As many people are celebrating the Thanksgiving holiday, the world continues to move into uncharted territory, so today a 40-year market veteran sent King World News a powerful piece discussing a historic turn in the gold and silver markets, and what investors should be doing in this dangerous environment. Below is what Robert Fitzwilson, founder of The Portola Group, had to say in this exclusive piece for King World News.
By Robert Fitzwilson of The Portola Group
November 27 (King World News) – Happy Thanksgiving & Why Gold & Silver Set For Historic Turn
As many celebrate the Thanksgiving holiday it seems like an appropriate time to take a brief look at the past so that we have a better idea of where we are headed in the future. Archimedes was arguably one of the most accomplished mathematicians of the ancient world. His accomplishments did not stop there, however. His works and inventions included the Archimedes screw, the Archimedes Principal relating buoyancy to the volume of water displaced by an object, and mechanical pulleys. He was intimately involved in the defense of Syracuse while under attack by the Romans during 214-212 B.C. Archimedes invented what we would refer to as a “death ray” that could burn Roman ships and sails. His invention most feared by the Romans was a mechanical claw that could literally lift their warships out of the water….
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Archimedes work around the concept of leverage translated into pulleys and block and tackle. He was also a bit of a showman. The King of Syracuse, Hiero II, responded to a statement by Archimedes that he could move any given weight with any given force by asking for proof. The demonstration Archimedes provided took place down by the waterfront. A three-masted ship of King Hiero’s fleet had been laboriously dragged out of the water by many men. The boat was then loaded with passengers and goods. Archimedes then positioned himself away from the boat and proceeded by himself to drag the boat along the beach using a system of compound pulleys to the astonishment of the King. The power of mechanical leverage was unleashed for humanity.
It has been 2,200 years since that dramatic demonstration. The most modern and impressive form of leverage has not been mechanical, but financial. Through the use of derivatives, the financial markets have been dragged onto the metaphorical beach. With the apparent ease that Archimedes would have appreciated, monumental changes can set in motion by the actions of a single person, this time with a finger on a keyboard instead of a pulley.
Archimedes relied upon powerful forces of Nature for his work. This modern version of leverage relies upon the unnatural forces of the central banks, not the immutable forces of mechanics and physics. There is no eternal permanence to the mess that has been created, just markets suppressed like angry wildcats thrown into a burlap bag. The central planners are having their way at the moment, but those “wildcats” will escape from the bag at some point as reality returns.
Unfortunately for all of us, countries and their central banks are now falling into the same traps that swallowed manipulators in the past, namely massive printing and currency wars. While the central banks have been able to play this game in the shadows up until now, the desperate and empirically failed policy of printing money to stimulate economic growth and wealth generation is now both out of control and out in the open. The burgeoning currency war between China and Japan is right out of the historical playbook from the 1930s. It was called “Beggar-thy-Neighbor” in that era.
The Chinese and the Japanese are not pushovers and have a long and bitter history between them. Neither country will achieve a sustainable edge against each other. The end result of the madness will be the same as has always been the case, failure. The currency wars are only just beginning. It will get much worse before it ever gets better.
As to the modern-day financial Archimedes types, their ability to move markets with the push of a button is rapidly fading in the rearview mirror. Geopolitics, supply/demand and historic tendencies for age-old conflict will be the triggers to let the markets out of that figurative burlap bag.
Another sign that the bubbles blown by the central banks are starting to pop was the announcement in the past week about a Silicon Valley called startup called “Fab.com” that was anointed with a valuation of $1.3 billion. The company is reportedly on the market now for only $15 million. There have been 40-50 private companies in Silicon Valley with more than one billion dollar valuations. That number is destined to shrink as some sort of rational valuation metrics are applied.
Assets reliant on zero interest rates and unlimited low-cost capital are at tremendous risk. Physical assets, particularly gold and silver, are on the brink of historic price increases. Investors should continue to accumulate these along with the companies that mine for the metals regardless of the shenanigans by desperate Western central planners ahead of the Swiss referendum.
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