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Bert Dohmen: US 'Is Much Weaker Than Economists Think'

Bert Dohmen: US 'Is Much Weaker Than Economists Think'
(Dollar Photo Club)

By    |   Friday, 18 September 2015 12:29 PM

Economic expert Bert Dohmen warns Newsmax TV that while the Federal Reserve won't raise rates anytime soon, the U.S. central bank will actually be forced to launch more economic stimulus because America is weaker than economists will admit.

"Our work showed that the economy would be weakening in 2015 instead of strengthening and therefore we think the next big move by the Federal Reserve is going to be stimulus instead of raising interest rates," Dohmen, president and founder of Dohmen Capital Research Institute Inc., told "Newsmax Prime."

"We still stick by that. The economy is much weaker than economists think," he said.

Story continues after video.



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Meanwhile, U.S. economic growth for the second quarter is likely to be revised slightly higher next week after data showed a more robust pace of consumer spending than previously estimated.

The Commerce Department's quarterly services survey, or QSS, showed consumption, including healthcare spending, increased at a faster pace than the government had assumed in its second estimate of gross domestic product published last month, Reuters reported.

JPMorgan said the data suggested second-quarter consumer spending could be raised by at least five-tenths of a percentage point to a 3.6 percent annual rate when the government publishes its third GDP estimate later this month.

The QSS suggested second-quarter GDP growth could be raised to a 3.9 percent pace from the 3.7 percent rate reported last month, JPMorgan said.

Domen spoke after the Federal Reserve decided to hold interest rates near zero. The central bank's action means borrowing costs will remain low for a while yet, a prospect that has in the past typically boosted stocks. But some investors, expecting the Fed would be confident enough to nudge rates up by at least a quarter of a point, interpreted the stance as a sign that the global economy is dangerously weak. The Fed has kept its benchmark rate close to zero for almost seven years.

In its rate decision Thursday, the Fed cited low inflation, weakness in the global economy and unsettled financial markets. Investors have been on edge about a slowdown in China and other emerging market nations since last month.

"The economists talk about the labor market numbers coming out of Washington. They're as phony as the numbers coming out of China and the economy is really in bad shape," he said.

In maintaining its policy, the Fed is keeping its benchmark short-term rate near zero, where it's been since the depths of the 2008 financial crisis. A higher Fed rate would eventually send rates up on many consumer and business loans.

Some analysts worry that ultra-low rates are encouraging more risk-taking by investors and could inflate bubbles in the stock market or other assets.

And Dohmen himself paints a dismal picture of the future U.S. economy.

"Credit is going to tighten, people will not be able to get credit. All the unicorn stocks, which are the highly valued private companies in Silicon Valley, like Uber and so on, they will start getting valued much lower," he predicted.

He also cautions that more stimulus and easier monetary policy is the "wrong medicine" for the national economy "because the last time it really didn't work" in the long run.

"Everybody thinks that the recovery in the stock market since 2009 was due to the Federal Reserve. Part of that's correct, because the very cheap money that's in a zero interest rate policy enabled this big buyback frenzy of companies buying their own stock," he said.

So what's the average investor to do?

"Be very careful. Don't trust CDs, don't trust money market funds that invest in CDs," he advised. "I would go into money market funds that invest in only US Treasurys. I would be very safe."

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JD Hayworth with Bert Dohmen, president and founder of Dohmen Capital Research Institute, Inc. to talk about why the Fed declined to raise interest rates.
bert dohmen, federal reserve, economy, rates
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2015-29-18
Friday, 18 September 2015 12:29 PM
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