The Secret Factor in Stock Picking

Written by James Dines
Posted December 14, 2018 at 7:00PM

Publisher's Note: Mr. James Dines runs one of the world’s longest-lasting financial newsletters, The Dines Letter, and has become a legend among investors.

Here is a look at how 2018 has worked out for his readers, and some guidance on where to be now and in the year to come.

To your wealth,

Nick Hodge Signature

Nick Hodge
Publisher, Outsider Club


Fashions, after all, are only epidemics.
—George Bernard Shaw

For some reason the Vikings, famous for their massive plundering and butchering in Europe during the 10th century, left behind only one famous king, Harald Gormsson, of Denmark, from 958-985 AD. Known as a great communicator; that king also had a dead tooth said to have been the color blue, from whence came his nickname of “Bluetooth.” These days Bluetooth is the moniker of the wireless technology that allows devices to communicate with each other, which in turn has spawned many other technological innovations, such as Internet of Things.

Investors of hi-tech stocks had not been reading The Dines Letter this year when we repeatedly communicated that the entire sector was breaking down and headed lower, when blind overoptimism was widespread. We were convinced that there would be a better buying opportunity at lower prices, a prediction that in recent weeks has begun to come true, as some hi-tech stocks have crashed by over 30% or more. Perhaps a reason we are one of the world’s longest-lasting financial newsletters is our willingness to truthfully describe markets, especially when it is particularly unpopular to do so.

For another example, we became “The Original Bond Superbear” when bonds were so overpopular that they were grotesquely overpriced, and the interest they paid was not only close to zero but actually below it — sometimes investors had to actually pay borrowers to lend money to them! In fact, we predicted that future centuries would look back and marvel at this period in scornful wonder at having even exceeded the infamous Tulip mania, when Holland in the 17th century charged sky-high prices for ordinary tulip bulbs. Buyers of such overpriced bonds were comparably receiving what was then daintily called “negative interest rates,” just wordsmiths making buying bonds sound positive, and even nutritious.

When bond lenders had to pay to lend people money, normally sane lenders with cooler heads would have justifiably simply held cash in their bank vaults and made money by doing nothing. But they were stricken with what our Mass Psychology book calls “The Secret Desire of All Gamblers to Lose.” Even now, some banks insultingly still pay a pitifully low fraction of a gasp-inducing 1%!

Indeed, America’s 10-year Treasury Notes are now sobering up to the 3% level, as reality has begun to intrude into the fantasy of the lowest rates in recorded human history. If you must buy bonds, we recommend going with short-term Treasury bills, or even T-notes — and the only advice you’ll get more specific than that will be a margin call. And we have always advised never to go on margin.

As “The Original Bond Superbear,” we have been predicting a wearying long bond bear market, so beware of to whom you lend your money, as we all are the authors of our own destinies. We in fact literally begged TDLers to sell their bonds a number of times, and we had never before actually “begged” our long-term, loyal TDLers to do anything — although it is never too late for anyone to learn. Bonds remain in downtrends; fortunately we prepared TDLers by not owning them.

Why Bonds Impact Stock Holders

Farsighted TDLers should be aware that bonds are very important to TDLers, since interest rates have a secret impact on stock markets. Also hit is real estate, which enabled us to turn bearish on it this year. And 3% from a U.S. Treasury note means that owners of stocks paying much less in dividends get tempted to switch out in order to get a better yield, a source of some selling in stock markets and rising Treasury paper. Investment decisions can be better understood with a comprehension of contiguous interconnecting realities.

As bonds sank, so-called “emerging markets” had trouble paying their debts, and many saw their stock markets crashing: including, Argentina, China, South Africa, and Turkey. As “The Original Bond Superbear” we likewise foresaw trouble in battery stocks, energy, mining, and heavy-equipment stocks. Oil is suffering one of the steepest short-term declines in its history, with the Saudis saying it’s the worst rout they’ve ever experienced. Even proud blue chip General Electric has ashamedly plummeted below a measly $8 a share, perhaps punishment for the way it cheated Tesla and Westinghouse.

After the market plunged in February, we were confident that there would be a rally. Even though we did not expect it to make a decisive new high, we were tempted to recommend a “Buy,” but we concluded that that rally would be too treacherous to trade. We subsequently stated our uncertainty about whether 2018 would later be looked back on as a market top or merely a “rotation of leadership,” and it turned out to have been exactly the latter!

The old leaders have clearly been punishingly routed, but the new leaders have yet to fully emerge. That’ll be one of our challenges for 2019. We have ventured to put forth cannabis as one candidate, and those stocks have had an authentic bull market this year, even now holding up above support areas.

So we led TDLers away from markets all year as "internal deterioration” continued. The last few weeks have been as if somebody flicked the lights on, and our persistent warnings of declining markets became visibly confirmed, with the first Mass Fear rippling through the Mass.

Our February “Sell” might have been one of our best signals, as suddenly almost every investment arena has come down.

The investment community has been so shaken by recent market drops that even the word “bear market” has for the first time in a while begun to drift into the media as a possibility, as noted above.

However, silver, for example, is still flat as a board in the mid-teens, where it’s been for the last three years, as we calmly wait for the upside breakout we are confident is coming.

Were there any survivable places to have hidden in 2018? A few. Most prominently, cash, whose buying power has increased commensurately with many stocks having declined — plus such currency gains are free of tax. Well, capital gains at least.

We have prepared you for current fear-inducing markets, are now focused mostly on precious metals and pot, and indicated keeping buying power in reserve waiting for lower-priced opportunities.

The impact of high volumes of selling has shaken up the world’s investment community, and we would like to see the dust settle a bit so as to get a clearer outline of which pieces on the chessboard have changed. For one thing, we are getting early indications of a market rally — believe the unbelievable or not. But we can’t get a bead on whether it’s going to be a serious rally or what we call “a mere dead-bull bounce.” This appears to be a good time to stand pat, as we are in a relatively secure place.



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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