.
Let us take a look at what ensued starting with technology. During the week of March 9th, 2009, Google bottomed at $289. Today it trades at $603. Apple bottomed out at $82.57. Today, despite a 10-15% pullback from the recent high, it trades at $561.
Turning to oil, The key economic input, it traded as low as $33.55 per barrel during the week of February 9th of 2009. Oil is now trading at roughly $90 per barrel for West Texas Intermediate crude.
Next up are gold and silver. Gold hit a low of $801.50 during the week of January 12th 2009. Gold is now trading at $1,547 in spite of all the hysteria spread by the U.S. media insisting gold is a ‘useless, volatile’ asset. Silver hit bottom during the week of December 22nd, 2008 at $10.11. It is now at $27.54, even after the savage attacks against the metal in beginning in May of last year.
Last, we have the mining companies. The HUI is an Amex-sponsored index of mining companies. It bottomed at 241.78 during the week of January 12th, 2009. The index currently stands at 411.57 despite severely lagging the prices of the underlying metals that they produce.
It might be hard for strategists to defend the holdings in the short-term, but the fundamental strategy and the thinking behind it have worked spectacularly well since the bottoms in 2008-09.
The volatility that we are experiencing is derived from several sources. The first is that interest rates have been driven to zero and even negative in some cases. Zero interest rates make all assets very volatile.
The second source is that we are at the end of the Keynesian fiat money experiment and the end of the Global Great Society. We are in the final throes of the world financial structure which started with the Bretton Woods agreement. The social programs have vastly overrun the ability of governments to fund them by merely raising taxes.
There are three choices in our view - up from the two we have been highlighting for some time. The first two are to massively print more money or to fall into a global depression. The third path that recently came into focus is a reboot of the whole global monetary system.
While the last path is much less likely at the moment, it ultimately must be done as the second option cannot last forever. For paths 2 and 3, paper, fiat-based assets cannot survive. It is mathematically impossible. That is what makes path 3 an inevitability.
For now, the world will continue to have enormous demands for technology, and despite recent weakness, oil, gold, and silver are severely undervalued. The mining companies that produce the metals also continue to be massively undervalued. Investors positioned in these key commodities and producing companies simply need to stay the course.”
© 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.
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Eric King
© 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.
May 27, 2012
