A “LIGHTNING BOLT” SHAPED RECOVERY
By Bert Dohmen, editor of the award-winning WELLINGTON LETTER
www.dohmencapital.com
The false hypothesis of a genuine economic recovery will surface next year. By then, the insiders will have unloaded their stocks on the naive money managers who think all this is real. This will not be a “U” or “V” shaped recovery. It may at best be an “L”, meaning a very long period of stagnation. But more likely is a “lightning bolt” shape, where the current rally will be followed by another sharp trip downward.
The sentiment is one of complacency, nothing to worry about. That’s bearish. There are extremely bad things to worry about. Pakistan, Afghanistan, Iran, and U.S. governmental policies reminiscent of countries we used to consider unsafe to even visit.
New financial mini-bubbles are blossoming right now, produced by fears of those at the Federal Reserve and our un-representing Representatives in Congress of a relapse into another crisis. They don’t understand that their programs will virtually assure another crisis, though not in the near future. They are simply delaying the inevitable and making the eventual consequences that much worse.
Anyone who thinks that the political scene is not important for investors is wrong. We are seeing a total domination of our economic system by government. Big companies who play along will prosper. Those who don’t are already being threatened with new legislation. On the international scene, U.S. leadership is considered weak by our enemies. They are now displaying total disrespect and lack of fear. North Korea and Iran are “testing” missiles able to carry nuclear warheads. Iran is going full speed ahead with its nuclear bomb program. Russia is opposing Washington’s please for support on the Iran issue, etc. etc. etc.
A continued dollar decline over the long term fits in well with this picture. Although there are different opinions, my work over three decades makes me convinced that the value of a country’s currency is a function of two things: 1. confidence in its fiscal policies, 2. confidence in its leadership.
Therefore, if I am correct on these two points, the dollar is doomed.
That doesn’t preclude a sharp, brief short-covering rally in the dollar. That could happen soon. Although a weak dollar right now is bullish for the stock market, eventually it will be shunned by the world, resulting in another debacle as in 1987 when it produced a crash.
