James Dines: Mass Psychology Applied to Investing

Written by James Dines
Posted October 19, 2019

Publisher's Note: Mr. James Dines has been an expert on the market and its movements for decades. Today we have an excerpt for you from the latest issue of The Dines Letter that shows it.

To your wealth,

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Nick Hodge
Outsider Club Founder and President


Dinesism #20: Bubbles are invisible to those inside the bubbles. Mass Psychology (page 331)

One anomaly intrigues us: why have both the U.S. dollar and the DJU been rising, even as bonds took a spill?

Visualize the mass psychology of it. Investors, say, in Europe, are mired in a desperate income-hunting bubble. They’ve been buying anything that pays some income — even the folly of buying bonds that guarantee a loss to those who hold them to maturity — which provokes peals of laughter here at TDL at the thought of future centuries looking back at the current interest-rate madness.

U.S. 10-year paper now yields 1.8%. Worldwide, income seekers convert their currencies into U.S. dollars and buy those U.S. 10-year bonds; they are a better alternative to those Euro bonds at a guaranteed loss! Personally, while even we doubt this prediction: the flood of 10-year paper buyers will hammer it down to a zero yield! As for rising utilities stocks, we just see a routine panic to buy any stock with secure dividend income, even if wildly overpriced, as the reason the Dow-Jones Utility Average has been soaring. It is a “Sell.”

What might be driving the above? We suggest it’s mass fear, surreptitiously filtering into the mass mind, probably unconsciously visceral fear.

Here are some of our considerations: a growing sense that China’s economy is going down, as TDL has repeatedly predicted it would; the longevity of America’s economic boom having lasted over a decade nearing its end; the Fed increasingly revealing its incompetence with its simple-minded ticking interest rates up or down to control the economy; an impeachment inquiry against Trump; leading Big Tech stocks having remained flat since our “Sell” signal nearly two years ago; strength in the countertrending havens; and 2020 is an election year containing unknowables. All are collectively bringing more uncertainty, so we ask why should stock markets not be even lower?

We’re still on our “Sell” from February 2, 2018, and expect that signal will end either in a broadly declining bear market, a simple change of leadership, or both. We’ve already seen the change of leadership come true, away from Big Techs to precious metals, defense, cryptos, and pot.

Will those remain the next big market leaders? We’ve had to grit our teeth these last 20 months, resisting the overoptimistic mass, as we unflinchingly refused to be swept into mass greed. Despite leading averages remaining near their highs, the internal declines of many stocks within many markets have messed up many portfolios.

It’s still hard for us to shake the idea that the world is already in a deflationary recession. This is a time for cool caution, as the mass subtly begins to recognize that the bubbles are popping.

The public is like a rope... You can pull on it, but Heaven help you if you push it.


James Dines is legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community. He is the author of five highly regarded books, including "Goldbug!," in addition to his popular newsletter, The Dines Letter, and videotaped educational series. Dines' highly successful investment strategies have been praised by Barron's, Financial Times, Forbes, Moneyline, and The New York Times, among others.

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