Mike Maroney Interviews Aftershock Investor co-author Bob Wiedemer - October 2017
Mike Maroney: Good Afternoon! Mike Maroney here from Monex Deposit Company. I'm here with Bob Wiedemer who has put together a very special report for us each month. It's a report that actually gauges the amount of uncertainty that exists throughout the world and this gives us a leading indicator as far as where the potential price movements of precious metals could be headed. Obviously, we had a lot of volatility over the last few weeks as the market fell. Inevitably, found supporting gold around $1260 and in silver all the way down around $16.30. Since then, we've popped back in silver to $17.10 and gold up to $1295, today.
Bob, how you doing today?
Bob Wiedemer: Doing better. I'm feeling like on the upside of gold. So, rebounding...I'm feeling rebounded and good.
Mike Maroney: Well, good! You know what? There was a lot of talk of a potential Korean event, North Korean event, on Monday, which never actually came to fruition, but there was rumors of US B-1 bomber flyovers on the Korean peninsula. Is that situation pretty much played out or do you think this is something that we're going to continue to deal with for weeks and months to come?
Bob Wiedemer: I think it's played out for now, but it's definitely not played out. I think it is something that we're going to be dealing with for months to come. There's no question that the attempts by Kim Jong-un to actually build better missiles, I think, if hardly quit. He's tested some things like submarine launched missiles that I think they'll keep working on and they're going to look for longer range missiles. So, absolutely not. It hasn't played out long-term in any way shape or form. In fact, as you mentioned, we're actually flying our bombers near the coast of North Korea and Kim Jong-un has actually threatened to shoot at our bombers or shoot down, which that could be tricky, but shot at at least our bombers that come close to his coast again. So, you know, there could even be a little trigger point with that. Just shooting at the bomber would obviously be a problem.
Mike Maroney: Now, it's interesting, because we've heard that China has basically laid the law down with North Korea as far as if they were to potentially start any sort of battle or warfare and they've also made it clear with the U.S. that if we actually engage North Korea that they would have to step in and act as an ally. Do you feel as if China may be using this as a way to poke at the United States or basically test the resolve of President Trump?
Bob Wiedemer: You know, let's face it. China stepped in to protect a North Korean security back in 1950. So, this isn't brand new. I don't think it's all about Trump or anything like that. China and North Korea have had a long-term relationship of where China has protected the security and stepped in with troops, many troops to do that. So, no, I don't think this is a test of Trump, but I think on the flip side it is a test of Trump that simply a legacy of the past and has I think obviously gotten worse with these ICBM perhaps nuclear tipped missiles here at some point. So, I don't know if it's so much testing, but I think the Chinese are clearly... they haven't dropped their support for North Korea. They may not like it. They may not love it, but I don't think they want it taken over by the U.S. and having the U.S. on the Chinese doorstep in some way. So, no. I think they're doubtfully going to stand by North Korea and pressure it, as you say, not to necessarily shoot off a nuclear missile at Guam or the U.S. But, yeah, let's face it, no, they're on North Korea's side.
Mike Maroney: Bob, we've had a lot of uncertainty, a matter of fact, the situation over in Catalonia in Europe. Some people feel it's a microcosm of what could sit out on the horizon as far as the Italian vote is concerned, what's happening because of the immigration policy that many of the country's feel as if it was pushed upon them by Mrs. Merkel, and obviously, the North Korean issue. Some of the gold investors are starting to become a little disenchanted, because it seems as if nothing really can push it through and yet the stock market seems to shrug most of this information off and continue to move higher. Do you see some sort of sector rotation in the not so distant future, as far as investors may be taking some profits in precious metals and maybe moving into the more undervalued... Excuse me... maybe taking profits in stocks and then moving into the more undervalued assets such as precious metals?
Bob Wiedemer: Yeah, I think that's a possibility and no question. But let's step back and remember, gold still hasn't done all that poorly this year and the year is not out. So, although the stock market clearly has had a steadier rise and in fact even for a stock market a relatively unprecedented rise where we've had very little volatility overall in terms of, I guess, it's been what a couple hundred days since we've had more than a 2% move up or down in the S&P 500's. So, relatively steady there. Of course, gold is not steady, never has been that steady, but we're not that far. Gold is not that far behind the stock market even now and by the end of the year it could easily be back up just because it recovered to where it was before.
Mike Maroney: Now, some people believe maybe the pullback was predicated on the announcement by the Fed that they were going to actually begin a little bit of quantitative tightening and inevitably that we would see additional rate increases. Now, we heard today from the meeting's minutes that just about all the members of the Fed agreed that a gradual increase in interest rates was definitely in the cards. Do you see any surprises out on the horizon as far as the Fed is concerned or do you feel that the overall plan right now is set and we're probably looking at this over the next three to six months?
Bob Wiedemer: I think it's set and I think we're looking at the Fed planning and will assuming no other problems. Planning and will continue to raise interest rates and they will do their quantitative tightening--meaning they'll be selling instead of buying bonds. They'll be reducing our money supply, not much, but just like interest rates not much. But I think they're going to continue on that path and I think it's one reason gold also could go back up is there's really been no change, I don't think, in the outlook for that over the past few months. It may have come a little stronger, but I think overall what the Fed's doing is what the market basically expected. I just think that when you've got a bull in stocks and a bull in gold, as the Economist Magazine said in their issue last week, "It's a bull market in everything." I think it would be a little diversifying to have both. They're both in bull markets. I think that obviously, gold has pulled back a bit, but I think the overall bull market trend is there, even though the Fed is not surprising us with unexpectedly strong rate increases or anything like that. I think they're going just as planned. Now, before I exit on that point, I will emphasize that, "If there is a problem in the stock market," and yes, there could be a problem in the stock market tomorrow or next month. Think of 2000. January of 2000 everything was great. February wasn't bad. By March of 2000, things were starting to fall apart and by April they were. So, this kind of thing could happen fast and if it does, the Fed will go back to money printing to try to push it back up and of course I think that will also have a positive impact on gold. Bottom line, the Fed, assuming we don't have a big stock downturn, it will go and continue on this path that I think everybody has expected now for a while.
Mike Maroney: Well, Bob, we also have the potential lowering of the corporate tax rate and if Mr. Trump is able to put this into play, obviously, you're looking at a lot of additional earnings to the bottom line as far as corporations are concerned, which could also push stocks higher. So, with everything going on the tax decrease would obviously add to the inevitable debt, but it just doesn't seem, right now, that we're getting a lot of focus on the overall fiscal situation that exists here in the United States. Everybody seems to be somewhat happy the stock market is going up, even with these geopolitical issues. Do you see any events out on the horizon or any specific things you're watching as far as possible major uncertainty shifts that investors could watch out for, especially investors who are looking at gold and silver as a possible investment?
Bob Wiedemer: I'll give you a few events or triggers in just a second, but let me just emphasize what I said before. The market in 2000 changed without any real prior notice. January and February of 2000, were really good and March and April were really bad and that set a new down trend. So, for people looking to invest, there may not be a trigger. That's why I say, "Be careful and build up a little in what is a bull market. So, you are not caught off guard by what often happens is a market that moves without any obvious trigger." With that said, obvious triggers... the tax cut may not happen. Clearly, Congress has had a lot of trouble getting along on making any kind of agreement on what to do. There are some people worried about the deficit, not many. You're right, Mike. But there are some people worried about the deficit in the Republican Party. It only takes two or three to say, "I don't want to build this deficit up more," and they don't have a majority. So, I wouldn't necessarily assume that that corporate tax cut is getting through. I wouldn't necessarily assume that they'll have the budget or raising the debt ceiling solved. They just kicked that can down the road to December. We'll have to see if they really can solve that. So, I think that could be another trigger. Again, you're just getting a lot of talk and we've had this for a while, but even more talk with the recent Nobel Prize winner, Mr. Thaler or Dr. Thaler, saying that he's worried about the market, doesn't make sense to him. You're seeing more and more concern about this market and that's why it could change overnight, even without a trigger. Clearly, a tax cut not happening and also the geopolitical events you mentioned earlier, plus we don't know how the debt ceiling is really going to go, they've just kicked the can down the road and we'll see in December, but those are all easy triggers for a market that's highly valued at highs seen in 1929.
Mike Maroney: Robert Schiller has his cap index and I was looking at it the other day and if you look at the highs that we've experienced as far as stock valuations, we're looking at 1929, 2000, and again here again in 2017. Like you said, nobody really knew what caused the event that inevitably caused the Dot.com bubble to burst, but when it did it just started to happen. So, now, with gold priced at a very low level in comparison to it's recent highs, it probably makes a lot of sense for investors to maybe take a little bit off the table and put some money in gold, take delivery of it for safety purposes. Wouldn't you agree?
Bob Wiedemer: Yeah, take a little off one bull market in stocks and put it in another bull market that seems a little better priced in gold. Absolutely!
Mike Maroney: Well, good, Bob. I think that the uncertainty index is obviously a key feature that investors need to understand, need to watch. Today, maybe there's a little bit of calm and maybe there's a lot of uncertainty out on the horizon, but obviously if people understand how this affects price, it will help them get involved in what we believe to be an undervalued asset. So, it was great speaking with you again today, Bob, and we'll talk again in the next few weeks, okay?
Bob Wiedemer: Sounds great, Mike. Take care.
Mike Maroney: Have a great day. Thank you.