Mike Maroney Interviews Aftershock Investor co-author Bob Wiedemer - August 2017
Mike Maroney: This is Mike Maroney and I'm here today with Bob Wiedemer. The author of Bubble Economy, Aftershock, and Aftershock Investor. Bob is on all of the major financial news stations typically giving his forecasts as far as what sits out on the horizon. Today, we're going to talk a little bit about this special index that Bob has created for Monex, it's the Uncertainty Index. Needless to say, there are a lot of different components to this Uncertainty Index. What we do is when the index reaches a high, then normally the need for precious metals in individual’s portfolios has a tendency to increase. I think, when we look at the events that have taken place over the last six months, the political situation in Washington, the geopolitical situation around the world, the overall circumstances as far as sovereign debt is concerned, the problems with pensions throughout the United States. There are a lot of potential black swans that sit out on the horizon, but let's talk to Bob a little bit about what he thinks.
Bob, I'd like to start off with something that I kind of caught this weekend on one of the news stations. They were interviewing Condoleezza Rice and she was talking about how the American population doesn't realize how major of an event this North Korean situation is. Can you, kind of, fill us in on that a little bit please?
Bob Wiedemer: Well, I agree with her. I'm not an alarmist on the foreign policy issues and I don't think she really is either, but I have to agree this is a big change. Let's take a look back at it Mike. When's the last time you remember a country getting both nuclear bomb and what's now an intercontinental ballistic missile? That was a long time ago. You're talking basically, India, Pakistan, and even their... the missiles are not necessarily at this level, probably now are, but not at the time when they got the nuclear bomb. These countries are certainly much more antagonistic to the U.S. than India and Pakistan. North Korean has certainly... if we called... if George Bush called them the axis of evil, they've called us even worse. In fact, they said the sole reason that they built nuclear bombs and missiles is to protect themselves against the U.S. So, they're very antagonistic to us. This is a huge change. We've really never had anything like this happen in decades.
Mike Maroney: You know, it’s interesting, because someone came out with some additional news on Monday that basically stated that one of the things that their working on is the actual air system that allows submarines to shoot out nuclear weapons--where it pops it up with air pressure, and then as soon as it breaches the water line, then the power of the missile kicks in. Needless to say, if they have submarines sitting off the coast of California, that would really cause some anxiety. There's no doubt about that. So, this in itself potentially could be an event, even if we don't see any major military activity where it could move the price of not only the stock market, but also the precious metals market.
Bob Wiedemer: I think so and the North Korea's leader tends to be somebody who makes very bold statements and threatening statements with an ICBM and a nuclear bomb that's a big combination. Makes a big difference, especially since now it looks like their missiles, probably within a couple of years will be able to hit Washington, D.C., where I am. Right now, it's just you, Mike, that's in trouble, but pretty soon it's going to be the whole country.
Mike Maroney: Just another feature to living here in California. Now, Bob, we've seen a precipitous drop in the value of the U.S. dollar. It's tracked down from 103.5 all the way to 92.70, last week. Now, the Trump supporters are all basically saying it's because of the Democrats and the Democratic supporters are all saying it's because of Trump. Do you see a specific reason why this is happening and do you feel it could potentially continue?
Bob Wiedemer: Yeah, I think it will continue. You've got an issue here that, well as they said that Trump is bringing on people who want to let Trump be Trump. I don't think that's going to change. I don't think it can change. He's not somebody who works together well with people and I've said that before. He's been in a CEO role and he likes that. He's not any more. He's in a Presidential role and he really needs to be heavily a salesman. He's not, but would like to be. He just likes to say what is on his mind and that was part of the attraction. I don't think that's changed, but I think it's going to be very difficult for Congress and the fact that they've gotten absolutely nothing done, virtually, in his first six months. Certainly, it's not just Trump, but he's part of the issue as well and why nothing has happened on any of his agenda and I think that's going to continue for a while.
Mike Maroney: Now, it's been interesting, because typically if you see a move of that magnitude as far as the dollar is concerned, it's something that maybe people will be talking about, but it's almost been somewhat of a covert activity as far as the selloff. Where suddenly last week, when we dipped below a multi-year lows people started taking about it. Now, we have, you know, the Fed in September. We have the debt ceiling coming up and if they can't get anything done and they start raising rates even though it sounds like it might be counter intuitive, that could really start to affect the dollar in a somewhat negative fashion.
Bob Wiedemer: Well, I think there's two aspects to that. One you and I have talked about is that nobody is saying much about the dollar. It is moving negatively, but I think it's a bit of a coiled spring. People are ignoring it, because the markets been good. Everything is fine, but it's already down a lot and it could be down. I think will be down even more and I think it will more importantly pop on people's TV or view finder. They're going to see the dollar as being a much bigger issue. Yes, I do think the Fed will raise rates. Still, I think the dollar is despite that probably going to continue down for a while and I think the Fed is going to raise rates. I mean, let's face it the economy and the job scene looks pretty good to them. So, I think despite the fact it may seem counter intuitive to them, I think they're going to do it. When you talk about the debt ceiling, I think that's where the whole Trump - Congress issue becomes a big deal. In fact, I'm going to be talking to one of my, actually my friend from High School, who is a Congresswoman now. I'm going to be talking to her tomorrow and a part of what it's going to be about is how much of a problem are we going to be in on raising this debt ceiling. I have to admit, I'm not very comfortable with what I've recently seen in terms of Congress and the President getting together and just Congress getting together. So, we'll see. I think that has to be a real issue. Do I think they won't raise the debt ceiling in the end? In the end, they probably will, but it could be a scary situation for a while.
Mike Maroney: So, we have the inevitable increase in interest rates. Potentially, we have quantitative tightening beginning in September. We have the stock market continuing to make new all-time highs. So, we're not seeing much of what we typically see in that sector rotation, because so much money has been made in the stock market and I think until we get a major correction, we probably won't see the flow into the precious metals markets, but do you look at the stock market now and think maybe investors are looking at that as the safe haven?
Bob Wiedemer: Yes, interestingly though, if you look at the numbers, it's the smart investors who are going into the market as a safe haven. They can move out pretty quick. What I mean is individual investors are not moving as much into the market. They're a little bit scared of this... the high prices and they should be and I think that's one reason gold has actually held up fairly well, even during this rallying. When it normally shouldn't do as well. Gold has held up reasonably well and I think that's probably because of individual support, individual investors support is still there. Really what's supporting the stock market is the big investors and, you know, that can turn on a dime, but I think the precious metals have a lot of potential now, because more individuals could move out of the market and perhaps into gold. Partly, certainly is, I think it's a safer haven than bonds. Secondly, I think that dollar falls are going to hit their radar and start to bother them, especially if the stock market starts falling as well.
Mike Maroney: Well, there was an interesting statistic in Barron's this weekend. It talked about the valuation of the stock market in comparison to the total U.S. GDP. We had hit an all-time high in 2000 of 167% and we're currently upwards of 145%, I think we're at 146%, but back in 2009, we were down in the 50's. So, we've basically, tripled as far as valuation is concerned. So, suddenly, the FED does start to tighten. We see a little bit of quantitative tightening. Obviously, that takes a little bit of fuel away from the fire. The political situation doesn't seem to support all of these new policies that are business friendly and we see some sort of correction. It could literally cause that snowball effect and the next thing you know DOW could be down 10%, 20%.
Bob Wiedemer: Yeah, as you said, all those underlying factors are what's causing that. Probably, the biggest underlying factor is everybody is so happy and giddy right now. Kind of reminds you of January of 2000, February of 2000, just before March, nobody thinks there's any problem, but there's some fear out there. The individual investor is showing that they're a little worried about these valuations. It doesn't take much to kick it off. Could it be a North Korea issue? Yeah. Could it be the debt ceiling? Could it just be this bull run has run a little too long and it just starts to fall? Then maybe we don't get as many people diving into buying. We get a few more people taking profits. Then you got a real problem and yeah then the market drops 10%, 20% or more.
Mike Maroney: Yeah, the black swan you're looking at is typically not the one that bites. It's typically one that you didn't even consider. But, with all the things that are out there and all the different variables and catalysts that exist that could cause some major issues as far as the stock market is concerned, it certainly would make sense to look at the precious metals market as a way to hedge your position, especially even if you're just using it as a non-correlated asset. Obviously, you know, you talked about in your book, After Shock, I want my bubble back and you went back and talked a little bit just a second ago about the 2000 market and what happened. Do you see a lot of the same parallels today and then inevitably that kicked off a major 9-year bull market in precious metals?
Bob Wiedemer: It certainly did. Let's be clear. Even this year, precious metals are still doing pretty well and I think that's important to emphasize. So, it's not just the longer-term bull market, but even short-term we've done well. Yes, to answer your question, Mike. Absolutely, I see the same things happening today as in 2000, much worse though, a lot higher valuation, a lot more stretched. Of course, we've printed a massive amount of money to get to here. Borrowed a massive amount of money to get here. That's probably the scariest thing of all, is that none of this stuff is coming from true economic growth that isn't really stimulus related.
Mike Maroney: Yeah, it’s interesting, because we haven't even spoken today about the sovereign debt issues. When you look at the European situation, basically, the European Central Bank has accepted all of those bad loans or sitting on debt that's basically deteriorating very quickly. We have the problems here in the United States and obviously that situation will inevitably come home to roost. Well, Bob, it's been really great talking with you. Obviously, we're going to want to hear what your friend has to say, as far as, what she sees in the beltway there in Washington, D.C., where everything seems to be happening, but nothing seems to be getting done.
Hopefully, you have a great week and look forward to talking to you next month. Hopefully, our prospects and customers understand that Bob does put out a very special report each month. If you're interested in receiving one, absolutely free, give us a call. Bob, great chatting with you.
Bob Wiedemer: Good speaking with you too, Mike. Take care.