Bert Dohmen to Moneynews: Phony Inflation Numbers Mask Recession

Thursday, 07 Feb 2013 05:16 PM

By Dan Weil and Kathleen Walter

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To Bert Dohmen, editor of the Wellington Letter and founder of Dohmen Capital Research Institute, the 0.1 percent contraction in U.S. gross domestic product (GDP) in the fourth quarter is more than a blip on the economy’s recovery path. It proves the economy isn’t even in recovery mode, he says.

“We are already in a recession,” he tells Newsmax TV in an exclusive interview. “We got into a recession last year. If you factor in the actual rate of inflation instead of the phony CPI [consumer price index] or GDP deflator that the government uses, the economy has been in a recession overall.”

The CPI rose 1.7 percent in 2012. The GDP price deflator gained 1.3 percent in the fourth
quarter.

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“If you calculate the CPI now as it was calculated in 1980, then inflation is actually around 9 percent,” Dohmen says.

“What happens is that when inflation starts rising, they change the measure of inflation. They change the basket. So the published inflation rate currently has nothing to do with reality.”

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

The best measure of the economy is employment, he explains. The number of unemployed stood at a record 12.3 million in January. “That really tells you what the economy is doing.”

The stock market’s rally to five-year highs is “phony,” driven primarily by support from the Federal Reserve, Dohmen says, noting that the Fed has the authority to intervene in the stock market to preserve orderly markets.

“In my opinion, that interpretation has changed, and now it is to move the market up,” he
suggests.

“When you watch the market during the day, there’s a lot of hidden pressure. But if the Federal Reserve wants the stock market to go up to preserve the illusion of strength, that’s what we’re going to have.”

Unlike many others, Dohmen doesn’t think a global currency war has begun. “They’re all in agreement,” he notes. “Everyone wants Japan to come out of their economic mess.”

But, “Japan is really playing with dynamite here,” Dohmen states. If inflation reaches the Bank of Japan’s 2 percent target, the bond market will “plunge.”

“And the repercussions are just enormous,” he adds.

As for China, its report that GDP grew 7.9 percent in the fourth quarter is sheer fantasy, Dohmen says. “It’s totally phony.”

For 15 months, China’s Purchasing Managers’ Index, which Dohmen sees as the best measure of manufacturing, declined, he says.

“How can you have GDP rising at 8 percent with the manufacturing sector declining like that, with exports declining? It’s totally impossible.”

China’s strength stems solely from the public sector now, Dohmen notes. “What they need is a Gorbachev who says, finally, it’s time to end communism and let free enterprise rule.”

As for investment choices, “over the next several years, in spite of all of the poor policies
coming out of Washington, the U.S. will probably be the most attractive country,” Dohmen adds.

And why is that?

“The U.S. real estate market is still so undervalued compared to almost every other area in the world,” he explains. “Foreign money will come into the United States over the next couple of years and that will keep our economy … better than the rest of the world.”

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

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