Silver Prices Soar! Why $50 Is Just the Beginning | Insights from Bert Dohmen

Key Concepts

• Advanced Technical Analysis: A methodology that combines chart analysis with the measurement of money flows into and out of stocks to identify where "big money" is moving.
• Money Flows: Tracking the movement of capital into or out of specific assets, which is believed to provide clues about future price movements.
• Market Manipulation: The idea that stock markets are influenced by large players, making it difficult for average retail investors to profit.
• Cycle Analysis: A method of forecasting market trends based on recurring historical patterns and cycles, often spanning decades.
• Secular Bull Market: A long-term period of sustained price increases in a market.
• Infinite Money Printing: The practice of central banks creating money without limit, often to finance government debt, which is seen as a driver of inflation and a bullish factor for precious metals.
• Contrary Economic Analysis: An approach that challenges conventional economic wisdom, such as the belief that rising interest rates are always bearish for stocks.
• Contrarian Investing: A strategy of going against prevailing market sentiment, based on the belief that the masses are often wrong.
• Maria Theresian Thaler: A silver coin from the 18th century, historically significant and the origin of the word "dollar."
• Post-WWII Germany Economy: A period where silver coins held significant value due to hyperinflation and the collapse of the Reichsmark.
• Hitler's Germany Economy (Pre-War): Described as having low inflation and low crime rates due to strict policies, though with underlying political repression.
• High-Frequency Trading (HFT): Automated trading systems that execute trades at extremely high speeds, making it difficult for individual traders to compete.
• Wellington Letter: Bert Domen's publication offering detailed, contrarian analysis of markets and economics.

Bert Domen's Background and Investment Philosophy

Bert Domen's journey into finance began after graduating from the University of Minnesota and working for a high-tech company in California, where he observed the early growth of companies like Hewlett-Packard and Atari. He started investing his own money and found success, leading him to leave his corporate job and pursue trading full-time. In 1977, he founded Domen Capital Research due to demand for his analytical approach.

Domen Capital Research practices advanced technical analysis, which involves not just looking at charts but also measuring money flows to understand where "big money" is directing capital. He argues that stock markets are heavily manipulated, and the average retail investor is often at a disadvantage, being enticed into buying at market tops and selling at bottoms. He likens Wall Street to a casino but believes profitable outcomes are possible for those who understand the game.

Market Analysis: Gold, Silver, and Cycles

Bert Domen discusses his use of cycle analysis, referencing a significant study he conducted in 1980. At that time, gold was at its peak ($800 per ounce), and his technical indicators signaled a sell. His extensive cycle study, going back to the founding of the United States and even further into British history, predicted a 20-year bear market for gold. This prediction was met with skepticism, as many expected gold to reach $3,000. However, the bear market did indeed last 20 years, ending at the bottom.

Crucially, this cycle study also suggested a subsequent 31-year secular bull market in gold. While the cause was initially unknown, Domen now attributes it to "infinite money printing" – the necessity for governments to print money to manage escalating debt. He believes politicians lack the will to address this debt spiral through painful measures like austerity, leading to a continuous cycle of money creation until a crisis point is reached.

He asserts that the Federal Reserve is compelled to increase the money supply, despite any rhetoric about tightening. This is a core tenet of his analysis, which he details in his twice-monthly publication, the Wellington Letter.

Contrarian Economic Analysis and Interest Rates

Domen highlights the importance of contrarian economic analysis, particularly regarding interest rates. He contrasts the current understanding with the Federal Reserve's actions in 1978. At that time, the Fed chairman stated they would raise interest rates to combat inflation, a distinction he emphasizes. Many analysts today conflate rising interest rates with tight money, which Domen argues is incorrect.

He explains that loose money combined with rising interest rates can actually fuel inflation. In 1978, based on this understanding, he forecasted double-digit inflation and double-digit interest rates, predicting the prime rate would hit 20%. This forecast was dismissed by the chief economist of Goldman Sachs, who predicted 12.75%. However, the prime rate reached 19.75% and later 21.5% by December 1980.

Domen recounts how the Federal Reserve, after initially raising rates, panicked and accelerated money supply in June 1980, despite public statements of tightening. He emphasizes that looking at unadjusted, non-seasonally adjusted money supply numbers revealed the true expansionary policy. This experience solidified his belief that "the masses are always wrong" and contrarian analysis is essential for success.

Historical Perspective: Silver in Post-WWII Germany

Bert Domen shares a vivid personal experience from his childhood in Germany after World War II. He recalls that the Reichsmark, Hitler's currency, became worthless. The Allies introduced a temporary currency, but stores were reluctant to sell anything of value. However, silver coins, particularly the well-known Maria Theresian Thaler (from which the word "dollar" is derived), were highly sought after.

He describes how his aunt, who owned a grocery store, would take customers to the back room if they offered silver coins. There, they could purchase desirable goods like refined white sugar and wheat flour, which were unavailable in the regular store. This illustrates the tangible value and utility of silver as a medium of exchange when fiat currency collapses.

He also recounts his childhood experiences collecting scrap metal (zinc from rain gutters, copper wires) and rare platinum tips from lightning rods from the rubble of his heavily destroyed city to sell to scrap dealers for money to buy ice cream.

Reflections on Hitler's Germany and Societal Parallels

Domen was a child during Hitler's era and recalls the economy as being good before the war, with goods readily available. He notes that while the economy functioned well, "nobody liked the Nazis," and people spoke in whispers. He draws a parallel to the COVID-19 era, where he felt a similar atmosphere of fear and suppression of dissenting opinions, stating, "this is just like Hitler's Germany where we could not say anything negative about the government."

He acknowledges that Hitler's initial years in power (the 1930s) saw a reduction in rampant crime. He describes a brutal tactic used by criminals involving steel ropes across highways to decapitate drivers of convertible cars. Hitler's response, including public executions, effectively curbed such crime, leading to popularity. Domen suggests this initial success allowed Hitler to gain broader acceptance, which he then leveraged for further actions. His father, a prominent artist, recognized Hitler's malevolent nature and refused to join the Nazi party, despite pressure.

Advice for Young Investors

Bert Domen offers crucial advice for younger generations entering the investment world, particularly in gold and silver:

• Avoid "Hot Tips": He warns against listening to speculative tips, stating they often lead to significant losses ("cold feet").
• Embrace Reading and Learning: He stresses the importance of reading books to gain knowledge and experience, contrasting it with superficial social media consumption. He believes that if learning is perceived as too much work, one should not invest.
• Long-Term Horizon: He advises against day trading, especially given the dominance of high-frequency trading (HFT) with its super-fast computers and algorithms. He notes that HFT firms can execute tens of thousands of trades per second, making it impossible for individual traders with laptops to compete.
• Value of Books: He emphasizes that books offer lifetime experiences of successful individuals at a low cost ($20 for a book can provide invaluable knowledge).
• Be Suspicious of Mainstream Media: Domen strongly advises skepticism towards information presented on television, particularly financial news. He believes these outlets are often used by Wall Street to promote specific assets, like private equity, to offload their "junk" before a recession. He states that large investors need media to create demand to sell their holdings.

Domen Capital Research Services

Bert Domen promotes his services:

• Wellington Letter: A detailed, contrarian analysis publication, costing approximately $69 per month for about 50 pages of content. He states he doesn't need the subscription money but wants people to access the "real facts."
• Trading Services: Two more expensive services for shorter-term trading (not day trading), one for stocks (around $6,000 per year) and another for ETFs. He claims these services can easily recoup their cost within a week.

Conclusion

Bert Domen's insights underscore the importance of deep, contrarian analysis, understanding historical cycles, and being wary of mainstream financial narratives. He advocates for a disciplined, knowledge-based approach to investing, particularly in precious metals, driven by an understanding of monetary policy and market manipulation. His personal experiences, from post-war scarcity to navigating complex market cycles, inform his strong conviction in the value of independent research and a long-term perspective.