Below is Fitzwilson’s exclusive piece for KWN:

Fitzwilson:  “The experience one gets entering a major casino such as those in Las Vegas is not easily forgotten.  The casinos are the indoor versions of the Circus Maximus or the Colosseum of Roman times.

When you enter the casino floor itself, you find yourself in a world created to make you lose sense of time and direction.  For gamblers, whatever your preference might be, you will find what you wish....

Continue reading the Robert Fitzwilson piece below...  


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“It begins by converting your official money into various formats created by the casino such as chips to play at the tables.  At the end of your gambling, you then return to the cashier to exchange whatever chips you have left back into official currencies.  There is an implicit presumption that you will be able to make that conversion as you leave the casino.

Those casino chips can be thought of as derivatives based upon your currency, which itself is a derivative based upon the full faith and credit of the issuing government.  In essence, the casino is a country-like entity with which you temporarily exchange your labor and productivity in the form of currency for the casino coin of the realm.  With it, you can buy entertainment services.  When you are ready to leave the casino, you reconvert the casino currency back into sovereign currency.

In theory, there should be one unit of sovereign currency equal to one unit of casino currency.  Imagine that you find out to your horror that the casino had taken the sovereign currency and either spent it on casino operations or even went out and bought real assets with the money.  The casino operator figured that there would always be a low percentage of the customers converting back to official money at any given time. 

It allowed for the difference in casino money claims and the actual currency, the “float”, to be used for other profitable activities.  You would find yourself as an unsecured creditor in a bankruptcy proceeding if all gamblers went to cash in their chips.  Think Cyprus.

The investment markets are taking on the characteristics of casinos.  The pit bosses are the central banks.  The croupiers as well as the “whales” are the major Wall Street proprietary trading desks.  Instead of coming in for an evening of entertainment, food and perhaps a few pulls on the slot machine, everyone is unwittingly being ushered to the craps table with their savings.

We have seen it with so-called “flash crashes” where the Dow Jones Industrials drop 1,000 points in 10 minutes or individual companies lose their entire market capitalizations in milliseconds.  The distortions are quickly reversed, but those events are constant reminders of how tenuous markets have become.

There are no safe havens anymore.  As holders of fixed income found out recently, sickening declines can rapidly occur if rates spike.  Entire annual income from coupons can be lost in a single trading session, not that the income was much to begin with in our low interest rate environment.  Since Cyprus, cash is no longer a traditional “port in a storm”.  The bail-in risk took that away.

We have continued to comment on seeking value.  One needs to think not in markets, but in individual situations.  The ability to analyze companies and emerging global trends is now of paramount importance.  The days of broad asset allocation are behind us and will not return until the central bank casinos have been replaced by functioning capital markets.

We are in the camp that believes the central banks will not/cannot stop creating more fiat debt.  Indeed, Germany is hinting that austerity is to be abandoned in favor of stimulus.  While there might not be more headline QE in the U.S., it will manifest itself in other venues such as China, Japan and now Germany.  The band plays on.

Seeking value means growth at a discount or value with a catalyst.  Gold, silver, energy and food are examples of value, although it is never clear as to the form and the timing of the catalyst.  As for growth, it is out there for certain businesses, it just requires good old fashioned common sense and hard work to find it.”

© 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.

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Eric King

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© 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.

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