Global Meltdown of Historic Proportions & A Fork in the Road
May 9, 2012
With continued volatility in many of the key global markets, 40 year veteran, Robert Fitzwilson wrote this exclusive piece for King World News. Fitzwilson is founder of The Portola Group, one of the premier boutique firms in the United States. Here are Fitzwilson’s observations: “The Central Banks have been pursuing a very flawed strategy. Unfortunately, full speed ahead might be the only remaining alternative. Printing money to stimulate growth, in the face of declining/aging workforces and falling productivity, will result instead in lowering aggregate real returns for investors and exponential depreciation of fiat currencies.”
Robert Fitzwilson continues:
“Since the beginning of our firm in 1979, we felt that the only metric for returns that truly mattered was the gain net of inflation and taxes. In those days, inflation was running at a 12-14% pace and the marginal tax rate was 73% (70% Federal and an effective rate of 3% for California taxes, allowing for the deductibility of state taxes against Federal obligations).
We used the U.S. Gross National Product as a proxy for after-tax and after–inflation returns. At the time, the U.S. GNP had grown at around 2.5% for decades, so we rounded that number up to 3% for our proxy of after-tax and after-inflation returns.
To achieve a 3% after-tax and after-inflation return required a gross return of about 35%. We knew that a sustainable compound return of 35% was highly improbable. However, we assumed that gross returns would settle back down following declines in inflation and taxes….