Posted on 10/27/2008 5:48:28 PM PDT by prolifefirst
When everyone is telling you that this credit crisis could not have been predicted, you can point to one man who boldly -- and incredibly accurately -- told you exactly what was going to happen. His name is Bert Dohmen, publisher of The Wellington Letter for the past 30 years (Ddohmencapital.com), one of my all-time favorite newsletters.
On March 24, 2008, I interviewed Bert on the publication of his book, Prelude to Meltdown. His predictions, below, were frightening. But his forecast today is even more shocking.
Dohmen's view in March 2008: Having sent out a warning when the Dow Jones Industrial Average made its first close above 14,000 in July 2007, Dohmen was exceedingly bearish by March 2008:
"The world has seen the greatest credit bubble ever seen by man. . . . The enormity of this problem is beyond anything we have ever seen in financial history.
"The size of the leverage and the financial instruments that are outstanding, and now defaulting, are beyond the ability of any central bank, or all of the central banks combined, to bail out. We've never had a situation where the central banks were not big enough to bail out a situation -- but we have it now."
". . . My forecast is that the next big crisis will be the credit default swaps -- a $45 trillion, highly leveraged market. These are basically insurance policies that buyers of mortgage securities (CDOs) bought against a mortgage default. Banks and hedge funds 'wrote' this insurance. . . . Now that the mortgages are defaulting, the sellers are saying they don't have the capital to make good on the insurance.
"The key word over the next year is counter-party risk, because these were unregulated side deals. . . . The regulators were totally asleep."
Dohmen's not worried about inflation. Instead. he sees a deflationary collapse and recommends U.S. treasury securities.
That was back in March 2008.
What Dohmen says now: Bert Dohmen nailed it! We spoke over this past weekend and I asked him about Warren Buffett's very public decision to support the markets by buying stocks.
Dohmen says it is a "patriotic" move on Buffett's part. But not necessarily a smart move, based on history. Dohmen points out that markets are mathematical, and 50 percent bounces in a bear market are typical. But often that's not the end of the big decline:
"Most bear markets, after a major bubble has burst, decline 80-90 percent, going back to where the bubble started. In the United States, that's what happened after the 1929 crash. During the 1973-74 bear market, the broad ValueLine Index was down over 80 percent. In 2000-2002, the NASDAQ composite was down over 80 percent. So until a major index is down over 80 percent, I will not even start looking for a bottom!"
Dohmen notes that since this was a financial bubble that has burst, the most significant decline is likely to occur in an index of financial sector stocks, such as the exchange traded fund -- XLF -- that tracks many of these companies: "So far it is down from around 38 in 2007 to 13 now, which means there's a ways to go on the downside for financial companies."
One year ago, on Oct. 15 2007, his newsletter was headlined "Top of the Rally" -- calling that rise from mid-summer 2007 a "fake-out rally."
Today he's predicting another fake-out, saying: "Shorter term, we're due for an oversold rally. People will bargain hunt thinking they're getting buying opportunities of a lifetime, and they'll all be trapped at the top of this rally."
When is that likely to happen? "We'll tell our subscribers. But I can say the worst is still ahead over the next several years for stock market investors.
"We are seeing the greatest de-leveraging in the history of mankind, because it was the greatest financial bubble we've ever seen. This is a flight to cash, because no one has cash. Cash is the rarest commodity that you will find in any household. And it could take 17 years from the 2000 top in the stock market to reach the next good buy point for long-term investors. . . . In the meantime, it will be a great environment for traders, with plenty of tradable rallies and declines. But forget buy and hold."
I couldn't leave it at that. Isn't there something optimistic to say? He reminded me that false optimism doesn't help and is not an obligation of the media, or me. His final words: "Use any rally to sell."
I shuddered, but having read Dohmen's insightful advice for 30 years, I take his views seriously.
Now we'll see: Buffett the Bull, or Bert the Bear. The markets will decide who's right. And that's the Savage Truth.
Terry Savage is a registered investment adviser.
BUMP FOR LATER
He says the upswings we’ve had the last couple of weeks are “fake rallies”, and people should cash out the next time we have one.
Can’t we just forgive all the debt and live happily ever after?
I think the markets are pricing an Obama win. And this guy sees an Obama win.
If that’s the case, anyone with $250k in income is a target; that’s pretty much anyone with a financial sector job plus most doctors, lawyers, small business owners and business developers. So nice of Obama to cap the American dream for us.
If you value your job, your retirement, your home, and the country you grew up in: do not, under any circumstances vote for Obama.
Forget him. There was a freeper who constantly posted that the housing bubble was going to burst and he was shouted down and ridiculed. Wish I could remember his handle.
‘....Bert Dohmen, publisher of The Wellington Letter for the past 30 years.”
Has he been predicting the crash for all 30 years? I can think of a few newletter guys like that. It’s either great insight into the future, or just publishing your newletter for a long enough period.
The problem with this types of advice is that everyone has a dog in this hunt. He wants to ride the stock market to 0 so he can make a ton of money. He wants every one to bail and lose everything so he can take it.
I was one of ‘em ...
1) Read the article. He's been predicting this crash since July '07 when the market first hit 14,000.
2) If you like the author, Terry Savage, she says she's read this guy for a long time and thinks he's one of the best.
ExTexan?
So don't try some lame BS about the guy on the street corner shouting "the bridge is going to fail" being correct when the bridge fails years later.
Probably ex-Texan .
I read some of the threads but I know little about economics so I got lost.
That was him.
Whatever.
Hydroshock.
bump
btt
I remember his threads too but ex-texan took some heat.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.