Bert Dohmen, president of Dohmen Capital Research Institute and author of the award-winning Wellington Letter, tells Newsmax TV's Dan Mangru in an exclusive interview, the U.S. will enjoy much better than anticipated GDP growth during the last quarter of this year — on paper.
“The reason for this will not be that the economy is strong,” Dohmen told Newsmax, “but that the numbers will be compared to the last quarter of 2008, when the economies of the world fell off a cliff.”
Following the sharp correction he foresees in September, Dohmen expects this paper recovery will create the illusion that the recession has ended. “People will fall over each other to buy stocks in the last quarter,” he says, adding that he expects the enthusiasm to wear off very fast when the recession dips sharply again in 2010.
“We will not have a recovery,” he says, “and we will not have high inflation as so many people are predicting. There’s too much debt out there which is still imploding, and all the central banks in the world cannot print enough money to compensate for that.”
Dohmen notes the approximately $60 trillion in debt denominated in U.S. dollars, points up the fact that the few trillion the Federal Reserve has poured into the system won’t come close to making up for all the money being lost in defaults and bankruptcies.
The reason the credit crisis happened is not that regulators were asleep, Dohmen says. It was that they were in collusion with Wall Street. Now, Dohmen says the government is trying to reflate the bubble. “If you look at the leverage in our banking system, it is much higher than in 2007, when the crisis started,” he says. “All they’re doing is putting more debt on top of the debt that already existed.”
“This is insanity.”
Dohmen believes that China’s massive commodity buying spree is creating the illusion of a commodity boom, one in which investors overlook the fact that China is merely stockpiling commodities for future use.
Oil speculators, he says, are also stockpiling holding about $400 billion dollars of crude in tankers, waiting for price increases to make a killing.
“What we’re seeing in the (commodity) markets has absolutely nothing to do with fundamentals,” Dohmen says, adding that when the U.S. dollar rises again, commodity prices, gold included, will come down.
Dohmen observes the stock market is currently dominated by big trading operations using computerized programs, and advises eschewing individual stocks, buying ETFs to lower risk.
“The whole principle of successful investing is to reduce risk,” he says. “Most people focus on catching the big winner, but I think it is much more important to avoid the big loser.”
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