Mike Maroney Interviews Aftershock Investor co-author Bob Wiedemer - February 2017
Mike Maroney: Hi! My name is Mike Maroney and I'm coming to you today from the Monex precious metals studio. Today, we have an opportunity to speak with Bob Wiedemer. Bob is the author of Bubble Economy and Aftershock. We're very privileged to have Bob writing a special report for us this year. It's about gold and silver in the age of uncertainty. The great thing about this report is... it's up-to-date, it has some very, very interesting information about what's taking place, and a matter of fact, Bob you wrote a little bit about the Federal Reserve and what you felt sat out on the horizon. Would you like to chime on that?
Bob Wiedemer: Well, sure it's something that hasn't been talked about much, because clearly the new President, President Trump, has been taking all the headlines and all the twitter lines, but the Federal Reserve is very important, because with Donald Trump's election, the current Federal Reserve Chairman is not going to be offered a second term. I think she thought it was a shoo-in if Ms. Clinton got elected, but at this point it's clearly a shoo-out--she's not going to have a second term. So, I think, that it's going to affect how she views interest rate increases this year and there's also a little bit of tension, I think, between her and Donald Trump that will also affect how she's going to deal with interest rate increases. In particular, I think, she's going to be more likely to increase rates and not worry about the stock market. So, I think that's... I think she's going to be looked at... to worry about her legacy, in terms of exiting her position with interest rates rising, she's getting out of this period of easy money, and she'll let the next guy who comes in deal with any fallout in the stock market or so forth. Normally, that wouldn't necessarily be a positive for gold, but if a stock market is unstable, I think, that's going to be a positive for gold. I think, gold is going to take more of it's drive for this year from whether the stock market's doing well or not, not necessarily from the Federal Reserve. So, I think, it's actually very important... It's not certain. In other words, it is an uncertain period, but I think, that the view of the Federal Reserve will be changing under Janet Yellen this year and I think, we're going to see that's going to have a negative impact on the stock market.
Mike Maroney: Well, Bob we've seen a lot of action in the precious metals market. A matter of fact, gold has rallied about $80 since the beginning of January, silver has rallied about $2, and most people believe it is because there's so much uncertainty. What we've seen recently is some Trump executive orders and it looks like they're having a hard time implementing. So, Trump has some great ideas, but the political process is something that he's really not used to and that situation is really creating some additional uncertainty with investors.
Bob Wiedemer: Boy, isn't it! Yeah, I think it's no surprise that as the market entered that period of uncertainty in January, actually as even mid-December, we had the Trump-phoria rally. As we enter this new uncertain period, where Trump continues to tweet about everything from his reality TV show, The Apprentice, to what people at a Broadway theatre think of him, I think, that was making people nervous. When he got into office, it didn't help any. It is clearly an uncertain situation. President Trump is not, by any means, an ordinary sort of President and just by his very nature he is going to bring about uncertainty in the process. You're right Mike. He's not used to the political process. Let's face it, he's used to a campaign and that's actually very entrepreneurial like activity. He's used to being an entrepreneur, he is CEO of his own company. Even that's different from say being a CEO of Exxon, where you have to work with all sorts of other people. When you're CEO of your own company, you just kind of say what needs to be done and it's done. Where as... boy, oh boy, it is different as President and you find working with Congress, working with bureaucrats, working with the media, all that, makes it a lot tougher to be CEO, which he's very used to.
Mike Maroney: Now, it's interesting, because you work with people in all walks of life, and a matter of fact, you specialize in many different venues. You told me today, that you spoke with one of the representatives over at State Street and they control approximately $3 trillion. Would you like to share with me today and the listeners what he had to say about the precious metals market?
Bob Wiedemer: Well, it is very interesting, because State Street Global Advisors is one of the largest managers of ETFs and other... mostly stock and bond funds. They're a big, essentially, Wall Street firm, that even if they're in Boston, it's a firm that normally and is...remains actually quite bullish on stocks for this year, but they like what we're talking about like seeing a lot of uncertainty in this market. Their chief investment strategist felt that it would make sense under this environment of uncertainty that we're entering, to diversify your portfolio. Well, no surprise, right, from a company that has a huge number of various stock and bond funds and ETFs. What was interesting is what he said was, "A way to diversify was to have a certain amount of gold in your portfolio--3-5% ." That was interesting, because this is a guy who is normally and very much the bull... or stock and bond bull and wouldn't pay much attention to precious metals, but in this coming age of uncertainty, he didn't use that term, he said, "uncertain environment," but this coming uncertain environment... gold was a great way to diversify. So, I thought that was very interesting. Again, coming from very much outside the gold arena or this is not... a gold bullion dealer or anything, this is somebody who very much represents the Street and stock and bond markets.
Mike Maroney: Well, it's interesting, because obviously, we have a new President that may be not versed, as far as, the political process is concerned and maybe we're going to see a whole new group of investors coming into the precious metals market, because this level of uncertainty that hasn't existed in the past. You know, we have the Federal Reserve potentially raising rates and people are a bit fearful about that, but if you look back over history and find in those environments where the Fed was raising rates, typically those environments are very bullish for precious metals.
Bob Wiedemer: Absolutely, and that was my point. It's going to be more important that the Fed is not as worried about the stock market and there's more uncertainty there than the interest rate increases, which you say sometimes people are worried that those are negative for gold, but the reality is what's going to drive this market. If we get interest rate increases, it's going to lead to more uncertainty. Plus, the President... plus, Congress... people are talking about the tax cuts now not coming until 2018... That's not a good thing. Infrastructure investments always take time to start and, certainly, take time to go through Congress. So, we have a lot of... events coming up that I think will lead to somewhat greater uncertainty or continued uncertainty and Mike, I might add, and that's one reason that I want to update that report and we'll be updating this report on Precious Metals--The Age of Uncertainty monthly. I'll be doing monthly updates. I feel that's very important. I feel people should take a look at those, because this is a changing environment. I can't tell you exactly what's going to happen with the Fed or with Trump, just at State Street Global Advisors can't tell you exactly. They know that there's uncertainty coming up and I think you'll certainly want to pay attention to my monthly updates.
Mike Maroney: Well, that's great Bob. One more point before I let you go today. I mean, typically in the past when we see people rotate out of stocks and obviously with the DOW over 20,000 we're at historically high levels. A lot of money has moved into bonds and most people believe that that variable or that alternative is somewhat off the table based on the fact that interest rates are going up. Bonds have had a tremendous bull market over the last 30 years. So, just that fact alone could draw in a massive amount of liquidity into precious metals at the likes of which we have never seen, and now, standard stock investors are starting to be told, "Hey, it's time to get into gold." Things could really start to heat up in a big way, huh?
Bob Wiedemer: No question. The 60/40 model of 60%...40% bonds is under pressure big time, from the decline in bonds. Again, whether they have a rally a little bit here or there, I think the glory days are over. Let's keep in mind how much uncertainty is now being brought into that, what used to be certain bond market, between October and December, we had long-term bonds falling about 15%, those 30-year bonds. These are U.S. government bonds, safe as can be, right? Shouldn't be very uncertain, but yet a huge decline. So, it's become... and I've had friends in the financial industry tell me, "I'm much more worried about my client's investments in bonds right now, than stocks." So, I think you're right. That's going to become a reason. It's going to become less of the diversifier and the balancer and gold my take a position in some part of that. Absolutely! Big issue.
Mike Maroney: Obviously, a lot of people buy gold for catastrophic insurance, but a lot of people believe over the next 3-5 years there could be some huge capital gains.
Well Bob, what we will be doing is touching back next week and I want the listeners to give us a call here at Monex, because you really should take the time to read this report. Needless to say, Bob will be updating it each and every month and you can tune in and hear what he has to say on a weekly basis. So, Bob, great talking to you today. I hope you have a wonderful weekend and we'll chat soon.
Bob Wiedemer: Thanks Mike.
Mike Maroney: Ok. Take care.