Mr. Dines: Begin With Understanding the Current Underlying Realities

Written by James Dines
Posted June 27, 2020

Publisher's Note: Today we're bringing you an excerpt from The Dines Letter.

Few have navigated the market as expertly or with such breadth as Mr. James Dines. Even in this time of great uncertainty, his insight and guidance have proven as strong as ever, especially regarding precious metals.

Read on to learn from Mr. Dines yourself.

Call it like you see it,

Nick Hodge Signature

Nick Hodge


Do not all you can; spend not all you have; believe not all you hear; and tell not all you know.
Chinese Proverb

 

What has a decent chance of making money in this market featuring wild, roller-coaster, tummy-clutching thrills? The answer, as always, begins with understanding the current underlying realities. What are they? 

They are twofold: One is in Mass Psychology, as Mass Fear stalks the world. The current pandemic will leave a historic imprint on the world, surely to reach future Hollywood films and books. The Mass is deep-down frightened, thus stocks are lubricated to leap higher or lower with considerable unpredictability. Its volatility is also an opportunity to buy lower.

Second is the struggle for world leadership between China’s leaders and America’s, with both protagonists having been deeply wounded by the virus. This stress also features a nascent cleavage within China itself, as Hong Kong’s youth stood up against hopelessly high odds — predicted by TPG. The remarkable bravery of Hong Kongers must have been unnerving to China’s communist leaders, so determined to avoid any criticism, a desperation that in itself unmasks a mordent insecurity that activates DINOPA. Perhaps it will be China’s population who saw that it had been treated as expendable by its government during the epidemic.

China’s leaders’ coming focus will be on control of the Pacific Ocean, their military’s eastern flank. Australia, on America’s southern flank, is already at odds with China’s leadership for having had the guts to demand a formal inquiry into the origins of the Wuhan virus. It was a daring move because it will cause China to inflict financial hardship on Australia. America should step in and buy Australia’s barley, or find an ally who would.

Amidst these tectonic collisions is Taiwan, lusted for by China’s geopolitical imperialists, keenly watching Hong Kongers struggle to remain free — growing even warier of being subsumed into China. 

After decades, Washington has finally gotten stern with China’s leaders, a huge change in America. TDL’s (The Dines Letter) focus will be on clues that suggest investment opportunities leading to substantial profits. Washington’s attack boldly focused on one of China’s favorite companies, Huawei, an arm of China’s leaders designed to gain future growth in artificial intelligence for “The Coming Age of Robots,” 5G, and driverless automobiles. So we ask ourselves how to lead TDLers investing in these areas, a special challenge because the future is murky. We have a stock in mind, top chart on the next page. China tried to buy it, along with its rich palette of patents in 5G and artificial intelligence, but was blocked by Washington, an example of the growing possibilities of what could be bought using easily-printed currency. 

China’s leaders have been trying to acquire semiconductor companies worldwide, as Huawei cannot currently match the capabilities of America’s established manufacturers. They just cleverly print all the money needed to buy such companies — copied from America’s equally clever playbook since World War II. TDL has long reported on China’s leaders using this game to buy control of elements and key minerals, especially the Rare Earths crucial for building modern technology — from smart phones to missiles. Withholding Rare Earths from America would be a counterattack that China has not yet activated, similar to its cutoff of Rare Earths to Japan in September 2010, but our guess is that its leaders are being carefully constrained to hold that ace for future use. A desperate Japan quickly gave in to China’s demands to ensure its access to Rare Earths. So the Rare Earth stocks are an attractive investment, the reason TDL became “The Original Rare Earth Bug” (22 May 09, page 1). China's dominance decimated the U.S. Rare Earth industry even before the new millennium and it will take a massive effort by America’s government and private sectors to reestablish local production. TDL repeatedly sounded the alarm, including back when China through CNOOC, tried to acquire Unocal in 2005, even offering a $1bn premium for the oil company. Luckily the U.S. government obliviously foiled the bid based entirely on the oil resources being too close to military installations. But TDL noticed what they did not: it was the significant and hidden value in Unocal's Molycorp, which owned the Mountain Pass Rare Earth mine! 

Molycorp was relaunched in the stock market in 2010, fortunately delivering an 89% profit to TDLers after it got stopped out. Molycorp nonetheless did not survive ruinously low prices, controlled by China's "cartel," and filed for bankruptcy in 2015. As for Molycorp's epilogue, its assets were acquired by Chicago hedge fund JHL Capital, New York's QVT Financial, and China's Shenghe Resources. We don't need Sherlock Holmes to know where the assets are really going. 

China’s leaders have evidently long been preparing to be able to cut off America’s supply of key materials, including Rare Earths, but now both behemoths are circling each other for the world’s power primacy. TDL has always been very proudly patriotic to America, so as “The Original Rare Earth Bug,” we have never given up trying to awaken Washington to those chemical elements China’s leaders are cornering (new TDLers see our Rare Earth history in the Introductory Kit, received when you first subscribed).

America’s assault on Huawei is a big deal, with an impact on the Mass Psychology of China’s leaders; also its masses who are also victims of a totalitarian state even more severe than George Orwell himself had imagined in his blockbuster novel 1984.

Those are the risks we envision, though we still strongly hope China’s people and America’s would be good friends. TDL has favored fostering friendship with China since we became “The Original China Bug” after Mao died, because we foresaw its role as the world’s primary power this century, and have carefully covered it in TDL since then. We had been warning America to seriously prepare for that power challenge, only now heeding it.

 

Do not spoil what you have by desiring what you have not; remember what you now have was once among the things you only hoped for.
Epicurus

Two adjectives that are sometimes confused are restive and restful. Restive seems restful, but is almost the opposite. Restive means “difficult to control, restless,” whereas restful is “feeling calm, or relaxed.”

These days, normally restful summer days are instead intensely restive, with worldwide street protests, lingering fear of the Wuhan virus, China’s acquisition-seeking imperialistic leadership now being expressed by military tensions with India, Pakistan, the Philippines, Vietnam, and in the South China Sea. Not to mention Iran’s nuclear program, the Middle East, restive North Korea’s missile tests, and Jihadis in Africa’s Sahel region. No wonder stock markets have been gyrating wildly. 

In spite of investor’s total bullishness last December, we dared to be cautious in our 2020 Annual Forecast Issue (1 Jan 20, page B). Our foremost observation of 2020, since late 2019’s blind overoptimism by the world’s investors, only 6 months ago, has been the remarkable speed of changes. For example, the rapidity of the world’s spread from optimism to bearishness in early 2020 struck us as remarkable. Another dazzling occurrence that fell below the Mass Media’s radar was gold and silver, which suddenly outperformed many market averages.

We spoke out about the Wuhan virus in January, detecting it in early January, the only public voice in the world outside China, immediately writing an IWB when we learned about the virus’ first death on 11 Jan 20. Even then, in the mere 10 days until we published our concerns about the “mysterious new virus” in the IWB of 21 Jan 20, there had been an additional five deaths, which chilled us at the time. 

Then, in April, with the world in hand-wringing anguish, at the depth of the depression, we turned bullish by flashing IWB’s first “Buy” signal on 7 Apr 20, only 2 weeks from rock bottom, again shocked at the speed with which markets lunged upward. Finally, only one day after our next IWB “Buy” signal on 4 Jun 20, the S&P 500 exploded 4% higher, catching much of the investing world flat-footed. We even recommended an airline stock, which had recently been unceremoniously dumped by fabled Warren Buffet, and it too leaped only one day later! Clearly, we are in a period of high-velocity, directional shifts.

One thing that has not changed recently has been the surprising strength of gold and silver, with gold bullion within 9% of its all-time high, plus silver is still holding firmly in the high ‘teens.

We now strategize to avoid being caught wrong-footed, as had been some of the world’s prominent investors, and are alert for more dazzling and surprising shifts. What to do next? Both stock markets and precious metals are in uptrends, and we’re remaining with that until we detect the next directional change. 

Specifically, the S&P 500 Average is still on its “Buy” with an initial “Sell” stop. We added three short-term trades in our IWB of 6 Apr 20, two of which are in powerful uptrends; downgrade them to “hold,” or sell when you are satisfied with your profit and don’t look back. We also recommended other stocks in our IWBs of 20 May 20 and 3 Jun 20.

Here’s the bottom line for us: stock prices are near their all-time highs, during an international economic depression. With China’s government considering postponing its purchase of soybeans from America, and street unrest raging, we feel the risk of a market decline after a rally this high. The aforementioned street protests were predicted and pointed to in our TDL of 18 Mar 20 (page 5). 

Personally, we believe the fearsome Wuhan virus is close to mutating away from menace, so a restful awakening from the nightmare is coming soon — even restaurants will recover, believe the unbelievable or not. TDL is today operating on the theory that stock markets will generally keep rising, despite temporary profit-taking dips, with Nasdaq already making a new all-time high. Nonetheless, after a rally this steep, some selling is likely, so we would try to do new buying during dips. The uptrends of gold and silver will likewise have minor declines, yet another splendid buying opportunity for far-sighted investors. Keep in mind that a restive market changes constantly. 

The sun still shines, the world has not ended and it is time optimistically to reopen the world. Why? One reason is the little known graphic (on page one) revealing that investors are loaded with too much cash, and those funds will be burning holes in their pockets, a source of quick changes — including an economic pickup.

TDL’S Latest On Gold:

What Will "The Coming Currency Crisis" Look Like?

Too few believed when TDL predicted “The Coming End of the Age of Travel,” and “The Coming End of Jobs,” both of which came true during the current pandemic. We also predicted “The Coming Currency Crisis” that would lead to a gold bull market. Might that also come true? A declining U.S. dollar suggests that the breathtaking printing of trillions of “stimulus” dollars could trigger the currency crisis about which we have been warning, and that it would have a serious impact on stock markets.

What could we learn from history’s other currency crashes to prepare now for self-protection? One example is Lebanon, whose currency is currently in a freefall. TDL insists that the overprinting of an unbacked currency, with more money chasing the same goods and services, would boost prices at first. Indeed, the Cato Institute estimates Lebanon’s annual inflation rate is at an appalling 181%, including soaring food prices that require the population to pay nearly 80% of its income on basic sustenance alone — leaving only 20% for all other necessities. Meanwhile paper money is flushing into real estate, expensive cars, art, alcohol, and paying off debts. Furthermore, the scramble to extract U.S. dollars from Lebanon’s banks has even resulted in its banks closing. No more U.S. dollars from banks. Locals now call Lebanon’s pound “toilet paper.” Only foreign donations could save the Lebanese pound and these days donors are either unwilling or unable to help. There is no mention of gold, Lebanon’s obvious solution. Now listed at 2.6m LBP/oz, the actual price is 3 times more than the one based on the current exchange rate, for any sellers crazy enough to trade gold for paper Lebanese pounds. We doubt there are any such trades there.

Here’s the payoff: In a currency upheaval, the Mass Psychology would favor a flight to gold and silver, and the Mass is beginning to “get it.” That line of reasoning — supporting our theory of what we call a “Super Major Bull Market” for both metals – means precious metals are places to consider for long-term investing.

Gold is not being heard in much of the mass media; they really somehow don’t see, or even consider that it could have a bull market of its own. The reason is, the media doesn’t include Mass Psychology, which is very important in TDL’s predictions. Social unrest reflects Mass Fear, aggravated by growing stresses between America and China, the world’s two largest economies, as mentioned above. Furthermore, the media doesn’t always acknowledge that the pumping of untold trillions of dollars of “stimulus” like heroin into an economy would have actual consequences. Inflationary concerns are seeping into the Mass Mind, and early goldbugs are already on the scene, aware that too much paper money printed by the government chasing the same amount of gold should boost gold; next, silvers; then low-priced gold and silver speculative stocks — that’s TDL’s prediction.

We have long recommended buying gold coins, albeit never keeping them on your person or stored anywhere near your residence. However, we changed that policy in the major coin feature in our 2020 Annual Forecast Issue (page 3).

Unfortunately, some of our top gold picks are no longer near their rock bottoms, so new buyers are no longer able to buy upstream from the Herd. The next option is the low-priced sector of gold and silver stocks, still reasonably near their lows. They tend to be more sensitive to gold price changes, so if gold is destined to rise — then low-priced golds should also have a rise. In previous gold bull markets, speculatives have more than doubled or tripled, so for those who could afford the risk it’s worth putting an appropriately small amount of capital into some — especially on lower prices. Not just an ETF, but the underlying stocks themselves, to keep control of when you choose to sell the ETF’s contents. We added some low-priced recommendations in our IWBs of 19 May and 3 June, and they’re holding up, but aren’t too high yet.

Gold’s third wave could unleash an assault where “the sky is the limit.” The risk of the current inflation morphing into a dreaded hyperinflation is not mentioned by any other prominent forecaster in the world.

What’s “the next big thing”? The tab. That’s right. The world has had a great feast for many years, including trillions printed to foil the Wuhan virus, and the bill must next be paid. 

Imagine, those trillions — some say it was four, others ten — sloshing around. What about inflation and deflation? Their secrets are not everywhere. TDL has tried to cover this topic for a long time. Nobody in academic economics now agrees with us that America is already in a deflation, and that it began in the 2008 stock market smash (the so-called “Great Recession”). Yet government economists have no answers as to why they themselves admit that they are puzzled as to why there is “no inflation” and why interest rates are below zero for the first time in history. TDL’s conclusions have answers to them. The 2020 downwave has been much more intense. Prepare for a third one. In life, the trend is not always our friend.

 

Silver’s Coming Upside Breakout

Silver continues to sneak higher, still evidently unnoticed by nearly all investors, and we continue to predict a major silver bull market, despite a deafening silence from the rest of the investment world. TDL has been alone in strongly calling this an all-out silver bull market that could see doubles or even triples in mining stocks. But time is running out. Buy some of our silvers before their bullishness erupts into the Mass Mind. Our IWB of 3 Jun 20 suggested a significant shift in our thinking, as we prepare you for the next phase of gold and silver recommendations, focusing on the laggards.

 

Latest Geopolitical Outlook:
Latest on TPG

The beginning of wisdom is to desire it. TDL’s Political Gamut (TPG) is like a piano keyboard, or thermometer, an opinionless measurer, shared in our Mass Psychology book (page 111). (We have enclosed a free update of the TPG graphic with this TDL to keep at page 111 of your book.) Our recent comments have been twofold: down at Box #10, TPG predicts ever-greater centralized power in governments. That said, preparations for war continue. 

 

Latest On Health: 
The Next Virus

 

Did you hear about the hypochondriac who was cured by the doctor simply saying, “Your insurance won’t cover it?” Or, who said, “It’s the first sign of old age?”
James Dines, One Liners

Above all, a more sober world will take health risks more seriously, correctly viewing health as surely more valuable than other things. Without the best possible health, everything else is diminished. We have always insisted on covering health in TDL, often calling it TDL’s most important feature, and we include many condensed health excerpts. Nonchalance or carelessness is to be firmly avoided, and keeping up with the latest health news is of the utmost importance, in a scary world where one new virus after another unceasingly hunts down humans, then pets, and even our food sources. Increased viral attacks really will lead to a great awakening, worldwide, expressed in ways deeper than wearing a face mask and rubber gloves. 

TDL was the first prominent voice in the media to alert the world to a new virus, in a no-name town in Central Africa’s Ebola River. We had first noticed it in the 1976 outbreak, and suspected it to be a “monster” as soon as we saw it, but didn’t immediately write about it. We did react to the next outbreak (see TDL of 28 Mar 14, page 10); but nobody seemed concerned, or even aware of it. The world probably shrugged it off because it only killed poor people. Even Dr Anthony Fauci, of the WHO, brushed off Ebola as unimportant because it burned itself out quickly. His reply horrified us because Ebola killed every last person in the village! By the time the outbreak was over, Dr Fauci warned about it: pessimists too late and optimists too soon. 

The Congo has recently reported a new Ebola outbreak — its fourth in the last three years. Four people have died, evidently not a big enough number to get in the headlines. International travelers are advised to keep Ebola’s outbreak in the back of mind. We have frequently commented on Ebola, because TDL still perceives it as a menacing pandemic. We dread somebody infected, with no symptoms yet, getting on an international flight to anywhere, infecting the other passengers. This time WHO is awake.


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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