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There were some posts of disagreement to my article. I pointed out that the average investor could never get the deal Buffett got and should therefore not be sucked into the stock by the public relations move.
My viewpoint was vindicated as Moody’s downgraded the ratings of several large banks, including Bank of America Corporation’s (BAC) holding company.
Moody’s statement included that the government is “more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute.”

Incidentally, I have written for the past 4 months that the US is already in a recession. It doesn’t show up in some of the statistics because they are adjusted for inflation, and the Washington’s inflation measures are totally wrong. Over the years they have been “adjusted” to show a much lower inflation rate.

The Federal Reserve got more gloomy in the statement after its two day meeting. To explain the reason for its new “operation twist” the statement said in part:
“…significant downside risks to the economic outlook, including strains in global financial markets.”
For the benefit of the readers I repeat my view: the US economy is now in a recession. The US stock market is in a bear market. Europe is in the first phase of a significant credit crisis, and Asia will follow.

Bert Dohmen, editor of the award-winning WELLINGTON LETTER
www.dohmencapital.com

On August 17, the exact day of the high of the bounce from the August 8 low, Dohmen advised in his SMARTE TRADER service to sell short again. The DOW plunged 419 points the next day.

Five days later, on August 22, he issued an advisory to clients:

1. STOCKS: “Close out all short positions…” 

“Our indicators show that the major indices are just about back at the plunge lows of early August, but that selling pressure is substantially lower.  

This market is set up for a rally. With sentiment so negative now, it’s obvious that the short side is “over-crowded.” And we never want to be on the over-crowded side of a trade.” 

2.  GOLD:  “Gold hit $1900. This is a good time to take profits. Sell!” 

What happened the next day?  

 1. The DOW gained 313 at the high.

2. GOLD plunged over $61 at the low, and the following day plunged over $100.

Positions would have been closed out with great profits.

Was this luck? Well, on Saturday, August 6, after the markets had been plunging for three weeks, subscribers received a special message:

“CLOSE OUT ALL SHORT POSITIONS ON MONDAY.”

That Monday was the low of the 3 week market plunge, with the DOW down 629 at the low. It was the perfect day to close out short positions.

Yes, it is possible to time the markets! Dohmen has been doing it for over 33 years. He has called the start of every recession, and the start of each bear market within days of the bull market top. He has never worked for Wall Street.

]]> http://bookapocalypse.com/another-perfect-market-call/feed/ 0 http://bookapocalypse.com/european-crisis-intensifies/ http://bookapocalypse.com/european-crisis-intensifies/#comments Sun, 21 Aug 2011 01:19:28 +0000 Bert Dohmen http://bookapocalypse.com/?p=193 Continue reading »]]> August 18, 2011

Last week the global markets appeared to be in FREEFALL! The European leaders demonstrated that they were incapable of finding a solution to the accelerating sovereign European debt crisis. The stocks of the large banks plunged.

Investors and the bullish investment professionals appear to be in shock. Should it really be a surprise?

Several days ago, after the high level meeting between Merkel and Sarkozy in Paris, renowned analysts Bert Dohmen, called the outcome “DISASTROUS.” He predicted the market would not like it.

Here is what BERT DOHMEN wrote on August 16 to his valued clients:

I feel these bland statements and inability to do something are incredible. The markets were waiting for the problems to be addressed, and apparently these two leaders just met for tea. The markets won’t like that.

Those statements remove any hope of a solution in the near future. And that means that the markets will once again go into defensive crisis mode.

But it gets even worse. Merkel and Sarkozy announced the revival of a proposal for a European bank transaction tax. The headline in March of this year was:  European Union lawmakers overwhelmingly backed a call to tax financial transactions on Tuesday and make banks pay up to 200 billion euros ($278.3 billion) for damage they caused to the economy.

Today’s Merket/Sarkozy announced:  “The French and German finance ministers will table a joint proposal at the EU level next September for a tax on financial transactions. This is a priority for us.”

This is totally the wrong time for such a tax. In the time of crisis, turmoil, and uncertainty, with banks loaded up with hundreds of billions of dollars of bad loans, the top politicians want to impose another burden on the financial sector. How can that resolve the increasing European debt crisis. It can only make it worse. Is that want they want? The mind of a politician works in mysterious ways. Dohmen wrote on that day: “today’s announcement from Europe is disastrous.

BERT DOHMEN says that the US recession will now start getting more attention. as the evidence can no longer be ignored by the Polyannas in the economic establishment. DOHMEN states we entered a recession in May of this year when the May 9 issue of the distinguished WELLINGTON LETTER was headlined:  “RETURN OF THE DOUBLE-DIP.”

He cautions investors that something similar to the 2008 CRISIS, this one focusing on entire countries, is highly likely in the autumn.

Bert Dohmen once again proved that he is not a “PERMA-BEAR,” i.e. someone who is bearish all the time. In bull markets he is bullish, and in bear markets he is bearish. Yes, his clients were short stocks during the current crash. 

The prior Saturday, in a special issue of his trading advisory service SMARTE TRADER, he advised to close out all short position on Monday as that would mark a short term low.  

On Monday, August 8, the DOW JONES INDUSTRIALS plunged 629 points, providing a great profit taking opportunity for short sellers.  

After the close of Monday, Bert Dohmen advised that the markets would have a strong rally the next day, but it would be a brief bounce. On Tuesday, the DOW was up 430 points. Everyone got excited, except Bert.  

The next day, Wednesday, the DOW plunged 520 points with the indices closing at their lows of the day.  

Bert issued a SMARTE TRADER at the end of the day, saying:  the indices will try to make a stand around current levels. He pointed out the facts of his technical analysis indicating that at minimum a short term low in the markets had been made.  

The next day, Thursday, the stock market rallied strongly, with the DOW gaining about 424 points.  That was followed by a 125 gain the next day, and a gain of 214 points the day after.

Wall Street analysts always tell the public that “no one can time the markets.” However, time and again, Bert Dohmen calls the exact days perfectly. And that is a WRITTEN FACT! 

Currently, he says that the U.S. economy is already in a recession, and that the global economies will follow. That certainly will cause a drastic reassessment by Wall Street for the earnings outlook.

NOT EVEN A HINT OF SOLUTION

 In Europe, another week means another meeting on the EU crisis.  

Merkel of Germany and Sarkozy of France are meeting today. There was an announcement in the morning that they creation of Eurobonds was not “officially” on the table. After their meeting, we found out that apparently nothing was accomplished.  

Merkel said that issuance of a Eurobond would not solve the current European crisis. In my view, that is a big mistake. I believe it is the only solution, at least for the intermediate term, for Europe. There is no other way to raise enough money. Eventually, of course, that may evolve into a system as in the US, where the central bank can produce money out of thin air. And that is the danger that Germany sees. 

And then she said that the “emergency fund,” the ESFS, will not be expanded. She said that they will seek more economic “coordination.”  

I feel these bland statements and inability to do something are incredible. The markets were waiting for the problems to be addressed, and apparently these two leaders just met for tea. The markets won’t like that.  

Those statements remove any hope of a solution in the near future. And that means that the markets will once again go into defensive crisis mode.  

But it gets even worse. Merkel and Sarkozy announced the revival of a proposal for a European bank transaction tax. The headline in March of this year was:  European Union lawmakers overwhelmingly backed a call to tax financial transactions on Tuesday and make banks pay up to 200 billion euros ($278.3 billion) for damage they caused to the economy. 

Americans would probably cheer if that were done in the US although it would hurt the stocks of banks.  

Today’s Merket/Sarkozy announced:  “The French and German finance ministers will table a joint proposal at the EU level next September for a tax on financial transactions. This is a priority for us.” 

This is totally the wrong time for something like that. In the time of crisis, turmoil, and uncertainty, with banks loaded up with hundreds of billions of dollars of bad loans, they want to impose another burden on the financial sector. The mind of a politician works in mysterious ways.

Our view: today’s announcement from Europe is disastrous.

Dohmen made his case by adjusting nominal GDP using actual inflation, not the “deflator,” which is a defective number used by the government to make inflation appear lower than it is. As a result, headline GDP is overstated, and actually consists of price increases, not growth.  

On July 29, the government released its estimate for Q2 GDP growth and a revision for Q1. The numbers were dismal and confirmed everything Dohmen has been writing over the past several months, i.e. that the economy is already in a new recession.  

Second quarter GDP increased a modest 1.3%. Economists were looking for a number 50% higher. And even worse, first quarter  GDP was revised downward to an anemic 0.4% growth, from the original  1.9%. Adjusted for actual inflation, the economy is now contracting at a meaningful rate.

Consumption was an inflation-adjusted 0.1% in Q2. When you consider that the inflation adjustment is much too low, than “real” consumption actually had a large decline.  

Spending on durable goods fell 4.4% in Q2 due to a sharp drop in auto sales. One market commentary was that this was due to a “lack of supply because of the Japanese earthquake.” In other words, there was a “shortage of cars.” Dohmen says:  “Really!?  Have these people looked at the car lots?” 

The fact is that as early as February, Dohmen has been warning of a sharp economic slowdown and that the economic rebound of the prior two years had terminated. 

Bert Dohmen has called the start of every recession of the past 33 years to the exact month, or within one month of the determination by the NBER on year later.  

In 2007, Bert Dohmen wrote the book PRELUDE TO MELTDOWN, which predicted the global crisis in 2008.

This is similar to you going to  buy a car, you come out of the little room with the sales manager, and your wife asks, “did you buy the car?” And you answer, “We have a deal. We agree that I want to buy the car and they want to sell the car. Now we just have to agree on the price.” 

 Only in Washington “speak” can this be called a “deal.”  

The markets realized this quickly. The Dow Jones was up 100 point on the news but within 15 minutes was in negative territory.   

The talk of a US debt downgrade by the rating agencies is unrealistic and should be classified as “fear mongering.” This will not happen, at least not this year. The rating agencies still have a lot to answer for in their part involving the last financial crisis. They have a proverbial sword over their heads. 

By Bert Dohmen,  www.dohmencapital.com 

On July 18, Marketwatch.com had this headline:  “Goldman Sachs slashes Economic Forecasts.” 

Over two months ago, the headline of Bert Dohmen’s WELLINGTON LETTER was:  “RETURN OF THE DOUBLE-DIP.” That referred to a double-dip recession. Bert Dohmen has called the start of every recession in the last 33 years, often to the exact month. So, perhaps he is worth listening to. 

Goldman wrote on July 18:  The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations…We have no hard information about final sales in Q3 yet, but Friday’s preliminary consumer sentiment index for July from the University of Michigan fell to the lowest level since March 2009 (!) and is now back in territory normally associated with recession… 

Although the media stories suggest that the big story for the stock market is the debt ceiling debate in Washington, and the scare stories of debt default, inability to make social security payments, etc. that’s actually a convenient smoke screen for the big sellers of stocks, the very large trading operations.  

The majority of analysts now say that the stock market just has a “soft patch,” which is temporary and provides another great opportunity for buying stocks. The “soft patch theory” was also used by these people in 2008 just before the meltdown, and we saw the “soft patch” theory used again the past five months to explain the renewed economic weakness. 

But the stock market has been under “distribution” since mid-February. Distribution is when the big, smart money sells to the unsophisticated, myopic participants in the markets. The evidence is that every decline in the market since that time has occurred on rising volume, while the market rallies have occurred on declining volume. The financial sector has been declining since its peak in mid-February. You can’t have a bull market without the financial stocks participating. 

The Washington debt ceiling scare is like a Kabuki theatre. All the participants on both sides get a lot of free TV time. That brings more financial contributions. A debt default is impossible. There is more than enough money coming into the government every day to pay interest on the debt, social security, benefits for veterans, etc. Furthermore, Congress has many alternatives to get out of this. 

So don’t fall for the story that the stock market is weak because of the debt ceiling. There are much more serious problems, like European sovereign debt, China’s imploding credit bubble, etc. Of course, once they announce some type of agreement in Washington, the market will have that one last pop to the upside.  It may be your last opportunity to find the exit.

Jul. 19 2011 – 4:54 pm | 969 views | 1 recommendation | 1 comment

Posted by Bert Dohmen

In late 2007, I wrote the book Prelude To Meltdown, predicting the global crisis that occurred the following year.  I now see a similar confluence of events that warns of  phase II of the global crisis.

Once again I see all the “canaries in the mine,” which warned of the 2008 crisis. My  just released book, Financial Apocalypse , provides the clues and the road map, with charts, of how my  indicators successfully predicted the meltdown that occurred in the fall of 2008. This book is a guide for detecting the next crisis whenever it occurs.  History repeats, or at minimum, it rhymes.

My work shows that “the new recession has started.” The May 9 issue of the Wellington Letter was headlined:  “Return of the Double-Dip.”  At the time, economists were looking for a great economy in the second half. Now they talk about a “soft patch.”  Over the past 33 years, we have called the start of every recession, often on the exact month, or within one month, of the official start as determined one year later by the official arbiter of recession, the National Bureau of Economic Research (NBER).

How can we be in recession now when the GDP still shows growth? Because of improper inflation adjustments. “Real” GDP growth, the headline number, is nominal growth minus the rate of inflation. However, inflation is far understated for political reasons.

Currently, the GDP deflator is 1.8%, which hardly reflects the true rise in prices. Therefore, what is counted as “growth,” is actually price increases. Actual inflation, according to free market economists who calculate inflation as it was done in 1980 before the politician re-engineered it, is now more than 11%. Using that to adjust GDP for inflation, would show that the economy is now in a very sharp contraction.

When the current euphoric earnings forecasts of Wall Street finally reflect that via significant “earnings downgrades,” the stock market will see a serious “adjustment” as well.

On July 18, Goldman Sachs (GS) substantially lowered its economic growth forecast. Marketwatch.com had this headline:  Goldman Sachs slashes Economic Forecasts. The next step will be for them to substantially reduce earnings forecasts for the S&P 500.

Will the phase II be as bad as the 2008 crisis? The last crisis was confined to the private sector, i.e. financial institutions. The next one will be involve the threatened default of entire countries. The last time, the central banks bailed out the financial firms and even Warren Buffett bailed out several firms. Who is big enough to bail out entire countries? Or will the term of “too big to fail” turn to “too big to bail?”

Bert Dohmen is editor of the Wellington Letter and author of Financial Apocalypse.

The big shocker today was that the White House will order the release of 60 million bbl of oil from the Strategic Petroleum Reserve (SPR). Brent crude oil plunged over $7 and the West Texas (WTI) dropped over $6 initially. One has to ask why are they releasing the oil. Was there a shortage? No! In fact, the Saudis have said that a glut was developing.

I believe it was a concerted effort, together with the Saudis who were totally disgusted with the behavior of Iran, Venezuela, and other radicals at the latest OPEC meeting. This is retribution to demonstrate who is in charge.

It’s only the third time that oil has been released from the SPR. Therefore, we have to think what is the plan? Is it only to show the radical OPEC members who is in charge, or is there more?

So, why break into our “piggy bank,” the SPR, when there is so much energy to be had by just letting energy companies do their job? Why suddenly take steps to reduce oil prices? Could it be a frantic effort to stop the deterioration of the economy ahead of next year’s election?

At the low today, the DJI was down about 235 points. The markets looked dismal. Many traders were running for the exits. However, the decline didn’t look like a serious down move that would go lower. In fact, in my own mind I traced out a chart of how the indices would look at the end of the day. There would be a rally and the major indices would form a bullish pattern. Therefore, it was time to pick up the bargains near the lows. And that’s exactly what happened.

We now have a bullish candlestick chart on some of the indices, called a “hanging man.” Furthermore, it was a retest of last week’s lows, which was successful. The prior low was on June 15.

Technically, there was another important item:  several of the major indices, such as the DJI and the S&P 500 hit their important 200 day m.a.’s. That’s usually considered the dividing line between a bull and a bear market. Obviously, the big trading outfits, and the HFT’s, use this to reverse the recent trends. This is the easiest way to squeeze the shorts who didn’t have our signal to close out shorts on June 15, the exact day of the bottom.

My conclusion is that this is a decent bottom of the six week correction. Now comes the next move, upward. How high? Well, we are better at catching turns than in telling the market what to do. However, it is possible that at least one of the major indices, such as the DJI, could even make a new high for the year. We have mentioned before that even in 2007, there was a fake-out rally in the market in October, although most stocks had already made their peaks in July.

Our subscribers are now in a great position: cash to deploy. And that’s what we will do.

The next several weeks: The story from Wall Street is that lower oil prices will be like a “tax cut” and thus stimulate the economy. We don’t agree with that, but it will cause short covering in consumer stocks, like retail, restaurants, etc. But that is once again a phony story.

The bond market will take a beating during July based on the story that “risk aversion” is no longer necessary.

WHAT’S AHEAD?

Until there is evidence to the contrary, we consider this a trading rally, designed in Washington, engineered to give the impression that everything is wonderful. After all, there is a big election next year. The release of oil from the SPR is purely political.

We will see countertrend moves to the declines since end of April. This includes rallies in commodities, energy, emerging markets, stocks, and a decline in the dollar and bonds.

Wall Street will put out their own “talking points” which includes that the economy will rebound in the second half of the year. A rebound in residential real estate in May will be presented as evidence.

There were lots of shorts because of the ending of QE2. It was our position that the ending would produce a brief market rally, as the market usually likes to surprise the majority. That would suggest that the rally is temporary, just for a few weeks. There still is no big investment buying. This may be similar to the rally in October 2007, which brought the major indices briefly to new bull market highs before the plunge into the abyss. At the time, we wrote about the glaring divergences, confirming that it was a “bull trap.” We called the top in mid-October 2007.

So, we will watch our technical indicators closely now for an end of the rally.

COMMENT TODAY, July 10, 2011

The dismal employment number on July 8 was a shocker for Wall Street economists who had been so bullish on the economy. But it wasn’t a shock for our readers. In the May 9^th issue of our award-winning WELLINGTON LETTER, we had the front page headline:  “RETURN OF THE DOUBLE-DIP.”

Reality will now return. There are many huge storm clouds forming on the horizon. Don’t listen to the Pied Pipers and their advice that stocks are cheap. The fact is that they are very expensive now and are priced for strong economic growth. A sharp economic slowdown is not priced into them yet.