By Robert Fitzwilson of The Portola Group

August 18 (King World News) - “Worst Mistake In Monetary History”

In American football, the annual Rose Bowl post-season tournament remains one the the most revered and anticipated contests.  In addition to being played in beautiful Pasadena, California, the event is frequently the final launching pad for players moving on to the NFL.

Roy Riegels played for the California Golden Bears football team from 1927 to 1929.  On January 1, 1929, the Golden Bears had earned the right to play the  Georgia Tech Yellow Jackets in that year's Rose Bowl.  Riegels probably saw the event as the highlight of his career, but that day turned into his personal day of ignominy and a nickname that would endure for the rest of his life, "Wrong Way"....

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During the second quarter of the game, Riegels picked up a Georgia Tech fumble.  While only 30 yards away from the goal line, Riegels became disoriented and ran in the opposite direction toward his own goal line.  Despite desperate attempts by a teammate to stop him, “Wrong Way” committed one of the worst blunders in college football history by running all the way to his own 1 yard-line before a teammate was able to tackle him.

Central bankers are dangerously close to capturing the title from “Wrong Way” Riegels by committing the worst mistake in monetary history.  In this case, history and common sense are the teammates chasing the Fed down the field, exhorting them to stop.  The Fed has been relentlessly running toward the wrong goal posts.  As we get close to the end of this tragedy, the “scoreboard” will show degrees of wealth and economic destruction, as well as human suffering, on a scale never seen before in human history.

The evidence continues to pile up illustrating the failure of recent monetary policies.  Whether one looks at the level of unemployment, the bankrupting of cities and pension funds, the growth of the welfare states, crumbling infrastructure, the rise of hunger, pollution and now hostilities in many parts of the world, the wrong policies are in place.  The problems are too large and too pervasive.  It is too late to institute whatever manageable solutions we might have been able to prevent the coming tragedy.

We can see it in the markets.  Interest rates have clearly broken out of a 30-year, historic downtrend.  “Unusual” price movements such as the temporary 6% move in China last week are disquieting.  Liquidity in many stocks is diminishing.  Measures of volatility such as the VIX are poised to break through key resistance levels.  There is the feel of "resolution" in the air.

Even though we knew it to be true, it is also of importance that the central planners are acknowledging through research papers that QE has failed to generate a robust recovery and create jobs.  Can it be that there will be no incremental programs over and above the $85 billion we have seen?  In a world of manipulated markets, is this just a head fake so that QE-to-Infinity will ride to the rescue in a deus ex machina moment?  It is impossible to say.  We have no choice but to await what comes next.

There are actions that can be taken, however.  Raising cash against further declines in stocks and bonds is sound.  Deferring long-term purchases such as real estate is another.  We have another bubble in housing, and rates do not have to rise much further before we will see another crash.

We are finally starting to see value trumping price in the energy, precious metals and mining sectors.  The gap between Brent and West Texas Intermediate prices for crude oil has been mostly eliminated.  The value of a barrel of oil is now consistently being expressed by the market.  The grotesque gap between values and prices in the precious metals and mining sectors is now beginning to be addressed.  We should expect to see value commandeer the market place, and this will translate into eye-opening price increases going forward.

We all know in our hearts and minds that “Wrong Way” central planners are taking us over the wrong goal lines.  The timing of the resolution continues to be elusive, but accumulating bargains and not chasing headline momentum is still the right path to surviving what lies ahead as well as generating great profits if history remains our best beacon of guidance.

© 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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