Today a 40-year market veteran sent King World News an incredibly important piece that cautions the panic we are seeing in major markets is a warning sign that the world is now headed into a full-blown depression. This piece exclusively for KWN also reveals which country made a killing shorting the oil market before it collapsed.
By Robert Fitzwilson of The Portola Group
February 2 (King World News) – There is a popular belief that elephants are afraid of mice. Pliny the Elder referenced the phenomenon in Naturalis Historia. Published between AD 77-79, the work is considered to be the first prototype for what we refer to as an encyclopedia.
Another kind of terrifying “mouse” was featured in the 1955 novel, The Mouse That Roared. The story revolved around a small, mythical European country called the Duchy of Grand Fenwick. The country’s sole product was a particular wine. An American company started producing an identical wine. The new competition sent the Duchy heading rapidly toward bankruptcy. Their solution was to declare war on the United States….
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The United States had a history of lavishing former enemies with largesse. Dutchy of Grand Fenwick hoped to be next in line.
Greece Threatens Fabric Of European Union
With the elections in Greece in recent weeks, that country appears to be emerging as the real- life roaring mouse engendering fear in the elephants of Northern Europe. The benefits of the largesse heaped upon them since the creation of the Euro were transitory and illusory. The resulting pain from the austerity that ensued has proven to be too much of a burden. A most critical moment is at hand for the Euro, the ECB and the whole fabric of the European Union. We’ll soon see whether that fabric can withstand the pressure or rips into swatches along ancient lines or new fabrics rewoven from the pieces.
Wild Swings In Markets
Volatility in the financial and commodity markets has become extreme. We have seen wild swings in the oil and currency markets. On Friday, oil surged close to $4 near the close in the trading session. We have also seen tremendous swings in the Swiss Franc. Conflicting announcements from Fed officials, the developing situation in the EU, the conflict in Ukraine, the Saudi attack on oil, and zero-to-negative interest rates are among the components of a toxic geopolitical stew that is going to continue to create heightened uncertainty and further extreme volatility.
Fed policy is a puzzler. Everyone knows that the Fed cannot raise rates, yet there is an endless stream of warnings from various Fed officials that rate hikes are coming. One particularly disturbing conclusion could be that the Fed is now going to act “responsibly”. While ignoring who created the monetary mess in the first place, the Fed will polish their image by talking about moving rates higher.
Saudi's Attack
Heaven help us if they actually do it. The relative value of the dollar compared to the currencies in which the major S&P 500 companies generate revenue is just beginning to devastate reported results. The rest of the good news has been coming from the Oil Patch. The Saudi attack on the U.S. fracking industry has gone a long way already toward eliminating that ray of hope.
The other major factor to the recently released report card on the U.S. economy showed that the vast majority of the positive news came from spending on healthcare, overwhelming any consumer benefit derived from lower oil prices. The U.S. economy has been considered the strongest on the planet. Struggling multinationals, a ravaged oil patch and consumers being fleeced by higher healthcare costs are not conditions warranting higher interest rates.
If the Fed truly wants to generate inflation and a stronger U.S. economy, their involvement in the oil situation would be helpful. Since Fed intervention in markets is an established fact, the spike in oil prices on Friday could hopefully be the Fed stepping in to support oil as they have supported the stock market in the past two years.
Saudi's Make A Killing Shorting Oil As World Heads Into Full-Blown Depression
We don’t believe for a moment that the Saudis are suffering through this price decline. If you possess the knowledge that you are going to force a lower oil price, it is reasonable to surmise that the Saudis made a killing shorting the oil market. Why wouldn’t they? The Fed could have also written them a check for any losses. After all, the Fed was spending $85 per month on QE. Compensating the Saudis for revenue losses to achieve other geopolitical aims would have required a small sum compared to QE3.
It is time for the “visible hand” to step in and reverse things. If not, the U.S. economy and the world could well spiral quickly into a full-blown depression. Without that, what the Fed claims as their objectives are obviously impossible to achieve. Interest rates will continue to decline as fear rules the day.
Fear In The Markets Help Gold And Silver Surge
You can see the fear in the asset classes that have performed well year-to-date. Precious metals and the miners in particular are doing well. U.S. Treasury notes and bonds continue to be well-bid. Rates have plunged to unthinkable and historic levels. The metals and the miners continue to poke through technical resistance levels. Whether or not this is THE bottom is a tale yet to be told, but the action so far this year is encouraging.
The most attractive situations from a value perspective continue to be in the metals, miners and energy. If this is the bottom in oil, investors can expect to see tremendous gains as the post- Thanksgiving rout is reversed. There are also bright spots in a few companies and sectors in the general stock market. Biotech, certain segments of the technology sector, airlines and a few specific companies continue to generate legitimate gains in sales and earnings and should be considered for portfolios. ***ALSO JUST RELEASED: The Greatest Danger Signal In The World Is Now Flashing RED! CLICK HERE.
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