Mr. Dines: What Happens Next

Written by James Dines
Posted April 6, 2019

Publisher's Note: Today we're bringing you an excerpt from the most recent edition of The Dines Letter.

So far things are going as Mr. Dines predicted in his 2019 Annual Forecast Issue. Here is what to expect next.

Call it like you see it,

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Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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You may have to fight a battle more than once to win it.
                                                     — Margaret Thatcher

Luckily things are going precisely as laid out in our 2019 Annual Forecast Issue:

Stock markets: We had been looking for a sudden and steep plunge in 2018, which has come true.

Rally in early 2019: As we finished our Annual Forecast Issue on 28 Dec 18, we three times mentioned a rally “early in 2019,” which has come true.

Upside target: We even dared to do the unheard of by guessing at an upside target of 2,600, updated to 2,750 in our last TDL, and that prediction has come true.

Pot stocks: We predicted a continuation of the roaring bull market in pot stocks, which has come true.

Golds and silvers: We flashed a “Buy” signal on golds and silver shares on 28 Aug 2018; looking back, our “Buy” was within a few days of the lows, and its subsequent uptrend is coming true.

Looking ahead from the above predictions that have already come true, the following is what we expect to happen next.

A) America will next be increasingly dominated by the 2020 presidential election. While we stay out of politics, we predicted in our TDL of 30 Nov 18 that “the real cause of a bear market” might be rooted in clashes between socialists versus Trump’s capitalists. We based that prediction of vicious polarization and political hostilities on TPG (TDL’s Political Gamut), developed for serious market students (page 114 of your Mass Psychology book). Previously, we had used TPG in 1999 to predict more government control coming, with a move lower on the TPG keyboard from Box #1 toward Box #9. It indeed turned Southward on the day of the 9/11 horror, with increasing government controls ever since. That has come true.

Our next prediction has been that there would be a belated backlash, toward less government, more privacy, and peace — and we’re vigilantly watching for that nascent move, currently concealed, to show its real course. We predict that the world is in for very big changes, more positive ones, as is typical of Northward TPG moves.

B) Which way will stocks go next? Every unusual or headline-grabbing fact about the stock market precipitates interest in us because that is the beast’s only language. The DJI was dragged down by Boeing, which made an incomprehensible blunder by not having immediately grounded its new 737 Max airplane after the second tragic crash in six months. Sitting by while nation after nation grounded the plane, and numbers of passengers refusing to fly in them, Boeing had to wait for the FAA to ground the planes. Its stock has plunged, and a great historic reputation has been besmirched, due to having appeased the Low States of False Pride and Selfishness. Boeing’s first concern should have been passenger safety, in the High State of Service, regardless of short-term profit. Low States activate Paradox, meaning losses will come as punishment.

We continue to roll over in our mind’s eye that the current S&P price of around 2,800 is almost the same as our “Sell” signal on 2 Feb 18, more than one year ago, at 2,770! We reflected on those amazingly unchanged price levels despite the world’s intervening ups and downs, including America’s government shutdown, tariff negotiations with China, a recession stalking Europe, soft Asian markets, negotiations with North Korea, plus other geopolitical crises, all coming to a net-neutral confluence. We ponder what all that might signify.

At the time of our “Sell,” we started to predict in TDLs that markets would either plunge into a steep bear market or go through what we called a flat “group rotation.” The latter has so far been coming true, with leading averages flat despite egregious “Internal Deterioration” (DIMD)*, from which additional new leading groups are sure to emerge. The key question is, which areas would be the next big movers?

It is still not clear whether our singular switch out of growth stocks such as FAANGs around one year ago, and remaining in pot and the precious metals, was a historic winner or not. So far, many of the formerly-idolized FAANGs have plunged, even while pot, golds, and silvers edged higher toward new market leadership. We are sticking with those groups, but probably some new groups as well, still so early that they are not yet clear to our waiting eyes. Palladium certainly has been a leader, but there are too few palladium stocks. Next should be platinum, by DIWPAT.**

Another feature of last year’s prediction of group rotation is that overall markets would enter a flat phase within an ongoing bull market. Thus, if there is next a decisive Upside Breakout by the S&P 500, there should be a new phase of the bull market and 2018 might have been simply just a pause. We’re vigilant as a hawk for the earliest clues. Nonetheless, this is an expensive stock market, with many stocks selling at near-historically-high P/E ratios.

We caution that many who assume all stocks have gone back up along with the leading averages are risking a deception. The stock market’s general rally the last two months is actually a clawing back up from its 2018 losses. Granted, a few former leaders from 2018 have even made highs, but the market’s Internal Deterioration, that came back in mid-February 2019, has been undermining the rally this year. The real estate and construction sectors are lagging, a recessionary signal, with some indicators (existing home sales and housing starts) actually breaking down. Then the headline “Europeans Fear a Global Slump” appeared on the front page of The New York Times on March 8, 2019; an international recession could indeed cause a stock market decline. Particularly in view of our bearishness on China’s stock markets.

When our January 1, 2019 Annual Forecast Issue predicted “a rally in early 2019,” we chose not to play it because we suspected that it would be treacherous. That came true on March 4, 2019, with a plunge coming from out of nowhere. The Russell 2000 dropped back into its Correction zone, and the COB Volatility index suddenly leaped — sellers had little time to sell before stocks came down. The market’s “Internal Deterioration” was steeper than the relatively small rallies of leading averages.

We carefully observed that the mass media is describing the economy’s weakness as a “deceleration” these days. But how does anyone know for certain this is not the beginning of a deeper decline? Or even a recession?

The media is also suddenly talking about “cooling prices in the economy,” which TDL has long warned about as part of “The Coming Great Deflation.” Amateur economists at the Fed haven’t got a clue as to why “there is no inflation” — they even admit that. An international recession has begun, unannounced, as usual.

Our current recommendation to the WEE (Washington Economic Establishment)? Tremble.

C) Bonds, interest rates, dollar: While the mass media fusses over whether interest rates are going up or down, the monster of excess debt continues its menacing ascent now around a gagging-high $22 trillion. Debt is cruelty punished. America’s 2018 federal budget deficit was $779 billion, up $117 billion from the previous year. That news does not seem to alarm the public, but at some point it will, like a mouse finally realizing that it had been facing a camouflaged, motionless rattlesnake. That the debt is unpayable, and what we infer from that, is a realization still far upstream from the seemingly-oblivious Herd.

U.S. unemployment has been dropping since it was over 10% in 2009, and is now around 3.8%. This is surely nearing a low, yet we know of no other commentator in the world considering whether this rate is sustainable, or a turning point. Further, we dare to predict an unexpected rise of unemployment to 4.5%, which should trigger a stock-market decline like cold turkey. Europe is still drifting into a recession, we remain bearish on real estate worldwide, and the cash position of mutual funds are at a record, overly-optimistic low of 2.9% — since at least as far back as 1960.

We still believe that bonds are going down, interest rates up, and the dollar has remained in the uptrend we have been predicting.

Currently flat markets could suddenly be interrupted by some vociferous changes. Averages are at a crossroads; flat but ready to leap or drop. We are at the level from which we expected a decisive breakout one way or the other, so we have led you to areas that should do well regardless of whichever direction the market goes.

* We define “Internal Deterioration” as general market weakness not readily reflected in leading averages, akin to an organism being eaten from within, leaving the outer shell intact. The intact outer shell represents a narrowing stock leadership as a larger portion of the market declines.


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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