Political Promises and Wall Street Tripe

Ron Smith: Addison Wiggin is with us, Executive Publisher of Agora Publishing.

Addison Wiggin: Agora Financial, yes.

Mr. Smith: Oh, Agora Financial, which is Baltimore-based, and publishes The Daily Reckoning, which is a newsletter that I subscribe to; it’s free, so I like it.

Mr. Wiggin: I hope that’s not the only reason you like it.

Mr. Smith: And co-author with Bill Bonner of how many books?

Mr. Wiggin: Two books — Financial Reckoning Day and Empire of Debt.

Mr. Smith:Empire of Debt. And I asked you when you came in, whether there was a resurgence of interest in these books because they were, shall we say, on the trail of what was going on relatively early. And you said reviewers are now reviewing Empire of Debt, which has been out how long?

Mr. Wiggin: Well, we first published it in 2005, so it was even before the housing bubble took over the news, housing prices were still going up, and in the book we were forecasting that that was the most likely spot that the cracks —

Mr. Smith: The weakness.

Mr. Wiggin: Yeah, the weakness in the economy would show. But when a bubble’s rising most people don’t want to hear any kind of bad news.

Mr. Smith: Of course not.

Mr. Wiggin: So even though we’re identifying trends that were in the economy and the book made it onto the New York Times Bestseller List, we didn’t get a lot reviewers. We didn’t get a lot of mainstream attention. In 2011 a lot of people have been reviewing the book and while we put out an updated edition in 2009, most of the reviews I’ve seen are of the 2005 edition. What I liken it too is people buy the book and they’re like, “this is what I want to read”; and they put in their bed stand, and it says there for five years, six years. Events and circumstances change and they’re like, “maybe I should read that one now.”

Mr. Smith: As we all know the difficulty is timing. You can be totally right on fundamentals, but what I’ve learned over a couple decades is that the power of the status quo is quite immense, and that will keep the plates spinning on those sticks for a long, long time.

Mr. Wiggin: Right. And what we’ve seen too repeatedly is the news cycle generates opinions. People change the way that they view the world to accommodate what’s happening in the news. And right now we’re in a cycle where a lot of people are worried about the economy; they’re worried about the United States stature in the world.

Mr. Smith: It’s a chicken and egg thing. Our markets depend on confidence. But confidence depends on circumstances, so depending on the day, you can either accelerate tremendously or you can spiral downward. Very rapidly and it’s like a school of fish turning.

Mr. Wiggin: Right. And we got the first big wave of selloffs in 2008, which was a big shock. There were a lot of things happening on Wall Street, and in the economy, that came as a surprise to people: the questionable accounting that was going on in a lot of Wall Street banks, and the “innovations” and new instruments that were being marketed as ways for retirees to gain income turned out to be just smoke and mirrors…

Mr. Smith: And the thing is, Addison, you can’t really restore, what was driving the global economy for a couple of decades, which is the American consumer’s willingness to assume tremendous debt.

Addison Wiggin is with us of Agora Financial Publishing, which is a Baltimore firm. One of their products is The Daily Reckoning newsletter, which is terrific if you have a certain mindset. Most Daily Reckoning — what would you call them “reckoners” — is that what you call them?

Mr. Wiggin: Yeah, reckoners, daily reckoners.

Mr. Smith: Most reckoners are, shall we say, skeptics, right?

Mr. Wiggin: That’s a fair assumption.

Mr. Smith: Realists, not Pollyanna-ish.

Mr. Wiggin: No, they have experience with the real world, so they’re looking for ways to manage their own money primarily, but they’re skeptical of political promises and even the kind of tripe that we get from Wall Street from time-to-time.

Mr. Smith: But they tend to be investors, and therefore, with the market wildly gyrating they’ve indicated a certain amount of concern if not panic, right?

Mr. Wiggin: Yeah, absolutely. In fact, we recently convened a teleconference among all our editors. Our editors are scattered throughout the country and even oversees, and we convened them on the phone and did a teleconference because our readers are writing in a panic. They’re wondering with the market swings — up 500 one day, down 400 the next — what’s going on. We were trying to get a litmus test of what our editors were thinking, but also we have the sense of that kind of volatility leading into September or October, which are historically not good times for the market especially, when the economy looks like it’s turning back around down.

We wanted to get a sense of what people were doing to prepare their own portfolios because that type of volatility makes people throw their hands up in the year, and then they get nervous and the panic button is hit much easier. And that’s what we’re expecting going into September and October, is we’re probably going to have a much tougher market than we saw even coming into August, which is important because if you compare the three weeks from July 21st of 2011 to today, with 2008, which was the last real tough bear market we saw on Wall Street, the market dropped faster in the past three weeks than it did in those months that that caused the financial panic in 2008.

Mr. Smith: And what’s disturbing about that is that every effort made by the Fed and by the government acting in concert has been to bolster stock market valuations.

Mr. Wiggin: Absolutely. We actually expected the market to begin going down at the end of June when the second quantitative easing program ended. When that came to an end on June 30th, we expected the market to begin falling. It actually peaked on the week before, but because of the sideshow that was going on over the debt ceiling debate; the real selling didn’t start until the third week of July.

Mr. Smith: For years, you folks at The Daily Reckoning have been recommending buying gold when it dips and selling stocks when they rally, and of course you’ve had the satisfaction of riding gold all the way up. But do you get nervous about gold being a bubble itself?

Mr. Wiggin: I do get nervous, but I do think we’re in the beginning of the cycle. Until the deficit situation and the debt that became the source of the political —

Mr. Smith: The Empire of Debt.

Mr. Wiggin: Exactly, the political theater we saw over the last couple weeks in Washington. Until that’s resolved, gold is going to be a flight to safety trade. It’s a bet against the system. If people are nervous about the dollar, if they’re nervous about the political situation, if they’re nervous about the stock market, they buy gold. And we’ve seen it peak over $1,800 in the last week.

Mr. Smith: Another thing, it would seem to me, is that if you park a lot of money in T-bills, you’re basically guaranteeing yourself a real loss. So maybe it’s a hedge against that as well.

Mr. Wiggin: Well, it is a hedge, but an interesting thing happened in 2008, and we’re seeing it again, both the dollar index and Treasuries have rallied.

Mr. Smith: Because of relative safety.

Mr. Wiggin: Right.

Mr. Smith: Relative safety. Recently, I mentioned that it was the 40th anniversary of President Nixon removing our currency from the gold standard and basically turning the world currencies into all fiat currencies. That is, in other words, ones that exist only by the faith in the issuers, and this is something near and dear to your heart, right?

Mr. Wiggin: Absolutely. That’s been the core of much of the work in The Daily Reckoning, and I wrote a book called The Demise of the Dollar, which looks at the launch of what we call the great dollar standard era because the dollar serves as the world reserve currency. Most central banks, most big corporations trade in dollars, and most people around the world use it to preserve their wealth. But in 1971, as you point out, any last link between it and gold was taken apart.

Mr. Smith: And the abolition of that link led to us being able to live much higher on the hog than we actually could afford, which led to this trouble.

Mr. Wiggin: Right, and if you look at the history of money in the world, 40 years is not that long. And one of our contributors, Dr. Mark Farber, is pretty famous for saying the dollar is going to return to its intrinsic value, which is zero, because it’s a piece of paper. It doesn’t have any value and that’s where we’re going over time.

To be continued…

A WBAL interview with Addison Wiggin,
for The Daily Reckoning