TLDR;
Bert Dohmen from the Wellington Letter shares his market analysis, highlighting the dominance of algo traders, overvalued market conditions, and the potential for a significant downturn. He cautions against trusting official economic data and discusses geopolitical risks, advocating for precious metals as a safe haven.
- Algorithmic trading controls the market, making fundamentals less relevant.
- Market valuations are at record highs, indicating vulnerability.
- Margin debt is dangerously high, reminiscent of conditions before the 1929 crash.
- US economic data is unreliable, similar to that of China.
- Geopolitical tensions, especially in Gaza and Venezuela, pose significant risks.
- Gold and silver are the safest investments due to central bank money printing.
Market on Edge: Gold Hits All-Time Highs, Economy in Contraction [0:00]
Gold has surged to new all-time highs, breaking above $3,500 an ounce, while silver is also on a tear, approaching $41. This flight to safety is driven by investor nervousness amid a contracting US industrial economy, which has been in contraction for six straight months. The S&P 500's near-record highs contrast sharply with the struggling real economy, posing a puzzle for investors.
"The Markets Are a Game": How Algos Control Everything [1:45]
The markets are now primarily driven by algo traders and high-frequency trading (HFT), who exploit the majority's positions. These algos account for over 80% of daily stock market volume, making it nearly impossible for individual day traders to compete. The increasing sophistication of AI in these algorithms has amplified the danger of short squeezes and bull traps for average investors.
Market Valuations: "Worse Than 1929 is Coming" [5:55]
Current market valuations are at all-time record highs, creating extreme vulnerability. Many stocks, especially small caps, have no earnings, and a handful of large tech stocks are holding up the entire market. The speculation is unprecedented, with price-to-sales ratios of some stocks reaching astronomical levels, making it difficult to justify buying at these valuations.
$1 Trillion in Margin Debt: A "Fiasco of Foreclosures" Ahead [7:34]
Margin debt on the New York Stock Exchange has surpassed a trillion dollars, posing a critical risk for the next downturn. This level of leverage is reminiscent of the 1987 crash, where portfolio insurance failed to protect investors. Many investors are unaware that they could lose their homes due to margin calls, especially with the popularity of zero-day options and leveraged ETFs. This situation could lead to a "fiasco of foreclosures."
"Bureau of Lying Statistics": Why US Economic Data is a Lie [12:20]
The US has been in a recession for the last two years, masked by unreliable jobs numbers. The Bureau of Labor Statistics (BLS) is referred to as the "Bureau of Lying Statistics" due to significant discrepancies in reported data. These economic statistics are as untrustworthy as those coming out of China, making it difficult to get an accurate picture of the economy.
Bitcoin Takedown: "A Figment of the Imagination, A Big Scam" [14:43]
Bitcoin and other cryptocurrencies are described as a "figment of the imagination" with no intrinsic value. Despite a market cap surpassing a trillion dollars, Bitcoin cannot be used for everyday transactions and is primarily used for illicit activities. The crypto market is considered a "big scam," similar to Bernie Madoff's Ponzi scheme.
Lessons From Past Crashes & The 2007 Rule Change That "Screwed the Market" [19:33]
Advanced technical analysis is crucial for navigating the market, but manipulation has made it tougher since 2007. The removal of the uptick rule in 2007 allowed high-frequency trading and algo traders to sell short without restrictions, "screwing the market." The SEC is seen as protecting its friends rather than individual investors, enabling market manipulation.
The 2031 Gold Price Target & Long-Term Cycle [21:34]
A cycle study on gold going back 400 years predicted a 20-year bear market after 1980, which bottomed in 2000. The study also forecasts that the current secular bull market in gold will peak in 2031.
The Gold & Silver Paradox: What Investors Must Do in a Crash [24:37]
In the initial phase of a market crash, gold and silver may decline as investors sell them to meet margin calls. However, in the second phase, after the urgent selling subsides, gold and silver become the safest assets as central banks print money, devaluing currencies. Gold has been a reliable store of value for thousands of years and will continue to be so.
The New Alliance: Russia, China & India Challenge the US Dollar [25:30]
India and China are reducing their holdings of US Treasuries while increasing their gold reserves, signaling a loss of faith in the US dollar. The unification of Russia, China, and India poses a significant challenge to the US, as these three countries represent 36% of the world's population. The US is more vulnerable to a boycott from these nations than they are to a US boycott.
Geopolitical "Endgame": The Real Reason for Conflict in Gaza [28:05]
The conflict in Gaza is viewed as a potential catalyst for broader wars, with a genocide being committed against Palestinians. The world cannot tolerate this, and the lack of US action is alarming. Tensions could escalate into another war between Iran and Israel, potentially involving US troops in the Middle East.
"Return to Colonialism": Dohmen's Explosive Thesis on Venezuela [29:58]
The conflicts in Gaza, Iran, and Venezuela are part of a coordinated "return to colonialism" for resources. The US is positioning itself to acquire resources, with Venezuela being a prime target due to its vast oil, gas, and precious stone reserves. The presence of US atomic submarines off the coast of Venezuela suggests an imminent attack.
The Truth About Inflation & The Fed's "Historic Policy Error" [34:40]
Official inflation statistics are misleading; the rate of inflation may be decreasing, but prices are still rising. The Federal Reserve's policy of high interest rates with loose money is wildly inflationary. Actual inflation, measured using a 1980 methodology, is closer to 10%. The focus should be on money supply growth, as it drives the market.
Why Silver Will Outperform Gold [40:00]
Silver is expected to outperform gold due to its use as an industrial metal and its previous lag in performance. It is considered the "poor man's gold" and is poised to catch up.
The ONE Thing That Will Prove His Thesis Wrong [42:00]
The only factor that could invalidate the thesis is continued money supply growth. If money supply shrinks, stocks will become a source of money as people sell them to cover expenses. The central banks' response to the crisis will determine the long-term outcome, with printing money being their natural reaction.