James Dines: "The Rose Also Has Thorns"

Written by James Dines
Posted January 11, 2019 at 7:00PM

Publisher's Note: Today we're bringing you the legendary Mr. James Dines' current market analysis.

Mr. Dines was right on the money with his recent call in The Dines Letter to get into gold and with his crucial sell call on the S&P 500 last year.

If there is anyone to listen to right now, this is the man.

To your wealth,

Nick Hodge Signature

Nick Hodge
Publisher, Outsider Club


"We predicted that the 21st Century would someday be called “The China Century.” We add that since civilization and prosperity has in the past moved west across the planet, it will continue to do so, bringing great prosperity to India and Africa starting the next decade."
— James Dines, Mass Psychology, 1996

Skeptics were Greek philosophers who doubted that the truth, or real knowledge, was possible. The group called Skeptic was founded by Pyrrho, who took the name from the Greek word skeptikos, thoughtful thinking. They concluded it was impossible to reach a conclusion about anything. These days skeptic simply means, “not easily convinced.”

It’s difficult to believe that only one year ago the stock market was soaring skyward, led by hi-techs, seemingly creating one fantastic discovery after another, on a scale not seen in America since the late 1800s. It took guts to sense that a major downshift was in sight, despite rising markets and nearly everybody overoptimistic. But we understood that anticipating downers would be a key path to safety or retaining serious profits. We flashed our crucial “Sell” on the S&P 500 average right near the all-time high and also remained bullish on gold, toward which nearly everybody was skeptical. That fanatic optimism on stocks and skepticism toward gold continued well into 2018. But 2018’s purported bull market turned out to have been a rose with thorns. Throughout 2018, one stock after another got picked off, surreptitiously. But leading averages didn’t begin to visibly break down until October 2018, when the rose’s thorns triggered the reaction of an increasingly vicious bear market.

Our February 2018 “Sell” might later be looked back on as one of our best calls ever, as it occurred at a time when nearly all of the investing world’s advisors were unswervingly pursuing overpriced stocks, with around 70% of them bullish. We compared the sentiments with those before the infamous 1987 crash figuring the decline we predicted would be steep. Our policy was, since our “Sell,” to get out of hi-techs and bonds, and into golds, silvers, and pot. It was a lonely and daring path in 2018, comparable with when we dumped Internet stocks in 1999, even though we were “The Original Internet Bug” at the time — after which they indeed began to crash!

Zooming in, we concluded that our 2 Feb18 “Sell” was preparation for either a general market Top, or group rotation in an ongoing bull market. Meanwhile the majority waited in vain for a decisive upside breakout, and we were not fooled by the false upside breakout because it had not been confirmed by DIDM (The Dines Internal Deterioration Method).

Employing what we call DIDM, after our “Sell,” we could see subtle bent blades of grass in the form of declining stocks that had formerly been in non-stop rises, led lower by the “FAANGs” (Facebook, Amazon, Apple, Netflix, Google). Hi-tech stocks generally edging lower began to convince us, as 2018 progressed, that there was a bear market lurking, and we repeated those skeptical thoughts in every single TDL (The Dines Letter) since February 2018.

Furthermore, DIDM was international in scope, producing confirmatory evidence of serious menace ahead. We explicitly and regretfully pointed to emerging downtrends in China’s national champions: for example, Tencent, Alibaba, Baidu, and JD.com — some down whopping percentages of 50%! Our caution was not heard by the masses, except for our TDLrs, as the investing world was unskeptically admiring the roses while ignoring the increasingly painful thorns.

Nearly everybody was overoptimistic on China’s economy, because it is so big, without understanding how economic news relates to a stock. A corporation’s profits do not guarantee its obediently correlating with fluctuations in the stock market. That is why a good company’s stock could go down even in good times. And why we have predicted that someday mass psychology would be a routine facet of security analysis: because we see for ourselves that it works.

Taking a step backward in order to better spring forward, after a historically long bull market, with stocks having gone up for around nine years, many were surely overpriced. Even with good prospects, they were overdue for at least a correction.

As we imagined a theoretical investor who had proceeds from the sales of some stocks, we pondered where the majority of that money would go? How could TDL anticipate that next stampede, so we could lie in wait upstream, like bears before a salmon run?

Our specialty is recommending buying “upstream from the herd,” where the cleanest water — and the biggest profits — are available to those investors who arrive first at the river — before the swarm of others. We have often luckily recommended new bull markets first, near rock-bottom prices, before they became popular, and then waited patiently for the big “killings” that have time after time so gratifyingly ensued. That has been our proven, long-term method for seeking exceptional profits. Almost nobody gets to buy at the bottom penny and sell at the top mill, so the goal is to just get as large a slice of a new major uptrend as you could — keeping in mind you are responsible for your final decisions. We thought long and hard, trying to anticipate where and when frightened capital would shift after selling hi-techs. We considered defense stocks because of the whiff of war in the air, as President Trump insisted allies spend more on defense, and we will cover some of those tensions in the Geopolitics section below. And in future TDLs.

We anticipated that some frightened sellers would immediately jump into short-term paper likely to preserve their wealth, for example U.S. Treasury T-bills. That’s not a bad choice for near-term action, while providing a little income, but it is basically neutral, postponing ascertaining to which groups normal market rotation would next go. Utilities are sometimes okay, with generally assured dividends, but even this group sometimes goes down during certain types of bear markets. The DJU, for example, dropped 10% this December alone.

We also predicted some capital would flow into US Treasury bonds. As expected, in December global investors made the largest-ever shift into bonds! But we were against that choice because the US Treasury bond remains in our predicted long-term Major bear market, and our charts display that we literally begged our subscribers to sell them. Luckily so, for bonds indeed declined in 2018 — but they did so slowly enough that it wasn’t a bad place to briefly park some money until the market plunge resolves itself. Please keep in mind that the bond group is in a slow, long-term bear market. Care must be taken in selecting bonds. But junk bonds? Run for your life! You’ll find no advisor who’s been giving advice more specific than “run for your life.” The only advice from Wall Street more specific than that would be a margin call. Incidentally, we have always been strictly against going on margin* — except for sophisticated investors who use appropriately aggressive stops assiduously.

Because the world in 2018 had bought into the idea of perpetually rising stocks, hook, line, and sinker, we also concluded that declines in the FAANGs would eventually arouse the demons of Mass Fear; additionally getting stoked internationally, by Russia’s geopolitical actions and China’s coming crash. Employing mass psychology, we recognized that in the past, mass fear nearly always involved a shift into gold and silver as “safe havens.”


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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