Mike Maroney Interviews Aftershock Investor co-author Bob Wiedemer - December 2017
Mike Maroney: Hi! Mike Maroney here and I'm here with Bob Wiedemer, the Author of Bubble Economy, Aftershock, and Aftershock Investor. In the beginning of 2017, Bob thought that this would be the year of uncertainty and felt that if investors had a tool that they could gauge the level of uncertainty it would help them with individual investments as far as different sectors were concerned. Over the year, Bob and I have had a chance each month to converse about what's happening in the markets and how it affects the price of precious metals and other types of investments. Needless to say, Bob, it's been an interesting year and there's definitely been a lot of uncertainty. Now, what would you gauge is probably the thing that kind of shocked you the most about 2017.
Bob Wiedemer: Well, I think it's the same thing that shocked although pleased a lot of other people is that the Trump rally, which began immediately after President Trump's election in early November, it carried through the end of 2016, but it carried into 2017 pretty strongly. In fact, end of the summer, we might have had a down period, but it would pick back up. More recently, tax cuts have certainly helped it keep going, but it's been strong the whole year. I think that...that was... that's a real surprise to almost everybody. It might be a pleasant surprise certainly to people on Wall Street, but a big surprise none the less that that rally continued so strongly into 2017.
Mike Maroney: Now, it's interesting because when we spoke about that last month, we were trying to really put our finger on what was the cause of this rally and at that time you just felt it was the Trump rally. It wasn't based on the fact that he created more infrastructure spending. It wasn't based on the fact last month that there was a tax break. In essence, it seems as if the market was rallying solely based on the fact that it felt comfortable with the Trump Presidency, and obviously, I guess, in many investor's minds. Does he create more stability even though he seems to create more uncertainty?
Bob Wiedemer: I think he is creating more uncertainty and as the market has reacted before, sometimes, it wants to put a good spin on things. Since the market is trying to do what you do in Washington D.C., where I live, is you want to spin things that maybe aren't good. You want to spin them good. The market sort of knows that Trump is creating a lot of uncertainty. That's one reason the market wasn't real supportive of his Presidency before he got elected, but once he got elected, you know, you have him for four years, you better spin this the right way or else this stock market could easily go down to where it was in January of 2016, which was back down to $15,000's pretty low. So, I think they're trying to spin it up. Yeah, certainly the fact that the tax cut looks like it's going to be completed is a plus. Interestingly though, it hasn't really shown up in analyst's predictions of much higher earnings next year. Assuming it even went into effect, which I don't think it will and it will go into effect the following year, but I'm not sure just how much it's really going to affect earnings and it will certainly be company by company, because some corporations don't pay any taxes right now. So, it's still Trump rally in my opinion and the fact the tax cuts were passed, fine, but that's part of the reason we went up last year in November and December. So, yes. Still remains a Trump rally even with the tax cuts that have just passed, even that hasn't caused a huge increase in the stock market since the tax cuts have been, well, sort of passed, they haven't quite made it yet.
Mike Maroney: Okay. So, we've had this stock market have a pretty good year, precious metals have somewhat held their own, gold is still positive as far as the year is concerned, and a lot of people are talking about 2018 as potentially the beginning of another leg to the upside in the commodity market. What's your thought on that?
Bob Wiedemer: I think commodities could certainly...we've seen a little bit of a rebound. China has pushed it up, but I'm not sure commodities is going to drive gold as much as that underlying uncertainty that I think is keeping gold up right now and that is the high valuation of the stock market. Everybody knows it. In fact, I was just talking to a friend at Bloomberg and, you know, who was saying, "This crazy market...it's just up." Everybody kind of refers to it as the "crazy market" and they kind of know it's high. Just like Bitcoin, I mean, everybody knows it's high and they just hope it's going to go higher and it may for a while, but there's an underlying uncertainty to that and that I think is why gold has gains this year, even though given the performance in the stock market, you know, gold really would normally be expected to be down, but it's still up this year. Not like stocks, but it's still up and held a good part of its gains for the year. So, I think what's really the biggest player for gold going forward will be that uncertainty over these very high valuations you're seeing now, and still will, and you never know whether the Trump presidency creates some sort of uncertainty that really bothers the market. It can happen.
Mike Maroney: So, here we have the stock market at historically high valuations. We have a new investment out there that everybody seems to be talking about--Bitcoin, which just so happened to rally about $3,000 in the last week and nobody's really quite sure why, but then gold which has always been somewhat of a safe haven, has held strong in this uncertain times. But, it looks as if potentially that really what gold is trying to do is put in a bottom and as we head into 2018, obviously, there are a lot of potential events out there that could cause investors to start to sector rotate out of paper and into something a little bit safer like gold. Do you see any specific events that you're looking at Bob?
Bob Wiedemer: Yeah, so, I'm seeing some events that could cause, as you said, sector rotation out of such a heavy exposure to stocks. Clearly, just the high valuations. These are nose bleed high levels let's not just say historically high. They're very high. Anything can happen with the Trump presidency. We've seen this investigation by Mueller into Russia going on. You never know what's going to happen with the Trump administration. It's very uncertain, very unpredictable. Anyone of those could kick some problem off. So, valuation, any issue with Trump, foreign policy issues, they could all pump up an issue. Get this market higher and higher, it's much more unstable. I'd say the same for Bitcoin. When you start going up $1,000 a day, you're going to get some people who are going to take some profits and run and get scared. It could just be a change in psychology and not even a triggering event, but clearly, it's much more likely that something like that is going to happen in the next six months with valuations so high and almost a sure bet issues with the Administration and Congress.
Mike Maroney: Well, they say there's a trick at investing--buy low and sell high. If you're buying stocks historically high and if you're buying Bitcoin, who knows where that could be headed. But based on the performance of gold over the last 12 months, in this type of environment many people would have thought potentially it wouldn't have performed as well as it has, and considering it's still $700 below its high, it looks like it offers the investors quality value right now. Would you think that to be the case?
Bob Wiedemer: I would say so and as you said it seems to be putting in that bottom and ready for a good year next year and January tends to be a particularly good month the last few years. So, absolutely.
Mike Maroney: Now, it's interesting, if you look back over the last few years, if you had an opportunity to buy either silver or gold near the December lows, you did real well, especially in the first six months. Well, Bob, it's been an interesting year. We're looking forward to another interesting year in 2018. We feel gold is very well positioned right now for investors to utilize it as a quality hedge as far as their portfolio and based on what you're saying, we could see some real fireworks in the future.
Bob Wiedemer: I would have to agree.
Mike Maroney: Well, Bob, I hope you have a great New Year this year. It's been great talking with you each and every month about your Uncertainty Index. I think it's a quality feature and a quality additive that Monex has been able to give out to its investors and I look forward to talking to you again very soon.
Bob Wiedemer: Me too, Mike.
Mike Maroney: Thank you very much.