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Mike Maroney Interviews President and CEO of the Foresight Group Robert Wiedemer - May 2014

Robert Wiedemer and Mike Maroney


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Video Transcript

Mike Maroney: Good afternoon! It's Tuesday, May 6th, and I have the pleasure to be here with Bob Wiedemer, the Author of Bubble Economy, Aftershock, and Aftershock Investor. Bob is currently working on a new book, The Final Sequence and it talks about the general effects of everything that has taken place over the last 10 years and the final outcome.

What I want to talk to you about today, Bob, is obviously the stock market has been doing tremendously well. Gold had a tough year in 2013. When we talk to people, everybody seems to be very excited about the stock market, but not very excited about gold, but when we were talking today you told me that gold was what?

Bob Wiedemer: Gold's up almost 8% this year. Year-to-date the DOW is barely up a half percent. Was is the operative word... Was last year... last year's stocks were good, gold was not, but this year it's just the opposite. I mean if you just took this and extrapolated it out, gold will be up 30% this year almost. I'm not sure that will happen, but my point being, is this is a completely different year from last year. The stock market has showed relatively little strength during that time. In fact, it showed some weakness. Where as gold has showed some good strength. It's been even more recently after it took a bit of a beating up in March. It's held it's own around $1300. I've been impressed at it's strength. I'd have been impressed by the lack of sort of big plunges it's had. I think the big issue is that gold will alter the stock market and it's a whole different ballgame this year.

Mike Maroney: If you remember Graham and Dodd, they talked about stock valuations and we talked a little bit this morning about how the earnings are up 3%, yet stocks are up 30% and obviously they're having a little bit of difficulty continuing to move higher. Do you think this is the beginning signal of a top?

Bob Wiedemer: I think it is. Before something tops or before something goes down it tends to go flat, especially in markets like this that are so heavily intervened in by the Federal government. We've got a big government. They can do a lot to affect markets, if they want to. From not only the borrowing, which helps pump up the economy. Remember, we're going to borrow twice as much this year. Our Federal government will borrow twice as much, as our entire economy will grow. This is big help and we are still printing a lot of money. I think, if we have more problems down the road, we'll print even more money again, I know we're tapering. But I think all of this is part of what you get when you have a heavily intervened market, you get a slow turn. That's what we call a "broad turn" and it's not happening just in stocks, bonds are obviously turning, they're up a little bit more recently, but overall they've turned from last year, and real estate, we're seeing much slower growth in real estate during this period as well. Stocks are the key and yeah this is a part of a broad turn. I think we're going to see that eventually it's going to become a big decline.

Mike Maroney: Now when you think about the different sectors that you can invest in, obviously, real estate is a big one, stocks and bonds are another big one, and then the commodities are probably one that a lot of people haven't participated in, but they've heard a lot about recently. Unfortunately, the commodities were knocked down, but recently we've seen tremendous moves in the commodity market and the old adage, "You have to buy low to sell high," may come into play. So if real estate is topping, stocks are topping, will we see that classic rotation potentially in the not so distant future?

Bob Wiedemer: Yeah well to some degree in general, you're seeing the unloved assets of last year become more loved this year. That classic rotation, even from within the stock market you're seeing it. The high tech stocks and so forth are getting beat up, people are preferring the high dividends stocks. Utilities have done great so far this year. Bonds which were unloved last year are getting a little more love this year. Yeah, Agriculture commodities, which I like long-term, got beat up badly last year and have done very well this year. Again, gold certainly has done one of the best of all. I mean, not specifically against say corn or like nickels done fabulously well, but for a broad investment category, gold has still been about one of the best this year. But you're right, other commodities have done well and I wouldn't be surprised if that continues. The one I like particularly, natural gas has done phenomenally last year and this year.

Mike Maroney: Great. Now interestingly enough, we've seen the Federal Reserve taper three times and a lot of top currency analysts thought that once the tapering began, we would inevitably see a strong rally in the value of the U.S. dollar. Yet, today the U.S. dollar hit a new six and a half month low. What do you think could be causing this?

Bob Wiedemer: Well nothing's working like it's supposed to, right? We're talking about things like bonds, which should be... you know we're tapering right now... bonds should be going down, because the biggest buyer is pulling out of the market, but bonds have actually had a pretty good first quarter. Stocks, well they were up 30% on 3% earnings, that doesn't make sense. So we've had a lot of those sort of issues. Even today, gold theoretically should have gone up more last year. We were printing a lot of money, yet gold has really been going up after the Fed has been reducing money printing.

So all the markets are a little bit screwy, which tells me that psychology is playing a huge, huge role. Nothing new, but it's just another confirmation psychology plays a huge role short-term. You know, longer-term... short-term can be a bit longer-term, six, twelve months or more. So let's never forget how important psychology is in all the markets and certainly gold is included in that. But things aren't working the way the necessarily should be from sort of a typical, mathematical or more investment common sense way of thinking. It's all the markets are a little bit screwy right now.

Mike Maroney: Now the Feds seem to be steadfast as far as their tapering strategy is concerned and obviously it's probably a little bit easier for them to talk about this because the stock market is trading at near all time highs. If suddenly we see a dramatic corrective move in the stock market, could you see the potential for a reversal as far as Fed policy is concerned?

Bob Wiedemer: Oh absolutely, I don't think there is any question that the Fed will focus on the stock market. How quickly, how effectively is another matter. We got a new Fed Chairman in place, Janet Yellen, who does not have the background on Wall Street that Ben Bernanke or Alan Greenspan had. So, her moves may not come across as well, even if they're the same moves and she may not make the right moves. You know, we're still in untested waters here. So I think a correction could happen. In fact, Sam Stovall of Standard & Poor's has mentioned that mid-term election years tend to have some big corrections. He thinks the market will still finish out positive at the end of the year, but could have a big correction going into this mid-term elections and a lot of people are talking about a bad summer if there is one. If it's modest 5%, no reaction of the Fed, but if it goes down 10% or 15% particularly goes down quickly, yes absolutely, I would expect reversal on tapering. Where we actually increase the money printing and may keep it up that way for awhile. So this Fed is willing to print more, but ultimately it's going to have less impact. Not that the Fed runs out of bullets. They always have that comment that "Oh the Feds running out of bullets." Not true, the Fed can print a lot of money. It's just having less impact. It's like going from blood bullets to rubber bullets, because people are increasingly more worried that we've been running on the stimulus for 5 years. When are we going to get off stimulus and see real honest to goodness organic growth in this economy? It's got to be a worrisome concern for a lot of stock holders. The ones I've talked to are getting worried about how much out of line the stock markets getting from fundamental economic growth and how dependent it is on government stimulus.

Mike Maroney: The interesting thing about markets, reality isn't always the most important factor, perception seems to be the thing that really drives the market. Obviously, everyone has been so excited about the fact that the Fed continues to print more and more money. If suddenly, when the stock market reverses, and the Fed is forced to print more money, could the medicine, as you like to say, become the poison?

Bob Wiedemer: I think we're good for another round, but I think what will happen is... let's take some easy numbers... let's say the market goes down 20%, Fed reacts and pushes it back up, maybe pushes up 10% or 15%, you're still down. So I think it hasn't turned to poison yet, but you're getting towards those last legs. Just like right now you're having a very flat market. We had a ridiculous market last year, it's become flatter. I think you're in this broad turn and the medicine will become poison not this time, but you might find that it's becoming a little more poisonous in that it can't get the market jumping back up higher than where it was before and on an upward trend. It may only be able to keep the market from collapsing and sort of minimize the damage and that's a very different ballgame than we've seen before. The Feds have been able to save the market, where it's just being able to minimize the damage it's just a whole different thing and that's going to have a lot different impact on investor perception and psychology. You know the Feds got my back, but the Feds still let me lose 5% or 10%. I'm not happy, you know. When they mean the Feds got my back, they mean I'm not going to lose my money. You start losing money even on a Fed intervention that gets scary.

Mike Maroney: Now the Fed is also talking about potentially raising interest rates. We've been working in a 5 year environment that interest rates have been at historic lows and the government has been the benefactor of that because we have $17.5 trillion dollars worth of debt that we're paying a very low interest rate on. Suddenly if interest rates start to increase, how will that effect our debt problem and the sovereign debt problem around the world?

Bob Wiedemer: Let's keep in mind, when they talk about may raise interest rates, so that's the very short-term interest rates. I mean in reality, ask any home buyer, interest rates are up. I mean we're at 4.3% on your mortgage rate that's up significantly from last year, which was closer to 3.5%. So interest rates are up, interest rates are up for the 10-year from last year. Yeah, they've come back down a little, but overall interest rates are up and I think they will ultimately continue to go up. So certainly the Fed will react, but again the only way you can react to keep interest rates down is to print more money. Ultimately that does create inflation. I know that nobody thinks that will ever happen. I know it seems like it takes a long time and it may take a while, but ultimately printing money can't be the solution. If it is and everybody really believes that, why are we tapering in the first place, right? They kind of know there's a problem with doing that. Printing money to keep down interest rates ultimately is counter-productive, because you will get inflation. Even more to the point, if you really think printing money is so much the answer to all of our problems, what do we have taxes for? You know, get rid of those stupid taxes. Let the government spend what it wants, $3.5 trillion bucks a year, no taxes, all they have to do is just borrow it, issue those bonds, the Fed buys them with printed money and what an incredible boost you've got to your economy. No taxes, yet the government is spending just as much money. We don't believe this for a minute. We're just hoping it works, we're trying to get away with it, but ultimately printing more money to keep interest rates down, it's going to blow up. It can't work forever and it may not even work for another year or two. We'll just have to see.

Mike Maroney: Now we've obviously seen many different actions taken by the Fed, by the U.S. government, by the Central Banks around the world. Do you think the problem, the sovereign debt crisis or the debt crisis, has been solved in any way, shape, or form, or has it actually been increased?

Bob Wiedemer: It's only been increased. What solutions do you see Mike? I mean, where's the solution? What we've done is what any business that's in trouble would do immediately is where, you know, you borrow a lot of money do get through a crisis. That's what you try to do, borrow money. You could try to cut your cost. We haven't done a very good job of that. You've tried to increase the revenues. Yeah, revenues have popped up somewhat, but overall what we're really doing is just kicking the can down the road. We're avoiding making changes. I mean, that's what it really amounts to. We're avoiding making changes by doing all this borrowing, by doing all this money printing; we're trying to keep the bubbles alive. We're certainly not running around focusing on productivity improvements. I've never heard that talked about much. That's fundamentally what drives any economy. So absolutely not, we are not in any way solving the problem. We're just putting more gun powder under the house and it blows up and in fact I made that point very clearly. I recently went to a conference in Malaysia on the "next financial crisis" and I thought it was interesting that they said it was the "next financial crisis" for two reasons. One, in Asia they sort of seem to think we will get one, where as in the U.S. you don't hear any talk about a next financial crisis, right? We just had one and that's got to be it, no more crisis coming I'm sure, right? Right? No more crisis. Well, you know, at least in Asia they think it's coming, but I had to correct them on the second point. I said, "The next financial crisis, this is really just the same crisis over and... that's been going on... that we've been kicking back since 2000." I mean when the stock market and the internet bubble popped in 2000, we sort of replaced that with the housing boom and that helped keep our economy going. When that blew up, and that's a lot bigger deal than the internet bubble blowing up. Well, that took the whole financial structure down, brought the government in, as we talked about in America's Bubble Economy, the government is going to have to come in, print money, borrow money, pushed it all back up and now we're just waiting for that one to pop, but when you really get right down to it, it's not the next crisis it's just a continuation of the same one just with a lot more gun powder in it.

Mike Maroney: So we have the potential for a much larger crisis with a lot more gun powder and obviously the Asians probably realize or see what sits out on the horizon. We're seeing massive demand out of Asia as far as physical gold is concerned. I think they think a little bit more out on the horizon as far as their investment strategies are concerned, but you talked a little bit about what could be the inevitable catalyst that causes this next crisis to kick off. One of the things you talked about was China. Can you tell us a little bit about that?

Bob Wiedemer: Sure, I mean you know, if we've got bubbles here, China has got bubbles squared. I'm not sure what a square bubble looks like, but they've got bubbles squared. They have done even more money printing, they've done more government interventions in their economy than we did. When their exports collapsed, I mean, they had a real problem and 25 million people went from the cities to find jobs in the rural areas, which there weren't any jobs. So they were worried about another Tiananmen Square and for good reason. They just told their bank, their state-owned banks, lend, lend, lend for everything. Another cement factory, absolutely. Another road, sure. Another empty apartment building, absolutely. New York City build a replica, of course, why not? South China mall twice as big as the mall of America, absolutely. Tenants don't worry about that, just build, build, build and it's worked to a certain degree. What hasn't happened is they haven't had export growth or export growth has been declining I should say and it's not much at all right now. So fundamentally, they're increasingly relying on this massive amount of borrowing and it's not just state banks giving out money, there's shadow lending, there's all sorts of bad lending practices there. It can blow hugely and if it blows, I'm not going to say it's going to take down the world so to speak, but it is a big economy now, but when it blows it can start to trigger up problems in the U.S. It can also start to trigger up problems with gold. In other words, you may find that Chinese go, "Oh my God, real estate is in trouble, stocks are going down," there is a panic into gold. They've got a lot of money, they could put a lot of money into gold, and they could have a huge issue and that could be another trigger. You could see gold prices start to rise dramatically, especially if you have a China problem. If whatever hammer or intervention or whatever is happening in the gold markets, it has increasing problems at that point, gold could really skyrocket. Combine that with a flat stock market or slightly declining stock market, combine that with a Fed that people are losing more faith in, in terms with whether money printing will solve our problems, and you have the recipe for the Final Aftershock and a little bit of a very brief outline of the next book The Final Sequence. So China could be very important, not necessarily in it's own right, but in kicking off gold problems and kicking off concerns over in the U.S. Remember, China has basically been the source of all economic growth in the world for the last... well since the financial crisis. I shouldn't say all, but a lot of it has come from China. So if the gold demands are huge, it's very much interrelated with the gold markets, all of those are what, I think, will kick off the final sequence of the aftershock.

Mike Maroney: So we're using quantitative easing, we're continuing to buy government bonds, we've depended upon the rest of the world to support us by lending us their money. If we run into some sort of crisis in Asia, hypothetically, could we see repatriation of Chinese capital, could they sell some of the actual bonds they have, could we see a crisis as far as the dollar? What will be a key signal? Is gold going to be the canary in the coal mine? What do you see?

Bob Wiedemer: Gold can easily be the key signal. My brother, co-author of Aftershock absolutely believes it. In fact, we write about it in our most recent additions of Aftershock and Aftershock Investor. That in fact gold is a key signal at looking at that final sequence of events. When you start to see it go up and continue to go up fairly dramatically without big plunges down or if it recovers very quickly from any big plunges down, that's a very good signal that things are starting to unravel on a broad scale worldwide as well. Then it will obviously check the other things if the stock market isn't flat or going down, Fed intervention hasn't been that effective, China is having problems, all that amplifies what gold's saying, but gold's the canary. I think gold's very likely to be the canary that tells you the most and gives you kind of a... the earliest wake up call of almost any market out there in terms of what's going on.

Mike Maroney: So stock market trading at all time historic highs. Real estate market having retested their highs and starting to roll over a little bit. Economic growth here in the United States seems to be somewhat stagnant. We've got some problems in China. None of the major problems that really caused a lot of these issues have been fixed they've only escalated. So based on where gold is today, doesn't it make sense for the individual investor to say, "I'm going to take a portion of my portfolio and start to diversify and maybe buy some gold at low price levels?"

Bob Wiedemer: I think you said at low price levels. We honestly don't know what the lowest price level is here. There's talk about it going lower. There always is. I mean, as I always say, "Golds gains are always temporary" according to most people on Wall Street. Stock markets gains are always permanent, right? Never works out that way. But I can't say gold is at its lowest point, but it's clearly at low levels and it's clearly showing some strength here. Back to the longer-term, that longer-term isn't 10-years, but over the next few years absolutely. It makes sense to be moving into gold. I think it's going to do well. You're certainly not going to be alone. China and other nations are continuing to buy a lot, but more importantly I think you're just building up all the ingredients for what we call the "final sequence" and gold could do very well.

In fact, I'll just add a little comment from another conference that I was at in Philadelphia and this was for a group of mainstream family office type investors, you know, wealthier individuals. They're truly Mainstream or Mainline as you know in Philadelphia the Mainline area, very wealthy area of the country, one of the guys said, "You know, if what you're saying comes true, the kind of scenario you're outlining, gold could easily go for over $10,000 an ounce." I thought that was kind of interesting for a very Mainline type of investor to be saying that kind of thing and he wasn't saying he was sure I was right, but he certainly wasn't saying that I was wrong. So I think it's certainly going to make a lot of sense to increasingly put your money in that. If nothing else, if it makes you feel a little less worried to kind of put it in over time, you don't necessarily have to get the rock bottom price on every single piece of gold you buy, but certainly lightly into it I think makes a lot of sense.

Mike Maroney: Now Bob, you're an economist, you're not a cheerleader and they say that mathematics is like gravity, it's non-negotiable. When you look at all the mathematical equations that exist out there today and think about the inevitable outcome of what sits out on the horizon, the unfortunate fact is there is really no solution to the problems that we've created unless we see some sort of dramatic issues in the future. Is that correct?

Bob Wiedemer: Well, there's no solutions in the sense that a solution means we're going to solve the problem and we're going to be in great shape. There's solutions like hit the wall, that's a solution. A lot of countries have hit the wall and then changed. Our country has usually been pretty good about not doing that. We've been pretty smart. We've been pretty good about making changes before we're forced to. I'm afraid in this case we're going to be making changes, but only after we're forced to. There's a lot of cost to that and a lot of cost to our current financial system that frankly for a while will benefit gold in a rather dramatic way.

Mike Maroney: So instead of being proactive, we're going to be reactive and in that type of situation it never usually works out real well.

Bob Wiedemer: Not short-term. Long-term, I'm very optimistic we'll make the changes, but short-term its a rough way to change.

Mike Maroney: But while the changes are being made, gold could be one of the key assets to hold in your portfolio. So your family's wealth can continue to be maintained for many decades to come.

Bob Wiedemer: Yeah, you can be standing in the storm and all around you may be having trouble, but absolutely you can do something to protect yourself, which is good. Wasn't as possible in let's say the depression or something like this, in this case yeah, absolutely you can do well. In fact, those people at a larger level who have gold will be one of the ones to have the capital to help deal with the... and take advantage of some of the situations or opportunities that will exist after this and there will be quite a few.

Mike Maroney: With crisis comes opportunity, correct?

Bob Wiedemer: Absolutely.

Mike Maroney: But you need liquidity.

Bob Wiedemer: You need liquidity, I'd rather not have crisis. I wish we wouldn't change this way, but you know I think that's the way we've chosen and for a number of people it does give a lot of opportunity. Absolutely.

Mike Maroney: Now obviously, the interesting thing is we're not rooting for crisis, but when we look at all the catalysts that exist out there, obviously, nothing has changed over the last 5 or 6 years as Bob has talked about. So right now after gold, silver, platinum, palladium have made major corrective moves it makes sense to at least look at putting some precious metals in your portfolio.

Bob, thank you very much.

Bob Wiedemer: Thank you Mike.

Mike Maroney: I appreciate your time.

Bob Wiedemer: Absolutely.

Mike Maroney: Obviously, we couldn't get to all the points today that are covered in Bob's book, but if you're interested in reading, Aftershock Investor, please give Monex a call. We would love to send you a free copy if you're interested in receiving one. Also we'd like to include some information on how you can get involved in precious metals. Please, give us a call today. Thank you!