Is Something Catastrophic About To Occur?
To some extent, we saw an
extraordinary ‘tale of two cities’ last week in the United States. The
first event took place in Detroit when the inevitable bankruptcy of the
once great city became a reality. Despite challenges to the filing, it
appears that there is no other option. Creditors, retirees and bond
holders will be among the many who will be severely impacted.
On
the heels of major movements in key global markets, today 40-year
veteran, Robert Fitzwilson, put together another tremendous piece.
Fitzwilson, who is founder of The Portola Group, discusses the fear,
confusion, and chaos that rules the investing world today. Below is Fitzwilson’s outstanding and exclusive piece for KWN.
Fitzwilson: “A
Tale Of Two Cities is a book written by Charles Dickens set before and
during the French Revolution. It is a book that ranks in the top of all
literary achievements. It depicts the plight of the French peasantry
prior to the Revolution and the retribution inflicted upon the
aristocracy by the peasants once the Revolution took hold.
“The other city was
Menlo Park, California. Menlo Park is the corporate headquarters of
Facebook. Facebook posted an extraordinary quarterly report in which
almost every metric was impressively exceeded. The founder and CEO of
Facebook, Mark Zuckerberg, reportedly increased his net worth by $4
billion for a job well done by his team. In the aggregate, billions of
new wealth were created for hundreds, if not thousands of investors and
employees of the Company.
As devastated as Detroit
has become, dozens of companies like Facebook and the geographic area of
Silicon Valley/San Francisco as a whole are experiencing an absolute
boom in economic activity and wealth creation. It is not just
traditional high-tech, but the diversity of success and the monetization
of that success which is at a level we have never seen before.
What is evolving is a
reprise of the haves and have nots, as the world saw during the period
of Dickens novel. When we talk about the deteriorating macro-economic
situation, people living in this area of the West Coast would be
incredulous. Atherton, California is a very wealthy enclave housing
many of these newly wealthy individuals. A recent look at the area
boggles the mind.
What used to be the country
is now being converted into astonishingly enormous residential
compounds. In the Silicon Valley/San Francisco corridor, roads are
packed and so are the restaurants. Whether one wants to buy or rent,
the stories of fierce competition are rampant. Similar stories were
reported this week about The Hamptons in New York.
The investment markets
remain edgy. Yesterday was a great example. After a very rough start
overnight in the Japanese equity markets, the U.S. equity indexes
tumbled at the open and so did precious metals. The Dow Jones managed
to eke out a gain by the close as did gold. There is a very uneasy tone
to the action on a day-to-day basis. It feels as if we are on an
ocean-going vessel in rough seas, hearing the groaning of the bolts in
the iron plates holding the ship together. We wonder when and whether
something catastrophic will occur, yet the ship keeps sailing.
It is a very confusing and
conflicted investing environment for anyone trying to absorb the news,
statistics and opinions. We know that what we have now is an extremely
opaque, historically dangerous financial system. It should be confusing
for individuals and professionals alike. It is intellectually and
emotionally tempting to divine how events will unfold, but that is
impossible. It will be resolved at some point, but the manner and the
timing is unknowable.