Bob Fitzwilson: Investing in a Hall of Mirrors

I have been doing this for 40 years, and I have never seen anything like this. This is the most difficult, vexing set of conditions that any of us have ever seen -- in part, because not only is there a combination of many cross-currents in the markets, but you have financial repression going on at the same time. And there are resource constraints that are coming to play here, too. 

So states Bob Fitzwilson, President and Director at The Portola Group, Inc, one of the financial advisory firms endorsed by Peak Prosperity. 

As we've repeated warned here on the site, financial assets have marched well into fantasy territory. Time-honored price correlations have vanished. Bad news has become good news for stocks and bonds. Economic weakness is met with cheers.

I'm not the first person to use this phrase, but we're investing in a hall of mirrors. This is not supposed to happen. There cannot be a sustainable gap between the measures of how an economy is doing, such as the stock market, and the underlying factors.

It's true that there are companies, particularly larger companies, that have done very well. And there are some small and medium-sized companies that have done very well. But you cannot have a situation with unemployment high and real disposable income coming down without eventually there being a discontinuity.

From our standpoint, there has always been a connection between the GDP and the health of the economy, and workers and the markets. Now we have this widening gap; there cannot be a continuing rise in equity indicators while the real economy is heading in the wrong direction.

It's a very, very confusing, murky, opaque environment for investors. Whether you are doing it professionally or you are doing it yourself, everybody should realize that none of us has ever seen anything like this.

From our standpoint, you try to find the few things that are remaining that are reasonably trustworthy, and one of those is cash flow. When we look at companies that might have an interest in, cash flow is probably the number one thing that we are looking for. 

Chris and Bob delve into the details on the type of cash flow Bob and his team look for in companies, as well as discuss the outlook for other investments Portola prefers such as the precious metals and energy plays.

If after listening to this podcast, you find yourself interested in connecting with Bob and his team to learn more about their advisory services, please use the form here to do so.

Transparency note:  As a result of our public endorsement of Bob's firm, Peak Prosperity has a commercial relationship with them. The details of this relationship are clearly presented in writing during the referral process -- but the punchline is, our relationship does NOT result in any increased fees to those who become clients.


It should go without saying: this discussion should not be construed as individual financial advice by those listening to it. The content should be taken as informational and educational in nature only. Investment advice must be tailored to your specific personal situation (which Chris and Bob are obviously unaware of) and should be obtained directly from a financial advisor you trust. Before acting on any of the statements made in this podcast, we advise you do just that.

Click the play button below to listen to Chris' interview with Bob Fitzwilson (38m:45s):

This is a companion discussion topic for the original entry at


…heavy sigh. Why? Well, lets assume the economy returns to robust growth. The demand for oil goes higher and the prices move rather rapidly as I would assume jobs and industry would be created or ramped up, and more demand for oil becomes a lock. This then causes all discretionary incomes to collapse to the oil markets. What also happens is debt gets paid down as it is my opinion we are all sick of the constant worry of paying our bills. It is a heavy drain on everyone's peace of mind. So honestly how will this cycle ever end? It must end in a debt destruction, and a massive destruction where we get a reset. What on earth is the corporate types going to make for those who can't even afford to buy let alone afford what is being made? Honestly, we will remain on a wash, rinse and repeat cycle for a long time until an event happens that truly removes the debts that has saturated all the consumers, world wide. House of mirrors?, you got that right. Why on earth would any institutional bank extend credit to any consumer when there is a good chance that the consumer will default within the terms of their agreement, especially when real wages are falling and will continue to fall, and inflation goes up. New hires will be low wage earners, part time workers with very few benefits. Why on earth would a bank lend to any municipal entity when all they have to do is look at the risks that Detroit will now show the world on how bankruptcy will absolutely gut the bottom line of many creditors, like 100,000 creditors?! What a mess. My gut tells me we are at our tolerance with oil at $106 and change now. So how about $200 dollar oil and 6 buck gas with just a moderately good jobs market? Part time jobs mean more workers using more gasoline where a full time job takes some part time workers off the road. So yeah, I can see more demand for oil but at the expense of our economy quite frankly. Gone golfing and walking a quick 9…Peace

Mr Fitzwilson offered no useful insights in the portion( first 50%) I suffered through. Were it not for  Some of Chris's usual useful info/insights, this would have been a total waste of time.

Thank you for your comment.  I agree with you.  It is a mess.  The goal of the podcast was not simply to rehash that it is a mess, but to suggest a few things that investors can do to hopefully make money even in this environment.I think there is too much focus on the big picture and not on what people can do and control in their own lives.  Peak Prosperity does a great job of providing such insights and directions.

I appreciate your feedback.  The goal was to refocus people on what they can personally do.  In the investing arena, there is a lot.  Stock picking is very much like being a detective.  There are companies outside of the metals and miners that have been doing quite well despite all of the macroeconomic and financial insanity.  Energy immediately comes to mind as well as high technology.  Everyone has access to inexpensive tools such as Investors Business Daily, the Internet and simple common sense.  There is a small but significant subset of the global equity universe that will provide long-term investors with the income and growth needed going forward.Again, the goal was to give people hope that there are actions they can take and not to become frozen in inaction because of the "big picture".
Thank you for your feedback, and I will attempt to do a better job going forward.

…and yes the PP community is a place for intelligent thoughts,opinions and levity. My only focus is oil and yes, profits can be made up or down in this never ending cycle (it seems) of doing the wrong things as the Fed is doing and has done since 2008. The up went just fine and now the down will be played with (hopefully) similar results. I have been waiting for just this time now for quite some time. Here's hoping as I can benefit from this craziness that I cannot control but must invest in. Be Good.

I think the difficult investment and economic environment are just symptoms of a much larger situation.  Technology has reached a point where it's beginning to replace workers at a much higher (and increasing) rate.  Voice interaction and simple hard-wired robotic systems have already replaced low-level workers (receptionists and assembly line workers); but now we're seeing more capable systems replacing the next level of workers.  
For example, there is a robotic system that can take fast food orders and assemble the meal quickly, reliably, and 24/7 with no medical costs or time off.  How long will it take McDonalds and the rest to replace their line workers when this thing is perfected? How many millions will be unemployed?

Companies have plenty of cash to invest in this technology, and they'd rather spend it on capital equipment than personnel and benefits. Apply this next-gen technology to any job with a constrained set of functions, and how many additional millions are unemployed? At some point in the near future, the majority of unskilled labor will be mechanized, and unemployment will be what–30%? 40%?  And rising–remember that technology improves at an exponential rate (the difference between a palm pilot and an iPhone is less than 10 years).

I hate the term paradigm shift, but if it applies to anything, this is it.  Unemployment for the next several decades is going to keep trending upward, no matter what the state of the economy.  And at some point we'll have to address 100 million unemployed Americans as a permanent feature of the economy, not a temporary bug.  What happens when the robot repairman is also a robot?

…over at Mish's site he has up robots that will replace the migrant workers, picking fruits and vegetables, in the field and each robot will replace 20 illegal aliens or workers. Gregor not long ago penned a very sobering essay on robots and surmised one serious Deflationary event awaits us and this isn't very far away. You could say ongoing, 24/7/365 (why then would banks lend to anyone when they are financing these ventures and know how tenuous your job is and ability to pay within the time frame of your agreement?). Many millions of jobs have already been taken by the robots (world wide) since the 2008 crisis, and as you intimated, 1st to the change as a manager of any company that switches to robots will have a decided advantage over its competitors and is why I completely feel that China or any cheap labor country are now in the decline as labor competes with robots or should say, will lose their jobs to robots at all levels including management. China will use robots too but the side effects to a country with 1.5 billion people will be dramatically different than one with 350 million people. Add to this there aging population and debt and other issues like environment. I believe that Global will be Local in the not too distant future. Just one last example: Amazon, are running robotics for everything, are promising your orders same day or next. That will replace so many retail stores, people, etc…as we move forward. Energy (oil) will make this happen for sure. That represents a tremendous amount of jobs and spin off jobs lost forever. We will witness in our lifetime some awesome changes and I am excited for them provided I have enough food, clothing, shelter and heat to witness these changes in relative comfort.  

[quote=yogiismyhero]…over at Mish's site he has up robots that will replace the migrant workers, picking fruits and vegetables, in the field and each robot will replace 20 illegal aliens or workers… Energy (oil) will make this happen for sure.
Hi Yogi,
Locally peaches were the crop of choice 50 years ago.  The cost and availability of labor changed that.  Today the predominant crop is almonds.  Almonds are mechanically harvested and by-pass the majorty of the issues associated with peaches.  Another driver in this change is cheap, abundant energy.
About 2 years ago I noticed a change.  Several ranchers used migrant workers to harvest almonds.  Mechanically shaking the trees is hard on them, and the abundance and availability of labor changed this.  What remains to be seen is if this is a short term change, or something more permanent.  What we all know is that (long term) energy will become more expensive and less available. 
The availabliity and cost of energy will drive the robot vs human labor issues.

…ever since Gregor penned his essay here. In all my research on this I think the robot is the answer for some of our energy issues. I know to compete in a global market that the CEO of any company where robots can replace labor they will have to be first movers just to compete, and that means loss of jobs and god only knows what (Amazon is the future). So profound the move to robots that I don't think the economy can adjust. No consumers because of no jobs, nothing for the robot to make. In todays Dr. Hussman report he sees as "baked in the cake" less than 2% growth in the S&P out 10 years with two Bear markets and two Bull markets with losses in the Bear markets being of the extreme variety. I will postulate then that the Bull market will be substancial as well so an investment climate of a lifetime are my thoughts. Anyways, and any angle you look at this, robots are coming and labor will suffer, management will suffer as well, and tax receipts, social issues, and again, god only knows what. Interesting times Nate.

Since the beginning of the US (and well before,) labor was needed to run the machines (of various sophistication) that processed the raw materials into sellable products. Capital was rewarded for taking risks, material producers were rewarded for providing the energy/metals/wood/food/fiber, and labor found steady jobs running the machines. So far, so good.
Because of the economic success, population grew. That meant more of everything. Eventually, resource limits were becoming evident. Machines became more and more sophisticated so a single worker could produce much more product. That reduces the need for labor. Labor no longer can demand higher wages. In fact, they're happy to keep their jobs at lower wages. This makes capital very happy. So far, okay.

Now, we've got robots that can replace humans on at an increasing pace. Robots either work or they need to be fixed. The sophisticated ones will isolate the problem so repairs can be accomplished quickly - by another robot. Labor can expect to be surplussed. What then?

It used to be that management needed labor to perform tasks. Soon they will only need customers. The unemployed who have run out of "benefits" will be worthless eaters. Capital won't want to pay taxes to support these people. Capital won't want to share the remaining resources with these people. Capital will devise ways to reduce population. This could be by introducing a virus, starting a series of wars, or ???

Those who survive (say 1% - 10%) will be able to live a life of leisure since robots will do everything. There probably will be one world government by then. There will be an abundant abundance with everyone retired and free to choose whatever they want. Money will no longer exist. The environment will rebound quickly. What's not to like?

I hope to die before this occurs.



…why will we need management, the robots have their job too. Everything will just condense upon itself until the lights go out. I want to live until I don't. Be good Grover.