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                                                                          THE KILLER WAVE

                                         

     

 

 

 

 

 

 

Bert Dohmen

President

Dohmen Capital Inc.

 

 

 

 

June 25, 2010, by Bert Dohmen

For the stock market, May was the worst May since 1940. That’s 70 years ago and therefore extremely important. But all the bulls totally ignore the significance. They talk about “pullbacks,” “typical bull market behavior,” “you have to buy when blood is in the streets,” etc. They go back 10 to 30 years for comparisons, not realizing that the current situation is very similar to the 1930s. How can we know that? Because the speculative bubble that preceded this was much larger than the one which burst in 1929.

The rally from 2009 to 2010 is similar to the rally from late 1929 to 1930. If history rhymes, then the killer wave in the stock market started in late April this year. The March 2009 low would eventually be broken, and then the floodgates would open.

The entire rally from February to April had been an engineered trap which our indicators detected. But it was a trying time for us and especially for some of our subscribers who thought we were wrong in our bearishness at the time.

In May, the entire eight-month rise from September was wiped out in eight short trading days! That’s what happens when a trap is sprung.

All the bulls talk about fundamentals, such as earnings, the gadgets a company makes, the good rebound in sales of some firms early this year. They don’t realize that this was all part of the bear market bounce. But now the tide has turned. All the good numbers will be followed by huge disappointments. The problem: no credit availability. Therefore, no job creation.

The bulls will find out that the selling is being done because of a new credit crisis, which is much more important than economic or company-specific fundamentals. Just look at companies which have virtually no debt and are doing great business, such as Cisco, MMM, Microsoft, etc.  These stocks have already lost around 20% or more of their value in just a few weeks. Their charts look awful. Fundamentals will not save you.

“… U.S. Treasury bonds will be the place to park your money. Deflation is once again in full swing. Interest rates on high grade debt will decline, while low grade, such as junk debt, will soar. Junk bonds and munis will be disasters.    CONCLUSION: Don’t be lulled into complacency by the bullish talk on Wall Street. They recited the same fairy tales of “bargain opportunities” in 2007-2008. And you know how that turned out. To protect yourself, you must act immediately. We guided investors through the global crisis of 2008 with great profits. We aim to do it again.


SPECIAL BULLETIN: NEAR TERM: CORRECTION TIME!

The market plunged today, with the DJI losing about 300 points at the low before staging a mild bounce, closing with a loss of 225.               

EXCERPT from the MAY 4, 2010 WELLINGTON LETTER

The courage of the bulls will now be challenged. Today, many of the bulls fled the scene. Of course, the commentators always have to find reasons for today’s plunge, such as the oil spill, the Euro-zone problems, China tightening monetary policy, the Goldman Sachs problem, etc. But all these reasons existed a few days ago and the market didn’t decline.

The real reason is the major resistance levels which were reached. For us it’s hard to believe it took so long to get there. In mid-October Jim Cramer featured our chart of the S&P 500. We said that the 1100-1120 area would be tough resistance for the market. However, if it were eventually broken, then the next target would be 1200-1220, which would be like a brick wall. I never thought that it would take 6.5 months to get there. The rally high so far was on April 26 with the S&P 500 reaching 1219.80. That’s right in our target area. Technical analysis gave us the road map.

As we wrote in our SMARTE TRADER a few days ago:   This coincides with a whole litany of technical indicators which are calling for a sharp market correction. This is not the kind of correction during which you want to stay invested. Market turning points are usually very volatile. This means that there are a number of fake-out moves before the new trend gets going. During that time, the casual investors usually get very frustrated.  More...

 


WILL STOCKS BECOME AN INFLATION HEDGE?

 

(By Bert Dohmen , April 9, 2010)....There is huge liquidity on the sidelines and in the banks which has nowhere to go. The bond market is much bigger than the stock market. Over the past 13 months, most investor money has gone into bonds. It has been a safe haven, but that safety is now being questioned as interest rates rise, fearing an ever increasing flood of Treasury securities. Will stocks become a good alternative for bonds? We have had a 13 month stock market rally. The valuation levels are now too high for comfort based on traditional valuation levels. However, the economy may improve somewhat until the November election because the current leadership will do everything in its power to win. The big question:  is much of that economic improvement already priced into stocks?

So, if the stock market is to continue to avoid the resumption of the secular bear market until November, there has to be another factor to make stocks attractive.

Could it be that stocks will become an inflation hedges, at least for awhile? This goes against popular Wall Street wisdom. But it happened from 1978 to 1980. The Fed did not want to economy to relapse into the disastrous recession which ended in 1975. The Fed chairman, G. William Miller, declared the Fed would not fight inflation pressures with tight money. For us, that was the green light for stocks although valuation levels were already high. More...


BERT DOHMEN'S MARKET CALLS 2007/2010

 

 

 


UNSURPASSED PERFORMANCE!

 

Bert Dohmen Market Calls: 2008-2009

 

 

                 Bert Dohmen Market Calls: 2007-2008

 

These signals are incredible, especially considering that the DOW JONES INDUSTRIALS AVERAGE plunged 35% during the same time. Here you can clearly see the superiority of our services.

 


PROFIT FROM THE MELTDOWN NOW!

 

The world's financial system is shaking. Some of the largest financial institutions are either bankrupt, insolvent, need huge bailout by the government, or on the way of going out of existence. There was one analyst, Bert Dohmen, who warned at the beginning of 2008, that starting in September, 08 the global financial markets would teeter on the brink. On 2007, he wrote a book, entitled PRELUDE TO MELTDOWN, which predicted the current crisis. At the time, Washington regulators were oblivious to the problems which Bert Dohmen predicted would engulf the global financial system. 

 Read our views below:

 


How can you make money in Bull and Bear markets?

Whether the markets SOAR or   CRASH, you can prosper with

Dohmen Capital Research!

Dohmen Capital Research group was founded in 1977 by Bert Dohmen as an economic and investment research firm. Our mission has been to provide serious investors and traders with the most profitable investment and economic advice, available anywhere, via subscription services. The advice will always be unbiased and will not have any conflicts of interest. We don’t hesitate to give sell advice, or to sell short, when our work calls for it.

The analysis is designed to help you make the right choices and decisions on how to invest your money and prosper over both the short and long-term. Serious investors will find a wealth of profit-making investment and economic guidance. Bert Dohmen's long time experience in the markets will be working for you.

The firm’s services have achieved the highest acclaim. Dohmen Capital Research offers the most highly respected and sought-after advisory services for investors worldwide. The first publication was THE WELLINGTON LETTER, which has achieved numerous awards of distinction. It quickly made its mark on Wall Street with often totally contrarian forecasts, such as the 20% prime rate in 1980, the roaring bull market in gold and silver, followed by the 20 year bear market, and a decline in U.S. T-bonds of over 40% in the late 1970’s among others.

Learn more about Bert Dohmen and Dohmen Capital Research

 


ARTICLES OF INTEREST

IN 2010: DON’T CONFUSE MINI-BUBBLES WITH REALITY

(article by BERT DOHMEN, EDITOR of Bert Dohmen’s WELLINGTON LETTER  (12-28-09)

The multi-trillion dollar infusion of credit and guarantees by the Treasury and the Federal Reserve in 2009 haven’t anything to produce an economic recovery. However, they have taken the risk out of speculations. Private debt has been transferred from financial institutions to the Fed, although for many decades the Fed was allowed to buy only AAA securities. Now they are being everything but the proverbial “kitchen sink.”

The efforts of the Fed have been geared to preventing a recurrence of the financial crisis. It’s been a very expensive effort. However, it has flooded the banking system with huge liquidity. That has produced one of the steepest yield curves in history, i.e. short term interest rates are far below long term rates. The Fed and government thought all this liquidity would be used for lending. But banks find it much safer and easier to borrow money at 0.25% and then buy US Treasuries yielding 3.5% or more. No loan exposure, no need to look at financial statements or take the risk of being accused of “discriminatory lending.” More...


GOLD: NEW HIGHS AHEAD?

September 22, 2009.............In late May we advised to sell positions in the gold sector because of the typical seasonal weakness during the summer. We also said that we wanted to get back in during September. Gold declined from 994 to a low of 907 during the summer. In August we thought that there might be one more dip to the 900 level, but it didn't happen.   Well, it is September and the chart of gold has just turned very positive. Recently gold had the highest closing price this year. The seasonally strong period for gold has now started. The rally should go at least into February with a possible correction in December. But the ride in gold is always very volatile. It's like riding a bucking bronco. The convictions of the bulls are always severely tested. More...

 


IS IT STILL A BEAR MARKET RALLY OR NEW BULL MARKET ?

August 24, 2009

The big question on the minds of investors is whether this is a new bull market, or merely a bear market rally. We don't care much for these labels, because their meaning has to be defined. So far, all the evidence suggests it’s a rally in a major bear market. However, the popular opinion amongst analysts is that this is a new bull market. Although we issued a buy signal at the exact bottom in early March, and then called the correction going into July (now mostly forgotten), we chose not to participate thereafter. You know the reason: straight from our charts and indicators. They showed that there was strong "distribution" lately. This means the pros have been selling to the masses, i.e. mutual fund managers. In our view, it's better to miss a boat than to catch one that sinks. Over the years we have found that our indicators are more reliable than our emotions, although they are not perfect. To be successful, you have to have a disciplined approach. More...

Expect:  Big Rebound in GDP to be followed by "Double-dip"

By Bert Dohmen, August 4, 2009

Last month, the headline of our WELLINGTON LETTER was:   "Prediction: Strong GDP Growth in late 2009 will be a Bull Trap!"Now we are seeing others talking about the "great recovery", the "end of the recession," etc. On March 6, the exact day of the bear market bottom, we gave a "buy" signal, stating that the rally would be more powerful than even the bulls would believe. There will be pullbacks and corrections, but over the next six months the bulls will do better than the bears.                                                                                                  Why do we think that GDP growth will be very strong late this year? The comparisons will be against one year ago when the global economies were plunging off of the cliff. Those are easy numbers to beat.That presents some good opportunities. As traders and active investors, we must take it one step at a time. The important part for now is that much stronger GDP growth numbers later this year will fuel bullish sentiment and the mirage that everything is just wonderful. The only question, how much of this is already built into today's stock prices? More...


STOCK MARKET: BEAR MARKET RALLY PHASE II

August 4, 2009...... We hear from analysts that the credit markets have eased, that banks have been able to raise capital.  They tell us about the strong rallies in junk bonds and more risky investments, which are all supposed to harbingers of a recovery and a new bull market. I disagree. Bear market rallies occur in everything after a record shattering plunge. The current global crisis was stopped just hours before a complete meltdown last year. Trillions of dollars were injected by the central banks, either by way of guarantees or computer-generated credit. Armageddon was avoided. But that doesn’t necessarily make for a recovery.  More...  


THE "REFLATION TRADE" HAS REPLACED THE "ARMAGEDDON TRADE"

 June 25, 2006......   The great fear last year was unstoppable "deflation" and a financial collapse. The "Armageddon Trade" really worked well in 2008. This involved trading the "end of the world" scenario. It included "gold, guns, and Treasuries." It was a flight to safety, expecting the worst. According to authorities, including the Bank of England, ECB, and the IMF, the world got within hours of a financial meltdown last October, just as predicted in our book of late 2007, PRELUDE TO MELTDOWN.  The world was saved, with injections of several trillion dollars of liquidity and governmental guarantees in the U. S. and Europe. The world has never seen central bank injections of this size. The money is created out of thin air. I call it "cyber money." It's so much more efficient than in the old days, when they actually had to print money. More...

MUSTARD SEEDS or TERMINAL VELOCITY?

June 9, 2009...  In the media, virtually every economic statistic released is called a "mustard seed" or a "green shoot." When the job loss goes to 540,000 from the prior 650,000, they cheer just because the rate of job losses is decelerating. They don't even point out that the statistics are greatly manipulated to make them look better. We actually have over 23 million people unemployed right now, which includes the "discouraged" and part time workers. Be year end, we could be closer to 30 million. The "green shoots" refer to the statistics showing a lower rate of acceleration. That's why you often hear the words "second derivative" which comes from higher math and is the expression for "acceleration." More...


June 8, 2009... BEAR MARKET RALLY, NOT A NEW BULL MARKET

The stock market has had an eye-catching rally. Everyone is talking about the S&P 500 gaining 40% since the March 6 low. But we have to put that into perspective. The index dropped 46% from the October 2007 top to the March low. Just to get back to the level of October 2007, it needs almost a 100% gain. So, it is quite short of that. In fact, I believe it will take a decade or much longer to get back to the 2007 top.. During the Great Depression, the first phase of the bear market ended in 1930. Then the DJI rallied 51%. But after that, the DJI plunged another 64% into the 1932 low. More...

June 7, 2009....  PROFITS OR ACCOUNTING MANEUVERS?

Banks have been reporting surprisingly good earnings. Just a few months ago it appeared that the entire banking system would shut down, or be nationalized. And now they report billions of dollars of profits. What's going on? Well, first of all, the "mark to market" rule was changed as we reported two months ago. That gives banks breathing room. It was necessary. But now banks are taking advantage of it and reducing "loan loss reserves." In other words, if a bank sets aside $5 billion for losses of assets in its portfolio, now it may decide it only needs $2 billion. Therefore, it reduces the loss reserves by $3 billion and puts it into earnings. And thus, suddenly there is a $3 billion profit. More...


SHOCK AND AWE from WASHINGTON

March 24, 2009.....

Thomas Jefferson said in 1802: Banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. 

TRILLIONS MORE FROM THE FED AND TREASURY:  Last week we got "shock and awe" from the two-day Fed meeting and the subsequent announcement. Interest rate goals remained at 0-0.25%, but it was the rest of the announcement that propelled the markets. The big item: The Fed basically decided to inject another huge $1.25 trillion into the financial system. This is in addition to the $1.8 trillion it has already put in. More...

THE BEST BEAR MARKET RALLY YET:  Technically the March bottom looks good so far for a rally. We caught it right on target (in fact, to the hour) on late Monday with Friday's (March 6) message, not after the fact. The big rally started the next morning. How is that for catching the bottom?

Hopes are that the economy will now recover because of the latest actions by the government. My view is that it's like donning a raincoat in a storm and hoping it will make the storm end. It may keep you somewhat dry for a while, but it won't stop the storm. The Fed and Treasury moves will only reduce some of the damage, they won't stop the economic and financial contraction. Although the actions will diminish the financial crisis for awhile, nothing they did or will do in the future will resolve the economic crisis.  More...


GOLD: A "KEY REVERSAL" DAY

By Bert Dohmen, founder of Dohmen Capital Holdings, Inc.  March 2009

GOLD had a very important day on March 18. The previous day we wrote in our SMARTE TRADER: "There is still a chance that it will make one more trip below the 900 area." We were looking for 885 for a target in case that happened. Well, it did happen the next day, as gold tumbled in the early hours to 883, but then soared after the Fed meeting and the announcement. It reached a high of 954 within 90 minutes. It was spectacular.

That's a huge reversal. The volume before and after the low was very high. That makes this a "key reversal." Such reversals usually mean that an important low is in place. Furthermore, the chart formation I see now is very bullish. The next target is over 1000 and then 1050. However, first there should be a pullback. More...


WHAT IS "CAP and TRADE?"

From Stratford; Cap and Trade Program , March, 2009

Our colleague John Maulding quoted an analyst from Stratford on "Cap and Trade."It gave a good description:

One of the most ambitious proposals of the Obama energy plan is a national cap and trade program. Under such a program, the government would set emissions standard for various industries, allowing companies that emit less carbon dioxide than their allotment to trade their excess "credits" to those who are emitting above the cap. The initial allotments of carbon credits will incite one of the more contentious domestic debates in the coming years, as will the steepness of the emissions reduction curve. In addition to a national goal of 80 percent by 2050, there are questions about what the goal will be in 2020 or 2035. More...


WHAT IS AHEAD?

March 2009

The investment markets are in secular, not cyclical, bear markets. That means that they will last much longer than all the bulls could ever imagine, while economic conditions will continue to deteriorate at a record clip. Bankruptcies will soar, and with that, unemployment and all the bad things it will trigger.

Government will quickly see that its programs are ineffective. Therefore, they will bring to bear the coercive power that only governments possess. Kiss freedom goodbye, as there are virtually no safe havens. Even gold, which we believe is in a major bull market, will not be "safe." Eventually, when gold soars over $1300, government will once again consider confiscation. You see, they can't allow people to have an alternative to paper money. 

Protectionism will flourish, as we can see with the latest draft of the "stimulus" which requires 100% U.S. content for any equipment used on projects financed by the government. Imagine trying to find trucks that have no U.S. parts, or requiring all steel to be from the U.S. Quality will plunge, and prices will soar as the outside competition is eliminated. Social unrest, class warfare and crime will soar over the next 10 years. And the blame will be put on "free markets" although they had nothing to do with it.


2009: Year of Crisis and Severe Pain

Excerpt from the Wellington Letter, Feb. 23, 2009

These two headlines from past issues (of the Wellington Letter) presented our forecasts for 2009. Now we have further confirmation that these were totally on target: 

Headline Nov. 24, 2008 issue:  THE SERIOUS PAIN STARTS IN 2009.

Headline Dec. 8, 2008 issue: AFTER the FINANCIAL TSUNAMI comes the ECONOMIC CRISIS

Headline Jan. 13, 2009 issue:  2009: YEAR of PAIN, DISILLUSIONMENT and CHALLENGES

If you are optimistic that politicians in Washington and around the world will find a solution to the crisis, just consider this: We are now two years into the crisis. In the U.S. they have now allocated a fantastic $10 TRILLION to bailouts and other alleged solutions. Other countries have also spent billions trying to rescue their banking systems. And yet, the stock markets of the world and the economies are not only continuing to decline, but are doing so at an accelerating rate.                                                                              

Even a blind man can see that none of this is working. But the theory in government is always: “If something doesn’t work, do more of it.” The outlook is bleak.


A "BAD BANK" for BAD ASSETS? The Size of the Problem

Excerpt from the Wellington Letter, Feb. 23, 2009

The problem with all the bailout so far is that the poor management teams of the banks, the ones that created the current mess, are still in place, still collecting outrageous salaries and getting big bonuses, although regulators are now looking at everything. In my opinion, any solution should include firing this crowd.

My bet is that the government will fabricate some contraption that won't work. No program of the past five months has worked in spite of a cost of $9 trillion. Can anyone tell me why the taxpayers have to bear the losses of bad management at the banks? We should be enraged. Have the banks done us any favors with their 20%+ interest rates on credit cards? More...


"LONG TERM HOLD" IS DEAD IN A SECULAR BEAR MARKET

 Excerpt from the Wellington Letter, Feb. 23, 2009

Billionaire investor Warren Buffett says the U.S. is engaged in an "economic Pearl Harbor."

In an interview on "Dateline NBC," the chairman and CEO of Berkshire Hathaway, Inc., said the nation's economic situation is not as bad as World War II or the Great Depression, but it's still pretty severe.

 

I think he knows that it is as bad or worse than the 1930's at least in regard to the size of the problem. But he feels that his view influences the psychology of others. He is probably right. That’s why it pays you to disregard anything such corporate leaders say at this time. They see their roles as "cheerleaders," not prognosticators. Therefore, their views as expressed in the media are at best worthless, and realistically, they are destructive to your wealth. More...

 


BAILOUTS DON'T WORK

From the Wellington Letter Jan.13,09

Citigroup is talking a joint venture, merging its brokerage unit, which is a money maker, with Morgan Stanley's money management and brokerage. Apparently, the Federal government made it clear that Citi isn't getting any more money from Washington and that they had better start raising capital elsewhere, or find other solutions. You see, when these firms have to find solutions because Uncle Sam says "no," they start finding them. As long as Washington continues to hand out money, the large firms would rather stand in line for the handouts then find a solution on their own.

The crisis would last half as long if Washington would get out of the way. It would be painful, but a short period of great pain is better than a long-term "repression." (Washington will never use the word "depression.")

Unfortunately, Washington will not get out of the way. The new President has been compared in the media with President Franklin Delano Roosevelt. And we have been predicting that he will adopt all the same policies, which will guarantee at least a 10-year "repression." And if there is no war in 10 years, it will last longer. More...  

 


CHINA IS THE CABOOSE, NOT THE LOCOMOTIVE

From the Wellington Letter Jan.13,09

We hear the bulls say that China will pull the world out of the global recession and credit crisis. We strongly disagree. China is the caboose, not the locomotive.

China's government announced a "stimulus" package of $586 billion recently. But a lot of these programs were already in the planning stages, so the actual "new" stimulus is less than advertised. And much of it won't come till 2010.

The government is committed to keeping GDP growth at above 8%. Our estimate is that they will have trouble keeping it above 4%. No one really trusts the government's numbers. But there are ways to estimate growth.

For example, China's industry minister has said industrial output needs to expand by 12% next year if the economy is to retain its 8% expansion rate. In November, industrial production grew by just 5.4% on an annual basis. More...  


THE NEXT SUCKER PLAY: INFRASTRUCTURE INVESTING

The so-called "research" departments of brokerage firms are having a tough time finding anything to recommend without looking ridiculous. Of course, the age-old advice of "buy and hold for the long term" is always at the top of the list, no matter how much their customers are losing. But they have to find an industry where the average investor can get excited about the "compelling" story. And that is now "infrastructure."

It's similar to the "emerging country debt" of the early 1990's, which in the end imploded. This debt was packaged nicely by Wall Street firms into pools, just like the mortgages of the past 6 years, and participations were sold around the world. The fees were sky high, but the buyers didn't understand any of it reading the prospectus, which of course was the purpose of the prospectus. The story was that "countries don't default."

That worked until they did. And then the holders of these bonds found out that you can't foreclose on a country. The investment scam of the past 6 years was the same, except that Wall Street packaged mortgages into pools, and sold participations as CDO's. We warned about these two years ago. Now everyone knows how that scam was played. More...


UNEMPLOYMENT SURGES AS THE ECONOMIC CRISIS INTENSIFIES

Excerpt from January 13, 2009 Wellington Letter

The much awaited and feared employment report today brought the dismal news we and others had been expecting. Although the past two days economists had expected 600,000 job losses in December based on a report from a payroll processor, it came in slightly less, at 524,000. It was the worst job loss since 1945.

Since September last year, 3 months ago, 1.9 million jobs have been lost. That's a record since they have been counting these numbers. Imagine, that's 15% of all employed people.

For the year 2008, 2.589 million jobs were lost, just a little less than the 2.75 million lost at the end of World War II. The unemployment rate climbed to 7.2% in December, the highest in almost 16 years.

However, according to some analysts,  if the unemployment rate were calculated the same way it was in previous recessions, the current unemployment rate would be a whopping 11.4%.

Furthermore, if you count "discouraged" workers who are no longer looking for a job, and those who are working part-time but want full-time, the unemployment rate would be 14%. Our forecast is that eventually we will see an official rate of 12%. That will cause all the bulls to reevaluate the cheerfulness. On January 3, 2009 the President-elect said unemployment could go to 10%, which is much higher than the consensus of economists.  Eventually, he will agree with my numbers. More...



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