Mr. Dines: Suddenly the World Has Changed

Written by James Dines
Posted March 21, 2020

Publisher's Note: Today we turn to legendary investor Mr. James Dines for his take on the market chaos coming from the pandemic.

As usual, the insights from his experience provide a great perspective, especially when it comes to precious metals.

Call it like you see it,

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Nick Hodge

Mass Fear stalks the world, and the plain truth has rarely been more important. It’s been only 2½ months from the blind over-optimism of late 2019. No need to repeat the sad litany of effects on life already mentioned on the first page, but a devastated travel industry reaffirms our longstanding predictions of “The Coming End of the Age of Travel.” Curiously, despite the remarkable plunge in stock prices, almost nobody is using the word “crash” — perhaps too awful to contemplate. The world as we know it has changed, and will not normalize until this “plague” has played all its cards.

The truth is, modern science can’t create a cure fast enough for this invisible new virus, where symptom-free victims could transmit the disease. On the positive side, there has been a mercifully low fatality rate, so nearly all of us will survive. Do your best, be cautious, thoughtful, concerned, considerate, and truthful — and be patient.

We’re waiting to see if an international agreement emerges to handle future outbreaks for the next virus — and there will surely be one. It would lead to more intelligent handling, anywhere in the world — with an immediate compulsory quarantine, enlarging the containment circle for escaped particles of virus. Enforced militarily, with drawn bayonets, if necessary. In the first hours it is crucial to contain a new monster virus before it escapes, not after — as has been the failed past policy. One rule would be to halt all entrants from anywhere infections exist — by a fixed number of miles — or else a strict quarantine.

We recommend adopting one of the comforting High States: to do our very best possible, and then love whatever we get, because that’s all we’re getting.

A suppression of truthful language can be a type of lying. In China, desperate to “look good,” police pounded on Dr. Li Wenliang’s door at midnight to sign a statement that he had made “false statements” regarding his earlier warnings on the virus. Imagine if China instead had made him a hero, China would have looked heroic and decisive. China’s leaders do not really comprehend DINOPA (The Dines Nature of Paradox). Guilt-ridden, a defensive China now protests having the virus named after China. Nobody would blame China for the virus, it’s the virus. From the Spanish flu; to Lyme disease near Lyme, Connecticut; Rocky Mountain Fever from America’s Rocky Mountains; to Ebola virus for a no-name tiny village near the Ebola river; the custom has been to name the place of origin — not for blame, but like Pearl Harbor, as a memorial for the tragedy inflicted on it. Result — China’s objections are counterproductive, and have only called more attention to Dr Li. TDL is calling it Wuhan virus (not the currently fashionable “COVID-19”). We resist the alternative mentality that at first covered up the new virus in the Low State of Suppressiveness — a quarantine at that moment would have worked. Now the disease will have to run its expensive course, proving again that an ounce of prevention is worth a pound of cure. Instead of focusing on appearances, governments should focus on the health of their people as paramount. China suffered another virus recently that had devastated its pork industry. Why not focus on why lightning had struck twice? China has had two major viral tragedies, and repeated failures are a sign of Low States.

What to Do Now

Meanwhile, we excogitate on how to lead your investments. What concerns us is the simple truth that, due to the speed with which the Wuhan virus has raced around the world, travel and business restrictions are affecting millions, and that won’t be good for business. Even now, nobody seems to mention a “crash” in sales and earnings to be reported next month that would reveal just how brutalized the economy had been and could provoke another round of stock selling — we’re still bearish. But we’re looking for a near-term market rally, followed by a decline when first-quarter earnings are announced. We always try to drink upstream from the Herd, for the cleanest water, and we hesitate before recommending buying into these violently wild markets.

The situation is intensified by the crude oil crash in the battle of the world’s control of oil production, between Russia and Saudi Arabia, adding more unemployment to the situation’s stink. Global oil demand is headed for a record annual drop, due to global oil consumption being in a free-fall. The travel bans, work-from-home, cancelled vacations, and disrupted supply chains all mean reduced demand for fuel — and painful layoffs for the energy industry. There is already an increasing risk of a stock market remaining at depressed levels for a while, spearheaded by the economic fallout from the Wuhan virus. If the current crude oil crash continues, there will be a “decline” of gangster governments squanderously living off their oil inheritances, who will need to start looking for other ways to generate wealth.

The Wuhan virus had been understated by markets in early 2020, and now it is getting overestimated. There are fears of another 2008-like recession, and justly so, because those two years are connected by a long-term downtrend, that are concealed beneath floods of unbacked paper money. That itself will aggravate a bear market. The Wuhan virus is merely a precipitant of another recession. Actually, TDL has been calling America’s economy as being in a recession since last year.

Stock markets are sensitive to current events and future profits, and stocks are rallying on news that Washington is planning to spend trillions of dollars; but all politicians can do now is treat the symptoms and use orders to “shelter in place” to slow down the virus’ spread and to avoid overwhelming medical facilities. It is also a positive that stocks have not fallen that far — a drop by leading averages of 30% is just the start of the statistical threshold of a bear market, and investors have survived many of them. Also comparing with 1987 bear market: There was a one-day drop of 508 points, which doesn’t sound like much now, but the Dow was only at 1,739.

America’s Fed has lowered interest rates to 0%. The inflationists have had their way. TDL has always insisted low rates would not solve the problem of having recklessly increased debts for the last 90 years. Deflations are almost as invisible as a virulent virus at its onset, during massive debt creation.

The declaration of a National State of Emergency, also having called it a “pandemic” on March 13, 2020, led to unleashing untold billions of dollars in the U.S. Governments worldwide are also boosting spending. We hope it works. Just in case, we’ll stand by maintaining haven assets. This is not over yet. The worst case is yet ahead, as all this extra “stimulus” (printing unbacked money) will eventually cause a hyperinflation. But we’re unaware of any other prominent Security Analyst even using the word “hyperinflation.”

How to invest in this emotionally turbulent environment? TDL foresaw trouble late last year and repeatedly raised the topic of “havens” — for example our 2020 Annual Forecast Issue. Anticipating Mass Fear, you are already well prepared as we focused on classic havens: precious metals, bitcoin, bonds (still overpriced), and plain cash; accordingly they tend to move as a group. Presumably with lower risk. Avoid junk bonds, utilities, and the non-haven Japanese yen. Our surprise has been the drops in precious metals, but that does not change them from being havens. Our take is that panicked investors had been dumping anything still at a profit, or to meet margin calls, triggering stops. The truth is, as we headlined in our 2020 Forecast Issue, “Gold is the Ultimate Haven.” We recall the stampede in Hong Kong to buy gold coins from China on December 30, 2019. According to the city’s Census and Statistics Department, demand leaped from 14 kilograms in October to 3,246.5 in November. We believe the latest plunge has depressed precious metals into a bottom area and would buy golds and silvers now; indeed, there has even been a rush to buy silver coins recently! Mass Psychology can evidently equate silver with toilet paper.

With gold havens having just rallied, we ponder what the market is telling us. A cure for Wuhan virus is possible, but unlikely yet. Our Technical Indicators are deeply Oversold, so rises might be based on hope that the trillions of dollars due to be spent by governments worldwide would keep economies moving — superficially good news, albeit like clutching at straws.

We’re staying with the havens — gold is not going out of style, and gold miners’ gold ore does not get stale. Gold and silver will eventually be countertrend to a market decline. We’re still not confident how the Mass would take the coming actual economic news. If the Mass realizes that nearly all of us will survive, then it is conceivable to anticipate a possible new all-time high in stocks, believe the unbelievable or not. After all, the lower stock markets get, the closer they get to a great new “Buy” signal. Same is true for gold and silver. That’s the hope.

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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