Mr. Dines' Big 2020 Market Analysis

Written by James Dines
Posted January 11, 2020

Publisher's Note: The Annual Outlook issue of The Dines Letter is a must-read. Today we're bringing you Mr. Dines' analysis of the state of the market and the most promising investments in 2020.

Call it like you see it,

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Nick Hodge

After the vertical and unified skyrocketing bullishness of stocks in 2016 and 2017, on February 2, 2018 a “Sell” was finally flashed detecting a coming change in leading stock averages. We stated uncertainty as to whether that new trend would be either a group rotation or a bear market.

We’ve spent the last two years reporting on that “group rotation,” exemplified by our switch out of FAANGs (Facebook, Apple, Amazon, Netflix, and Google) and into precious metals, which was a solid one.

Our last TDL demonstrated that silver has outperformed FAANGs more than two-to-one (151% against 60%). Internally, we detected many other groups rotating downward, including commodities, the transportation sector, and automotives.

In other words, the unified bull market of three years ago, as predicted on February 2, 2018, has splayed into a market of disparate stocks. For the last two years, leading averages have been locked in a “Consolidation,” a "neutral trading range.”

We had especially turned bearish on China’s stocks, sensing its downturn, which has already come true.

Group rotation means the chances of doubling your money when the old favorites diminish. TDL’s next focus has been predicting precious metals would rotate to the next dominant leadership. We specifically flashed a “Buy” on gold stocks on February 5, 2016.

Ask a broker how the market is, and chances are you’ll be told what “the averages” are doing. But that reply is not the average of your stocks, a separate question. The S&P average has risen 21% since Dec 2017. Apple (APPL), Microsoft (MSFT), and Google (GOOGL) have led the averages higher, a thinning of market leadership, but to buy them after their enormous rises is not easy.

Averages have been distorted by strength in Apple and Microsoft. Consider that when Apple makes money, it pays its expenses and dividends, and with the remainder buys back its own stock in the market, thus diminishing the supply of its stock! Institutions keep buying into this self-feeding loop, in harmony with Apple’s management, and returns to them a secure current dividend yield of 1.06%. Further, in case of another 2008-type decline, who would buy large blocks of high-priced stocks if something induces investors to sell?

In 2008, there were too few buyers of high-priced stocks, and prices tumbled. For all anyone knows, the world’s economies could keep deteriorating even while America’s stock markets ascend, but even so — which stocks to buy to benefit from it? We’ll have to proceed selectively as 2020 evolves.

In conclusion, we feel it would be better to try doubling your money in the precious metals sector.


Shockingly, we still believe a recession has already begun. Markets in 2020 will surely be heavily impacted by America’s elections. But there is also a world of problems these days.

Our November TDL pointed out slackening economic growth worldwide:

  • Germany is enduring its worst economic slump in a decade, featuring rising unemployment
  • Latin America is roiled by political upheavals in Chile and Bolivia, also Venezuela, with financial instability in Argentina and Brazil
  • An economic “slowdown” in Europe, South Korea, Thailand, and India
  • A “slowing world economy” (as it is described by the world’s media) has been eroding airline earnings
  • Natural gas prices have crashed due to lower economic demand
  • The Saudis have even begun to bail out by selling part of their crown jewel Aramco.

Many optimists are blinded by record-low U.S. unemployment, but this is a lagging Indicator; and many of America’s so-called “unicorns,” hi-tech startups worth over a billion dollars, have dropped precipitously soon after having gone public these days –same for China’s.

The breakdowns of many big IPO stocks and hi-techs are a sign of growing risk aversion reflecting a type of mass psychology that is often a sign of an economic top. There has even been a decisive downturn in automotives: Specifically in China and India, with 36% of the world’s population.

We still stand by our prediction to avoid investing in both nations right now. Numerous other countries look headed for recessions.

Is there any good news? Yes, definitely. As noted in our last TDL, a recession does not guarantee a market decline. We must thus look to our charts, and the leading stock markets are advancing above their rising moving averages, the standard definition of a bull market. The market is exemplifying the saying that, “A bull market climbs a wall of worry,” which implies higher averages.

Does that always work? Nothing does in investing. Still, it’s been 11 years, the longest bull market in American history, and every cycle has ended with a top, suggesting that an economic downturn is overdue. Perhaps the current internal rotations will continue, but we’re content holding rising precious metals — that those havens are rising actually adds to our foreboding that something might break. We’ll have to move quickly when it does. A way to play this, for TDLers who choose not to buy precious metals, is to be bullish, with a stop-loss trigger just under uptrendlines in the averages’ charts.

What is the single dominant force in stock prices these days? A panic to secure income! Buyers will desperately bid up the prices on any income stream, even a bond to a below-zero yield! We’ve never seen anything like it. Today’s sky-high historic prices for virtually any income stream brings the risk of capital loss.

"Why now?" we wondered. We suspect because the world is awash in governments printing money as fast as they could, to “stimulate” their economies. Investors with that cash seek income, but with interest rates below zero in many nations worldwide, buyers are indiscriminately hammering anything with an income, including so-called domestic “high-yield bonds” (junk bonds) and “emerging markets” bonds (risky speculatives that also pay higher interest). What you don’t owe won’t hurt you.

Again, the key fact that countertrend prices in precious metals also suggest the sunset on the markets might no longer be distant. Nobody is expecting rising interest rates — but we begin to perceive them, believe the unbelievable or not. Also see declining prices in retail worldwide, and some stock-market commission prices are now down to zero(!) at many brokerages. All are early signs of the unexpected deflation.

Our November 2019 TDL predicted: 1) an upside breakout, 2) followed by a downside breakout. We got the upside breakout right. So far, nearing the end of 2019, the downside breakout has not yet happened, and averages instead have kept rising — albeit overbought during the traditional Santa Claus rally. If averages don’t turn down soon, we’ll have to restructure our plans and hunt for undervalued stocks that might double.

The project is to figure out which stocks to recommend as the current leading choices have been rotating so frequently. Perhaps a good choice would be to buy a financial instrument measuring the entire market — or to buy an income stock that an acquisitor in the hive might find attractive — even at a high price.

With so many balls in the air — a contentious presidential election, restructuring the world’s supply chains, risk of wars, worldwide street protests in India, Chile, Iraq, Hong Kong, and even Iran, in addition to the economic concerns discussed above — all suggest that investors should be wary. A rush to seek refuge into countertrend gold could induce gold and silver prices even higher than almost anybody might now expect.

Rich or poor, it’s good to own a lot of gold; and you can quote TDL on that.

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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