The Historic Market Plunge Is Just The Beginning
The comments below are an edited and abridged synopsis of an article by Bert Dohmen
On September 5, Dohmen predicted that the dam was ready to break in the financial markets. On September 13, the dam broke and the trap for the bulls slammed shut. The markets suffered their worst plunge since June 2020.
Wall Street lured inexperienced investors into the market to buy up inventory. Now those people are in the typical psychological trap: Whether or not to sell now. Novice investors never want to sell at a loss, but that’s a big mistake.
Never let a small loss turn into a big one. When in doubt, sell and watch from the sidelines until the fog clears.
September 12 would be the final gasp before the markets started their selloff on September 13. While the narrative behind the market plunge was due to inflation, Dohmen says the worst is still ahead for the general market.
In spite of efforts by Washington to plunge energy prices, as that is a big part of inflation, overall prices are still climbing, as confirmed by the Producer Price Index. That is to be expected. Inflation doesn’t magically disappear by itself.
Professor Jeremy Siegel pointed out that the CPI far understates inflation. Housing prices are up 40%, but the shelter component of the CPI, according to Siegel, is up around 6%—7%.
That confirms what Dohmen has been saying, namely that all the talk of perhaps 90% of analysts, who were saying inflation has peaked and is magically disappearing, is complete baloney.
September is usually the poorest month for stocks. This could be the start of a strong down leg in the bear market, something Dohmen has warned about. Bear in mind that taking a small loss is better than taking a large loss.