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Won't the bubbles in the housing market and stock market re-inflate?

Robert Wiedemer

Aftershock Book

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Video Transcript

One of the most important things I try to emphasize to people is that we're not in a down cycle; we're in a bubble pop. A lot of people are just waiting for that bubble to re-inflate. Some how they think that real estate and stock, well since they've already gone down, then they must go up. You know, bubbles don't re-inflate. They keep popping. Just like the internet bubble, it went down, it went back up, and it went down again. One of the worst things you could do right now is to just assume that just because something is 20% cheaper than it was a few years ago, that it's reached the bottom or that it's at its natural price level. It may be the price level that you would like it to stay at, but that doesn't mean it's at the price level it's going to stay at. Make sure you don't sit there and think that we've got an up cycle that bubbles automatically re-inflate. Protect yourself. Reduce your exposure to things like stocks, bonds, and real estate.

"The big trap" (this is one of my favorite cartoons) is to say, "I want my bubble back." Two guys are sitting here at the bar. I lived in Washington D.C. during the internet boost and the internet bust, I can tell you there was a lot of scenes like that in 2000-2001. I guess that's what I always tell people about gold. Is that...what people really want, what people most want, and it was really true for the last couple years when I do presentations, people would say, "When's the stock market coming back? When's real estate coming back?" They want their bubble back and I can't blame them, can you? We all got real estate and we probably all have some stock. We'd all like it to come back, but the reality may be it's time to switch focus. Stocks and real estate may in fact be a bubble and overpriced. In fact, gold, I think, is going to be one of the things that will drive, go up in value, a lot for all the reasons I spoke. These are not short-term reasons.

Nothing beats a bubble. They’re great. What is bad is to hope the bubbles come back. They don't, they pop. People think, "Oh, well, they're bound to re-bound." No, they actually are more likely to pop more. People forget in 2000, when the internet bubble popped, NASDAQ went down, but the NASDAQ came almost all the way back up, and then it went down again, and up and down. So what happens is although you might see a partial re-inflation, in the end it's going to pop. I think, one of the worst things for people to do right now is to sit there and, "Oh, I'll just hold my stocks and I'll ride it out or I'll hold my bonds, because there's been no problems yet" and think that they're going to get through this, the down cycle. That's what you hear all the time from people--talking about the down cycle, wait until we get to the up, real estate especially. It's going to be one of the biggest mistakes they can make is to think that everything is going to pop back up. There's one reason, I think, they have to be very careful, minimize your exposure, as much as you can or feel comfortable with, with those sort of assets like stocks and real estate that have already been in a bubble, and you think they've gone down, but there's a really good chance they could go down more. Tough as that may be, what's even tougher is to lose the money on them. Don't do that. Protect yourself. Move out of them, with all due speed, gradually, no panic, but move out of those kinds of assets. Again, put them into something else that's potentially going to be more safer or more productive that might go up, something like gold. That's the kind of thing that "Aftershock" recommends.

Related quote from his book:

"Most people think the economy will get better soon. It won't. We can tell you what you want to hear, or we can help you enormously by showing you how to prepare and protect yourself while you still can…" (AFTERSHOCK, page 8)