Fitzwilson:  “This is from ‘Rhyme Of the Ancient Mariner’ by Samuel Taylor Coleridge:

All in a hot and copper sky,

The bloody Sun, at noon,

'Right up above the mast did stand,

No bigger than the Moon.

Day after day, day after day,

We stuck, no breath no motion;

As idle as a painted ship

Upon a painted ocean.

This literary piece is describing the ordeal of a ship and it's crew trapped in a part of the ocean called the Doldrums.  The area is a low-pressure zone in the vicinity of the Equator where sailors experienced squalls, thunderstorms and even hurricanes....

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“As Coleridge's words describe, however, it is more commonly known for trapping sail-powered boats in windless seas for days and weeks at a time.  As defined by Merriam-Webster, the term doldrums can indicate despondency, listlessness, as well as stagnation, inactivity or slump.

We must say that the word doldrums has come to mind in recent months.  While there have been dramatic and historic movements in just about every asset class, there have been no resolutions to the innumerable economic, financial and political problems we face.  Europe, China, Japan and the United States have all made attempts to break out of their doldrums, only to encounter a lack of effect (no velocity of money, no inflation) or hurricanes (worst bond market in 50 years, historic decline in the Dollar, and tumbling equity markets).  It is easy in this type of environment for investors to become confused and even despondent.

We wrote some time ago about a type of volcanic eruption described as “Plinian”.  A Plinian eruption shoots gas and particulates high into the atmosphere in the form of a column.  At some altitude, the weight of the column is too much, and it collapses.  As the material reaches ground level, it spreads at tremendous speed.  This was the eruption of Mt. Vesuvius in 79 A.D.  While the column was rising, the initial terror wore off for the observers as they watched it climb higher and higher.  Most did not flee and paid for their complacency with their lives.

As we watch the spasms in the various markets, we know it represents that something is terribly amiss.  The geopolitical, economic and financial complexities comprise a chaotic system.  By definition, it is impossible to predict the events that will lead to resolution.  History is our best guide, but even that cannot help us with the timing of those events.  The Romans could not time the collapse of the volcanic column, and nobody can predict the timing of the collapse of our current financial eruptions.

What we do observe is that the global situation is worsening.  Europe is a mess.  Even the German economy is entering into a decline.  China is about to release their latest numbers for economic growth, and it promises to be a grim number given the hints that have been dropped. 

In the U.S, aggregate corporate cash flows and consumer confidence remain strong.  Parts of the economy are doing very well such as high tech and energy.  However, real personal incomes have turned sharply to the downside.  Real GDP on a year-over-year basis has been flat-to-negative since late 2010.  The unemployment numbers and the number of full time jobs continues to head in the wrong direction.  Some economic series look great, others abysmal.  Things are too-close-to-call given what we see today.

For those with gold and silver positions, it does appear that the metals and the miners might have reached a bottom.  That said, there is a long way to go to regain prior levels, let alone what most people believe are quality companies true valuations.  Those assets could well remain in the doldrums, but it must be endured and positions should be maintained.     

Regarding fixed income, we saw a vicious decline in prices.  If the central planners still have any control of these markets, rates cannot be allowed to rise much further.  The housing markets and sovereign solvency would be at risk if there is a secular trend in rates higher.  At best, fixed income will remain a bad investment.  At worst, rising rates will create huge losses. 

Maintaining rates while trying to create inflation, which is the stated Federal Reserve policy, will mean that holders of fixed income will lose their purchasing power on the investments without the price decline associated with rising rates.  Massive redemptions from bond funds suggest that people are waking up to this reality.

Turning to the stock market, there was a severe reaction to Chairman Bernanke’s speech a few weeks ago.  Since then, there has been a clear reversal of that damage.  We are not referring to the hype about the popular indexes making new highs, but the breadth and internals. 

If one accepts that the futility of divining the timing on the resolution of the geopolitical, economic and financial messes, it is also a fact that there are many companies which have sailed through all of it with flying colors.  Our research shows that opportunities exist in many areas of the economy.  Enduring the manipulations and the doldrums should not mean inactivity.  There are very good companies out there with great business models that are prospering, despite all of the worries.  Disciplined investors simply need to try and find positive situations while awaiting the uptrend in the energy, metals and mining sectors.”

IMPORTANT - KWN has now released an extraordinary interview with former U.S. Treasury official, Dr. Paul Craig Roberts.  It is one of his best ever and you can listen 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 Dr. Paul Craig Roberts, Art Cashin, William Kaye, Marc Faber, Stephen Leeb, Dr. Benn Steil, Eric Sprott, Andrew Maguire, John Hathaway, Nigel Farage, Rob Arnott and Egon von Greyerz are available now.  Also, other outstanding recent KWN interviews include Jim Grant and Felix Zulauf to listen CLICKING HERE.

Eric King

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