David Wiedemer - Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown

Contents

Copyright 2011 by David Wiedemer, Robert A. Wiedemer, and Cindy Spitzer. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Wiedemer, David (John David)

Aftershock : protect yourself and profit in the next global financial meltdown / David Wiedemer, Robert A. Wiedemer, Cindy Spitzer. 2nd ed.

p. cm.

Includes bibliographical references and index.

ISBN 978-0-470-91814-2 (cloth); 978-1-118-12750-6 (ebk); 978-1-118-12751-3 (ebk); 978-1-118-12752-0 (ebk)

1. Finance, Personal. 2. Investments. 3. Financial crises. I. Wiedemer, Robert A. II. Spitzer, Cindy S. III. Title.

HG179.W5264 2011

332.024dc22

2011016577

Executive Summary

What Is a Bubble?

An asset value that temporarily booms and eventually busts, based on changing investor psychology, rather than on underlying fundamental economic drivers that are sustainable over time.

What Is a Bubble Economy?

An economy that grows in a virtuous upward spiral of multiple rising bubbles (real estate, stocks, private debt, dollar, and government debt) that interact to drive each other up, and that will inevitably fall in a vicious downward spiral as each falling bubble puts downward pressure on the rest, eventually pulling the whole economy down.

What Is the Bubblequake?

Phase I of the popping of the bubble economy, including the fall of the real estate bubble, private debt bubble, stock market bubble, and discretionary spending bubble.

What Is the Aftershock?

Phase II of the popping of the bubble economy. Just when many people think the worst is over, then comes the Aftershock, when the dollar bubble and the government debt bubble will burst.

Acknowledgments

The authors thank John Silbersack of Trident Media Group and John Wiley & Sons editors David Pugh and Laura Walsh for supporting this book. They also want to thank John R. Douglas for his very special role in making this book a reality.

David Wiedemer

I thank my co-authors Bob and Cindy for being indispensable in the writing of this book. Without them this book would not have been published and even if written, would have been inaccessible for most audiences. I also thank Dr. Rod Stevenson for his long-term support of the foundational work that is the basis for this book, which hopefully will be the second of many. I also thank Ruth Pritchard for her review of the manuscript. And I am especially grateful to my wife, Betsy, and son, Benson, for their ongoing support in what has been an often arduous and trying process.

Robert Wiedemer

I, along with my brother, want to dedicate this book to our father, the original author in the family, who died early this year. We also want to thank our brother Jim for his lifelong support of the ideas behind this book and our mother for inspiring us both with the joy of discovering the world and writing about it. I thank Ron Everett, my business associate, for his enthusiastic support of this project. I also want to thank Michael Lebowitz and Dan Cohen for their special contributions to the writing of this book. Chris Ruddy and Aaron De Hoog have been enormous supporters of Aftershock . Its been great to have such support. I also want to thank early supporters Stan Goldstein, Tim Selby, Sam Stovall, and Phil Gross. I am also grateful to Weldon Rackley, who helped my father to become an author and who did the same for me.

Of course, my gratitude goes to Dave Wiedemer and Cindy Spitzer for being, quite clearly, the best collaborators you could ever have. It was truly a great team effort. Most of all, I thank my wife, Serap, and children, Seline and John, without whose love and support, this book, and a really great life, would not be possible.

Cindy Spitzer

Thank you, David and Bob, for the true privilege of collaborating with two of the most intelligent, kind, and visionary people I know.

My deep appreciation and love go to my wonderful husband, Philip Terbush, my precious children Chelsea, Anya, and Zachary, and my dear friend Cindi Callanan.

I am also filled with a lifetime of gratitude for two fantastic teachers, the kind who, without realizing it at the time, change the course of your life: Christine Gronkowski, who at SUNY Purchase College in 1985 forced me to discover something in myself that I couldnt see on my own; and to my phenomenally gifted UMCP College of Journalism mentor, two-time Pulitzer Prize winner Jon Franklin, whom I havent seen in more than two decades, yet whose lessons I still learn from daily.

Preface to the Second Edition of Aftershock

Judging from the beginning-of-the-year media reports in 2011, as well as the forecasts of many investment professionals, it appears we have passed the financial crisis caused by the popping of the bubble economy, and there will be no Aftershock.

That would be welcome and comfortable newsif only it were true.

Instead, what happened in early 2011 is just as we predicted. As the four interacting bubbles (stocks, housing, private credit, and consumer spending) pop, they will put enormous pressure on the two remainingand much more fundamentalbubbles in our bubble economy: the government debt and dollar bubbles.

Thats because there has been an enormous incentive to further inflate the government debt and dollar bubbles in an effort to stall the popping of the other bubbles. And that is exactly what the government has done in two ways. First, it has increased its annual deficit by almost 550 percent from $250 billion in 2007 to $1.6 trillion today, pumping up the government debt bubble. And even more stunningly, it has increased the U.S. money supply by an unthinkable 200 percent (from $800 billion in 2008 to more than $2.4 trillion today), pumping up the dollar bubble.