By Robert Fitzwilson of The Portola Group

November 3 (King World News) - “Financial Destruction Will Be Unleashed On Global Economies”

What should not have been a surprise last week was the Fed announcing that their purchases of $85 billion per month were to continue.  In fairness, the Fed has been consistently saying that any tapering of these purchases would be data dependent.  Now that the data dispensing machine is back in action after the temporary resolution of the debt ceiling impasse, most of what has been reported so far continues to reflect overall economic weakness.  There are a few bright spots, but global economic activity continues to languish in states of stagnation and atrophy....

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One gets the sense that either there is some great plan in the works or there is absolutely none at all.  It could very well be both.  The manifestations of power are all around us as seen in the propaganda, market manipulations, military conflicts, financial repression in various forms, creeping capital controls, runaway espionage and the erosion of corporate and personal freedoms.

For those with money to deploy and protect, the task continues to be frustrating.  The chart below reflects the performance of indicators for various asset classes.  In an all too familiar pattern, the manifest outperformance of gold and the mining companies in the prior week was decidedly reversed.  There are those who believe that the suppression of the precious metals mining companies is the correct explanation.  The HUI has surged upward before this year, only to be slammed back to lower levels.  Whether it is a deliberate act of an “invisible hand” or worsening prospects for the miners, one cannot say.  However, the pattern continues to repeat.

See the chart below which compares the (Miners) HUI Gold Bugs Index performance (top line), with the performance of the Nasdaq, Dow Jones, S&P 500, and US Treasury bonds for the past two weeks.

The headlines suggest that the general equity markets have been the place to be, but the chart shows that equities as well as longer-dated bonds (the TLT) have been essentially flat to negative for the period.  Commodities, in general, performed poorly for the week.  The decline in oil prices stole the headlines, but the sector was generally weak as evidenced by the Reuters/Jeffries CRB Index.

Logic tells us that the evidence of a grand plan is in the works.  What else explains the massive transfers of gold from West to East?  There could very well be cabals of central planners or historic alliances of the major powers behind the scenes.

On the other hand, we see periodic flash crashes in markets.  Is that stress testing of the system, as part of the overall scheme, or does it show us how tenuous the glue is that holds this central planning hare-brained scheme together?  The decline in oil and commodities might also be telling us that the global economy is beginning to roll over.  The moment when the massive printing by central governments loses the ability to keep economic activity and markets afloat could be at hand.  The grand planning could be losing out to the natural forces of economics.  Unleashed, those forces create and improve economies, but hobbling market forces guarantees that economic activity will decline and then implode at some point.

The Fed’s announcement of the continuation of $85 billion per month in Treasury and mortgage-related securities might reflect not so much of a grand plan, but simply that we are all trapped down an economic dead end.  The figurative iceberg in the form of economic stagnation and mushrooming deficits lies ahead, and there is nothing the captain can do to stop us from certain disaster.

Very few people comprehend the danger that exists within the financial system as well as the destruction that could be unleashed on global economies.  This is likely to remain the case, and is consistent with history as well as human behavioral characteristics.  People panic in groups.  As long as the majority of the group does not see others panicking, calm will rule.  Once the majority realizes that it is time to panic, it will be too late.

Rather than reliving the wheelbarrows of cash that post-WWI Germans experienced, the most likely endgame is the so-called “fat finger” by millions of investors -- seeking to rush out of investments into cash.  In an all electronic world, the majority of investors have been lulled into believing that cash is a mouse click away on their computer.  What they do not understand is that the institutions with whom they have their accounts would have to liquidate massive positions to allow them to convert to cash.  With limited liquidity, even today, that is going to happen under a disorderly situation.  The orders to sell will be generated, but there will be few executions.

The markets will freeze as will the accounts.  Those already with cash or that do not attempt to liquidate positions are not necessarily home free.  Now that the “bail-in” concept has been coded into law, it is impossible to say what percent of their account will be waiting for them when markets are allowed to reopen.

Grand plan or grand “face plant” or both, that is the conundrum for those attempting to figure out what comes next.  In the meantime, intelligent, historically sound allocations of capital to both productive enterprises, real assets, precious metals and miners should be considered.  

Despite a dysfunctional monetary system and bankrupt governments, companies and entrepreneurs continue to create hope and opportunity.  Our portfolios need to protect against an abrupt loss of purchasing power, but also be looking beyond this mess toward better times.

IMPORTANT - Andrew Maguire’s remarkable audio interview is available now and you can listen to it by CLICKING HERE.  There is also a powerful audio interview with William Kaye covering the war in gold & desperation on the part of Western central planners that is available now and you can listen to it by CLICKING HERE.

© 2013 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.

The audio interviews with Andrew Maguire, William Kaye, Gerald Celente, Dr. Paul Craig Roberts, Michael Pento, Eric Sprott, Grant Williams, Rob Arnott, Art Cashin, Bill Fleckenstein, David Stockman and Jim Grant are available now. Other recent KWN interviews include Marc Faber and Felix Zulauf to listen CLICKING HERE.

Eric King

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