Mike Maroney Interviews Aftershock Investor co-author Bob Wiedemer - July 2017
Mike Maroney: Hi! This is Mike Maroney coming to you today from the Monex Precious Metals Studios. I'm with Bob Wiedemer, the author of Bubble Economy, Aftershock, and Aftershock Investor. Bob has put together a tremendous asset for investors, for Monex investors. It's an Uncertainty Index. Now, what we try and do each month is talk about the things that are taking place and how those things potentially affect the price of precious metals.
Now, Bob, you're in Washington, D.C., how do you see the political front moving forward, as far as, Trump's infrastructure, tax cuts, and all the other things that many people expected would actually give a boost to the economy?
Bob Wiedemer: Movement forward? Mike? This is like watching the corn grow here. You've got to be kidding. I'm amazed at just how little has happened. Most of the talk of anything moving forward or backwards revolves around laptop bands and so forth. Unfortunately, none of the things that people counted on to give us economic growth are happening at all--infrastructure, tax cuts, even the health care reform is not moving along well. The Senate tried to get a vote on it and had to postpone it, but that doesn't mean they're going to get it. They still need to change, I guess, it's seven Senators, GOP Senator's votes, and it doesn't look like they're honestly going to be able to do that when they come back from their July 4th recess. So, why not take a July 15th recess? It seems like for all that it matters and that does raise a lot of uncertainty going forward. Almost everybody, including myself, would have thought that some of this stuff would have been done. Certainly, something on health care, something on tax cuts, and yet we're not... we won't have anything done on that and we're now bumping up against a debt ceiling problem. It's going to start in August and has to be raised by October, but where are they going to get the agreements for raising the debt ceiling and even getting the budget passed? It doesn't... again... looks like corn growing, Mike, here in D.C.
Mike Maroney: Now, Bob, everyone expected that Trump would have somewhat of an easy road in 2017 based on the Senate and the House. Needless to say, that obviously hasn't happened. We've got elections coming up next year. If suddenly things change and we see more of a Democratic Party powerbase being built, this political situation is going to grind to an absolute halt.
Bob Wiedemer: Well, I'm glad you point that out, because few people are looking towards the next election, but yeah, it's coming up and it's coming up in about a year. I think that's very important, Mike. Is that this puts a timeframe on how much... I mean a time constraint on how much... well, time that Congress can take to get these reforms done. Long before the elections, you know, Senators, representatives are going to become more worried about making any decisions that might upset their voters before the elections. So, that, I think, is a huge issue. I certainly don't think the House is going to switch, but there is every chance on an off election no matter who’s in power, off elections don't tend to go in favor of the person who is in... or the Group...or the political party that's in power, whether it be Republican or Democrat. We could easily see the Senate shift to Republican next year... I mean to Democrat, in which case, yeah, you've got some real gridlock problems for a President that has faced gridlock with both Houses of Congress of the same party. So, I think that the election coming up is a big issue, Mike. and that means a lot of uncertainty starting to creep up as we move in towards end of the year and beginning of next year, if not before.
Mike Maroney: So, here in the U.S. we have a lot of political uncertainty. Obviously, we have some geopolitical issues developing over in North Korea. They shot off an ICBM this weekend, ironically on the 4th of July. According to some sources, you know, Trump was interested in just taking out the North Korean leader, until his advisors explained that we could potentially lose 300,000 to 500,000 South Koreans if some sort of military activity started to take place. Where do you see that situation going and do you see that as a potential catalyst for precious metals, or is that just something that is so obscure it really won't affect the price of gold?
Bob Wiedemer: Well, it certainly isn't about obscure. It is a big deal. The North Koreans are making it a big deal. They're doing a missile test, it seems like, every couple of weeks and what's even more incredible is they seem to be making progress. It was a big deal that they had an intermediate range ballistic missile just a couple months back, but now to have an ICBM, that means they're a missile capable of moving more that 4,000 miles. This is pretty impressive track record and a pretty good speed on the program. So, I would say, unfortunately, I see that part of the program continuing. It's certainly not under our control, in what we do or what China does in relation to this certainly could be a catalyst for a major event that causes uncertainty. That certainly doesn't mean a nuclear war or even a war, but it could be an event that causes problems between us and China, that causes trade problems or just heightened uncertainty. I mean... Again, this is a big deal and I don't think it's off the news. I think people are ignoring it to some degree, because there isn't a lot that the administration seems to be doing about it. No question, North Korea is only going to keep moving this and moving farther to get even longer range missiles that could potentially hit San Francisco or Los Angeles--sorry Mike--you know, from North Korea. So, I see this is definitely a continuing problem that at any time could become a catalyst for... something that rattles the markets.
Mike Maroney: So, here in the states, our political situation isn't exactly very stable. The geopolitical situation around the world, not only North Korea, we obviously have Syria, the Middle East, we have some issues as far as Russia is concerned. It seems like 50% of the population is completely against them and the other 49% is more Trump supporters, but what we're also looking at is the economic circumstances that currently exist here in the United States, don't seem to be flashing growth, growth, growth. A matter of fact, it's anemic at best. Now, the Federal Reserve is talking about raising rates and selling bonds. Where is that going to take us?
Bob Wiedemer: Well, where's it going to take us... let's, let's see if they can even pull this off, Mike. This is not easy to do, to sell bonds into this market, without really spooking the stock market or the bond market. So, there's a lot of tough talk out there by the Fed, but I haven't seen much action. Even the actions they're talking about are rather limited, but there's sort of a feeling and they... certainly the Fed leads us on to think they will take big actions, but I don't see how. As you say, we've got a somewhat fragile economic environment and certainly stocks that are fragile and when stocks are often most fragile is when they've had the biggest rallies, right? I mean, you know, stocks and NASDAQ were most fragile in March of 2000, because we had a huge rally before that. So, don't take comfort in a rally. In a sense, you should recognize that a really... a big sized rally that has very little basis in earnings growth or economic growth... that should make you feel concerned. It ultimately will be a concerning issue to the market. It really means there's fragility there and not strength. So, what we're going to have to do is see how the Fed does this, but I don't see how it's going to happen. They do seem committed. What I mean is reducing the balance sheets, selling of bonds, they do seem committed to raising rates, I think it will happen. They'll do more of that, but maybe not as much as they're saying. Again though, they're kind of between a rock and a hard place. Now, they have said and it seems like they should do something to normalize Fed policy, but again economically, market-wise, it's not looking good. Let's be clear, that even if you're looking around your city, wherever you are, Mike, if it's LA or me in D.C., or somebody else in Chicago and you see a lot of cranes up there and so forth and it seems active, maybe you see 100 cranes in the sky, but if that goes to 90 next year, that's a lot of cranes but that means you're losing growth. You could potentially be in a recession. So, recession doesn't mean that all activity stops. It just means they're no longer growing and that is a big deal, but it's also easier to get than you might think, when you don't have much growth, to slip into negative growth and into recession. It makes it very tough for the Fed. I don't see how they're going to pull this off.
Mike Maroney: Now, Bob, based on modern portfolio theory, it's always been important to have an asset that's non-correlated. If you look at what's happened with the price of gold and silver over the last few months, we've had a nice pullback in silver, a matter of fact, we're retesting a yearly low. Gold was all the way up at $1300. It's all the way back down to about $1220 or so. This is typically the type of opportunity that investors that maybe haven't taken a position in precious metals, based on everything that's going on, might want to really take a good look, based on the fact that you really have a good opportunity as far as price.
Bob Wiedemer: Well, you certainly have a good opportunity for diversity, because the standard diversification movement of bonds isn't really working right now, in the sense that both stocks and bonds are going up, which I think should... it certainly means that's not diversification... it should make all investors worried. Gold, of course, makes exactly the best case for diversification in this kind of environment. The fact that it goes down short-term, I can't really even explain why it might be going down for a couple of weeks or three weeks, but I know that the short-term and medium-term fundamentals for gold are good--a lot of uncertainty out there. It's really just a matter of time and I don't think a lot of time, before we see that start to reflect in precious metals. So, yeah, I think it's a good time to diversify, which you should anyway even if gold doesn't go up in the next three months or six months. It's important to diversify. Again, when you've got problems with stocks and bonds being so tightly correlated in a very unusual way historically, I think even more of a case for diversification into precious metals Beit gold or silver, particularly gold.
Mike Maroney: Well, Bob, typically when you talk about gold I think in your talks around the country you say something along the lines that, "Don't wait to buy this type of asset, buy and wait," and I think, we have one of those opportunities. Now, I know you're hard pressed for time today, but I really would like to talk a little bit more next month about the current state of affairs that exist as far as the state's budgets and the overall financial situation and what that could do to cause some major uncertainty in the future.
Bob Wiedemer: Yeah, that's a huge issue. I'd love to address it next month. Sounds great.
Mike Maroney: Well, fantastic Bob. Once Again, great chatting with you today. I look forward to reading your newsletter on a regular basis and obviously, I am so thankful for the work that you've done for our prospects and our clients. Have a great day, Bob!