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By Robert Fitzwilson of The Portola Group

August 18 (King World News) - Panic Out Of Fiat Currencies Accelerating Around The World

Well-heeled collectors and investors descended upon Monterey, California this past week for the annual Pebble Beach Concours d’Elegance festivities and auctions. One of the cars that went up for auction was a very rare 1962 Ferrari 250 GTO seen below.

The “lucky” winner in the bidding for the car paid a staggering $38.115 million. Horse racing is not the only “game of kings”. The frenzied abandonment of fiat currency and conversion into real, although seemingly wildly overpriced, real assets continues for those attempting to preserve their capital....

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There is no question that the automobiles changing hands at such astronomical prices are beautiful and increasingly rare, but the sum paid for just this one car boggles the mind. There is also no doubt that the desire to own something unique and pedigreed is a powerful factor, but the phenomenal trajectory of rising prices for these vehicles is indicative of the flood of excess liquidity looking for a home.

Wealth preservation is becoming an increasingly difficult and complicated challenge. In the past, if one were concerned about the levels of favored asset classes, there was always the simple option of stepping aside by liquidating holdings and going to cash. Another strategy was referred to as “laddering” where funds looking for safety could be invested in tranches of increasingly longer-dated maturities of sovereign, corporate or municipal debt. Currencies could be chosen with stability in mind and solvency of the entities issuing the debt was rarely an issue for those looking simply to preserve capital and not speculate for higher returns.

In the early days of Silicon Valley, there were two groups of investors that made fortunes alongside the entrepreneurs. These were venture capitalists and real estate investors/developers. Almost to a person, if you asked them about their investment strategy, the response was typically a “bar-bell”. Their risk capital was invested in startups and real estate properties while their “safe” money was invested in Treasury bills or bank deposits.

While great fortunes are continuing to be made in Silicon Valley, the “newly” wealthy are discovering, as are the “old” wealthy, that the alternatives for perceived safety and wealth preservation are becoming increasingly crowded, unattractive and even dangerous. The “bar- bell” is becoming the “dumb-bell”.

The flight to safety for institutional investors continues to mandate U.S. Treasuries in particular as well as other sovereign debt. Non-Treasury debt continues to be a challenge as there is a growing minefield of “event risk” that remains in place. The most recent examples were Puerto Rico and Portugal, but it is only a matter of time before dodgy corporations and municipal insolvencies emerge in much larger numbers.

The parade of economic announcements continues to be horrible despite what the cheerleaders in the mainstream media profess. An already tottery Europe is beginning to stagger even more from the attempt to apply sanctions against the Russians. The ultra-dependence on Russian gas as well as Russia being one of the major export markets for European goods guaranteed that the sanctions could not last for long. Indications are already emerging that Europe has had enough of talking tough as their economies roll over.

The Europeans are not alone as Michael Pento pointed out in his KWN article. While the U.S. remains the strongest of the large economies, the economic indicators are starting to uncomfortably transition from a yellow warning to pink. Red cannot be far away.

With the Fed seemingly backing away from supplying unlimited QE, there is an eerie stasis in the equity and real estate markets. The post-2013 euphoria is wearing off, and the smart money is indicating that we are finally approaching the correction that is long overdue.

Time is rapidly running out for those wishing to preserve wealth. Inaction could be financially fatal. A lifetime of investing beliefs need to be challenged in light of recent economic events and the lens of history. One needs to be proactive and make such changes.

But it is not all bad news because there remains deep value in precious metals, energy and precious metals mining companies. The last category continues to dominate investment returns for 2014, and the upside from here could be dramatic using history as our template.

© 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.

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