Dump stocks and bonds? Economist authors of 'Aftershock' see rough road ahead
Robert Wiedemer: "The single most important advice we can offer is to move out of stocks and bonds over the next year."
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The economy is not merely bouncing between up and down business cycles, but is instead headed to entirely new territory, according to authors who accurately predicted the financial crisis of 2008.
In the second edition of "Aftershock," Robert Wiedemer, David Wiedemer and Cindy Spitzer say the first financial crisis was just a sneak preview of a global economic meltdown.
"The popping of the stock bubble, the private credit bubble and the consumer spending and housing bubble have put pressure on government debt and the dollar," said co-author Robert Wiedemer. "Our central message is it's not over yet.
"The S&P downgrade is the lightning bolt before the storm."
While the exact timing of when the dollar and government debt bubbles will pop is hard to nail down, the authors say we will feel headwinds as early as 2012 but the final blow will more likely hit between 2014 and 2015.
Their key advice in "Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown," is for readers to purge their minds of the mistaken idea that if they wait long enough their stocks and real estate values will return.
The authors strongly suggest cashing out of stocks and bonds and staying out until the interconnected U.S. dollar and government debt bubbles fully pop.
Where should investors put their money?
The authors suggest gold and other precious metals, as well as foreign currencies such as the Swiss franc, the Canadian dollar and the Japanese yen.
"The single most important advice we can offer is to move out of stocks and bonds over the next year," Mr. Wiedemer said.
The authors also believe that real estate prices have not bottomed out yet.
"As inflation and interest rates go up and eventually the dollar bubble falls, the overall economy will sink and unemployment will rise, pushing real estate prices even lower -- much lower than people can imagine today," they wrote. "As much as rising interest rates will harm the stock market, they will be even more toxic to the real estate market because high-rate mortgages and tough credit requirements will put home buying out of reach for most Americans."
From their point of view, there will be plenty of real estate bargains in the future. Now is the time to rent rather than buy.
David Wiedemer is chief economist for Absolute Investment Management in Bethesda, Md., and holds a doctorate in economics from the University of Wisconsin-Madison. His younger brother, Robert Wiedemer, is a managing director of Absolute Investment Management. Ms. Spitzer is president of Aftershock Consultants, a financial consulting firm based in Baltimore.
These maverick economists have no qualms about offering no-nonsense advice for people experiencing extraordinary financial pressure: If homeowners are facing foreclosure, cannot make their house payments or owe more on their mortgages than the house is worth, they should consider walking away. There is no sense throwing good money after bad, the authors say.
The same advice goes for credit cards and other forms of unsecured debt. Cut back if you can and make as large a monthly payment as you can to get out of debt, they write. But if your credit card debt is high relative to your income and assets, they say you should consider not paying at all.
"When the bubbles pop, many credit card companies will go out of business ...," the authors write. "Not paying your credit card debts will significantly harm your credit score, but after all the bubbles pop, credit scores are going to be pretty lousy all around, and few people will have the need for a high credit score. ... Even the U.S. federal government will have a very poor credit score!"
One loan the authors agree consumers should focus on keeping up to date is a car loan because if your car is repossessed, you won't be able to get a loan for a new one.
First Published August 17, 2011 12:00 am