kingworldnews.com / January 9, 2013
Today 40-year veteran, Robert Fitzwilson, wrote the following piece exclusively for King World News. Fitzwilson, who is founder of The Portola Group, has an absolutely fascinating and incredibly important 45-year chart, which is a spectacular illustration of why gold and silver are in bull markets. Fitzwilson also discusses how this wealth destruction cycle will be uniquely different from the 70s, and multiple ways investors can protect themselves.
Below is Fitzwilson’s exclusive piece for KWN:
“Below is a chart of the Trade Weighted Dollar Index. The Index was created in 1973 by J.P. Morgan. The Index is heavily weighted by the Euro (almost 60%). Roughly 77% of the Index is currently comprised of European currencies with the Yen (about 14%), the Canadian Dollar (about 9%) making up the rest. The Index was only changed once, and that was due to the introduction of the Euro.
As you can see from the chart below, the period from 1977 to 1980 was a rough one for the world’s reserve currency. Some of us were concerned about a Kondratieff Wave collapse in the mid-to-late 70s. The precursors for a collapse seemed to be there, including a declining U.S. Dollar and Depression-like economy. Prices and interest rates were going through the roof. Sections of the U.S. were in depression territory. The Mid-West was called the “Rust Belt”. Seattle had a billboard that said “Will The Last Person Leaving Town Please Turn Out The Lights?”. It was humorous, but it also reflected the severity of the times.
Fortunately, we did not go into the Kondratieff collapse that looked so imminent. One explanation is that we misunderstood the global utility and hunger for the Dollar. For a country, unlimited printing is always the death knell for their currency. However, the dollar was the reserve currency for the world. It was backed by the full faith and credit of the U.S. which was still reasonably unimpaired at that time. We began an exponential expansion of debt and dollars, and the world gobbled it all up. “King Dollar” was the mantra. The strengthening dollar created even more demand both for transactional and wealth preservation purposes.
As you can see by the chart above, the Dollar Index has been in decline for about 12 years. The line appears to be holding at the 80 level. However, the number can easily be massaged in that range. It is unlikely to spike up again. That would be against U.S. policy and interests. However, it cannot drop precipitously as that would signal that the central banks were losing control. The most likely scenario for the foreseeable future is a pretend drama with the Index moving within a narrow range.
The era of currency wars and “beggar-thy-neighbor” has replaced the strong dollar/strong domestic economy policy. With the possible exception of the Chinese, the major economies have entered a zone where printing is the only option. History is very clear that this zero-sum game results in a zero-sized pie. Despite that, we are plunging ahead once again with that failed policy….