© 2014 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 This material may not be published, broadcast,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.

Subscribe to RSS
KWN Blog

By Robert Fitzwilson of The Portola Group

April 20 (King World News) - Shocking Events Rapidly Unfolding Around The World

One of the more controversial real estate investors in the past 30 years is a Japanese billionaire, Gensiro Kawamoto.  During the late 1980s, Mr. Kawamoto drove through the streets of a well-to-do neighborhood just outside of Honolulu, Hawaii, bidding for dozens of houses on sight without even setting foot inside the properties. His offers were frequently in excess of what had been considered market prices, resetting prevailing values to a much higher level....

Continue reading the Robert Fitzwilson piece below...  


UPDATE: To hear the man with over 40 years of experience in the resource

markets and how he is positioning his clients to weather

the current financial storm click on the logo:

Reminiscent of what we are seeing in China today, Japan enjoyed massive trade surpluses in the 1980s.  As money poured into their country, the price of stocks, bonds and particularly real estate soared.  Companies were encouraged to recycle excess capital into Japanese stocks using special accounts that allowed them to book profits and bury losses.  The Nikkei soared to great heights.  It was estimated that just the land under the Imperial Palace in Tokyo was valued at more than all of the property within the State of California.

Eventually, that flood of money found its way overseas, driving up prices for trophy real estate in places such as New York City and golf courses at Pebble Beach.  It was a classic bubble.  This one ended like all asset bubbles do. Once the flood of excess money disappeared, prices collapsed for Japanese stocks and real estate.  Those “trophy” overseas properties also turned into investment black holes.  For the homeowners in Hawaii, it was more than a decade before that market saw prices rebound.

We are hearing stories that are very reminiscent of the 1980s.  In the town of Atherton, California, it was reported that a wealthy Chinese individual bought three homes for purchase prices in the $20+ million range.  Homes are being sold in San Francisco at the $1,400 per square foot level.  Vineyards and homes in the Wine Country north of San Francisco are being snapped up not only by wealthy Chinese individuals, but also Silicon Valley millionaires and billionaires.

Smart people know that the day of reckoning is rapidly approaching for fiat currencies.  For wealthy individuals and institutions, the difficulty of placing huge sums of currency necessitates the purchase of assets with large price tags.  The bigger the price, the better.  The problem is that there are only so many items that qualify as being “trophy” assets.  That is why we are seeing ridiculous prices being paid for classic cars, real estate and social media companies.  The rationale transitions from what is traditional value to relative value.  If someone gets $20 million for their house, all houses in the area are now priced around that data point.  It does not matter that none of the houses are worth anything near that.  Prices take on a life of their own.  That is the essence of all bubbles.

“Stacking” is a phrase often used to describe the process of purchasing physical gold and silver.  Our view is that someone buying a $20 million home in Atherton is “stacking” expensive labor and construction materials.  The home costs that much to build, but the ultimate value when this cycle is over will be well below $20 million.  Both the buyer of physical metals and the billionaire dumping fiat currency have the same problem to solve.  Both are stacking, but using different asset choices.

Which is the smarter choice?  Time will tell.  However, stacking houses also has horrendous carrying costs not only for maintenance, but particularly for property taxes.  An individual buying a $20 million house will pay over $200,000 per year for property taxes...forever.  Classic cars are not only grotesquely overvalued, but the fees to the auction houses can run into the millions of dollars.  Prices for precious stones are already in the stratosphere, but you are also dealing with an asset that can begin with a markup over wholesale in the 2-3x range.  Unless prices rise many multiples above where they are today, the conversion of those stones into liquidity could involve a painful surprise.

For investors, we know that stocks and bonds are richly priced.  Stocks could become even more richly priced.  However, unlike classic cars and artwork where prices are all relative, most stocks are anchored by traditional measurements such as cash flow and earnings.  Unless the Fed succeeds in resurrecting economic growth, prices cannot move much higher for the asset class as a whole.

Bonds will generate tiny returns at best, toxic returns at worst.  Real estate might go up further, but real estate cannot do so without rising incomes for renters or billions from overseas or venture capitalists and entrepreneurs cashing out of social media companies.

Absolute value resides primarily in the energy and precious metals sectors.  We believe that energy is about to become much more costly.  We believe that we are in the very early stages of a major repricing of energy assets.  The emerging cycle is recognized by few, but is clearly visible in the recent price action of the companies within that sector.  As global demand steadily grows and global supply struggles, “Mother Nature” is tapping on our shoulders.  Things are about to change in an inescapable way.  Conflict over energy is the underlying cause of most geopolitical events that are unfolding and could very well turn into a major conflagration.  Alliances are being redrawn around energy assets.

We also believe that investors need to continue “stacking” precious metals and the mining shares.  Other than energy, we cannot think of another sector embodying such tremendous intrinsic value.  As precious metals continue to hemorrhage from the West to the East, the bulk of the inhabitants of the planet apparently agree with this assessment.

© 2014 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 Victor Sperandeo, Dr. Philipa Malmgren, Grant Williams, Dr. Paul Craig Roberts, Bill Fleckenstein, Gerald Celente, Dr. Marc Faber, Egon von Greyerz, Rick Rule, Ben Davies, Art Cashin and Eric Sprott are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

To return to BLOG click here.