Wiedemer: Washington Will Avoid 'Catastrophe'

Sunday, 06 Oct 2013 05:33 PM

By Dan Weil and Kathleen Walter

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Washington won't let the budget/debt ceiling conflict turn into a catastrophe, says Robert Wiedemer, co-author of "Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown."

"We will get through this, but what's interesting is how much we might push it, and there is some long-term damage from this," he told Newsmax TV in an exclusive interview. "We've had problems before, a fiscal crisis before. We're having a budget crisis now."

The Federal Reserve is printing $85 billion a month with its bond purchases, "and we're borrowing massive amounts," said Wiedemer, a regular contributor to Newsmax's Financial Intelligence Report.

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But as long as the government doesn't default on its debt and the shutdown is ended within a few weeks, the impact will be small, Wiedemer says.

The economy remains weak, he says: "I mean, we're maybe growing 2 percent a year right now. That isn't really all that good. We haven't bounced back all that much."

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The economy grew at a 2.5 percent annual rate in the second quarter.

It's not a real economic recovery, Wiedemer says. "It's very much financed by government borrowing and government money printing," he said. "It's very much a government-created recovery."

Eventually all the Federal Reserve's easing will produce inflation, Wiedemer says. "How do you do this year after year after year and not get inflation? It will happen."

The unemployment rate fell to a 4 ½-year low of 7.3 percent in August. But that merely stems from people dropping out of the work force, Wiedemer says. "So unemployment rates are not showing you exactly what's going on in the employment situation."

Washington's budget discord will help keep the Fed from tapering its quantitative easing (QE) soon, Wiedemer says. "They're pretty scared of tapering anyway, and they make no indication they're going to change any time real soon."

As for the likely selection of Janet Yellen as the next Fed chairman, "what I can say is she's Miss Money Printer," Wiedemer said. "That means that we're more likely not to see tapering next year."

As for stocks, they rallied only briefly after the Fed's decision Sept. 18 to refrain from curbing its QE, Wiedemer notes. "Obviously, the stock market seems to be losing a bit of its old animal spirits," he said.

Once the budget crisis is resolved, the Dow Jones could rise to 16,000 on a relief rally, Wiedemer says. The Dow closed at about 15,073 Friday.

"But what's happened in the last couple of weeks worries me a little bit, so I'll be on the lookout to see how much of a relief rally we get," he said. The Dow has lost 3.9 percent since Sept. 18.

Editor’s Note: Will This Video Get Obama Fired? See the Evidence.

"Remember, earnings growth is way behind stock price growth," Wiedemer said. "Certainly,
revenue growth, GDP growth are behind stock-price growth. At some point, it's going to catch up and, even further down the road, this market will fear money printing, not cheer it."

About: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $300 million under management. He is a regular contributor to the Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles. Discover more about his book, "Aftershock," by Clicking Here Now.

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