Publisher’s Note: With markets around all-time highs and valuations through the roof, we’re all going into 2020 wondering where to find opportunities. Today we’re bringing you Mr. James Dines’ breakdown of some possibilities from the latest issue of The Dines Letter.
Call it like you see it,
“This bruising year for stocks is ending in an almost
unheard-of calm.” — Bloomberg, November 16, 2019
Bloomberg’s “calm” ended with an explosion of buying. Investors attempting to profit by following Big Money’s moves need a plan. Below are 11 areas investors could consider:
1. Interest Income: Prospects are currently unfavorable. Deposit cash in a bank? With interest rates at historically low levels, banks pay too little. Government bonds’ yields are at the lowest in 2,000 years, as we have reported, based on Sydney Homer’s A History of Interest Rates: 2000 BC Until the Present. The book is available on Amazon (also useful as a substitute for a sleeping pill).
Bonds do at least deliver some current income, but there is a risk of loss when bonds are hit by the next cyclical decline. Corporate bonds are already historically high, in short-term uptrends, but they do poorly in recessions when the profits of their issuing corporations come into question. Buying an interest “stream” has those possibilities.
The big institutions that pay retirement benefits for pensioners, for example, are not receiving sufficient income from interest these days, and have little choice but to seek revenues elsewhere or to be at risk of not satisfying those payments. Such profitless safe choices induce normally cautious investors to risk speculating. Into what? Risky stocks, or so-called “high-income” bonds (junk bonds), that are at risk of defaulting? Payment-safe U.S. Treasury bonds pay 1-2%, yes, but are they vulnerable to a bear market for bonds when yields normalize higher?
2. Blue-chip stocks: During this eleven-year bull market, too many stocks are no longer cheap. And with an openly admitted economic “downturn” spreading worldwide, there is the growing risk of at least a recessionary bear market. A broad decline in stocks would catch many investors off guard these days. Leading averages have been buoyed by buying of blue-chips. Institutions keep buying stocks such as Apple (APPL) and Microsoft (MSFT) because they’ve been going up, but what happens when the music stops?
3. Base Commodities: Little current investor interest in commodities suggests an unexpected recession is nearing. Metals languish before recessions because ‘why hold copper metal,’ for example, ‘that does not produce any income?’
What is needed are mines with rising profitability. Yes, silver mines at the moment, then gold and others, and that will evolve. The probable continuing lack of interest suggests only selected investing opportunities here, hoping to buy others at lower prices later.
4. Energy: Along with a general worldwide glut, from fuels to solar, markets appear to be expecting price cuts and dividend reductions. Too many downtrends in these charts to attract us yet.
However, uranium will bounce back, if only for its use in national security. As a long-term geopolitical asset, governments will buy uranium mines for safety, and even defensively to neutralize other nations’ monopolies. Also atomic power reduces pollution. Shunning atomic power will someday be looked back on as a great American blunder. Indeed, Russia and China have been storming into atomic power plants while America dozes. Nothing new.
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5. Real Estate: There are some opportunities, depending on locations. But it is notoriously cyclical, so real estate could again plunge as it did in the 2008 smash; which was only around a dozen years ago. A possible cause? Rising interest rates, or higher taxes, might be the inhibitors.
Eternity is the time period to the end of the universe, or the time it takes to pay off your house, whichever comes last.
6. Growth stocks: We recommended ZScaler and Atlassian, both respected growth companies, but after we luckily got stopped out of our “Probing Attacks,” they just fell out of the sky — along with increasing numbers of other growth stocks. Not a good sign. Has Big Money been selling because they see a bear market? Nvidia (NVDA) might be a good investment, but at a whopping $240 per share we’d rather wait for a cheaper price before recommending it.
7. Diamonds: A favorite refuge of the rich, but menaced by artificial diamonds. Also they are not readily liquid if you need to sell during hard times. Besides, the industry boast that “diamonds are forever” could now be claimed by gold.
8. Fine art: Notoriously illiquid in bear markets, now selling for such historically high prices that we suspect it’s Heaven’s way of notifying some collectors that they have too much money.
9. Utilities: Currently they’re at historic heights, albeit still in uptrends, due to desperation of institutions to get yield — of any amount, and at any price. Their relatively secure dividends tend to fluctuate with bonds. But at these high stock prices, are they rising toward a top? And would their current low dividend income match the risk of capital loss in a utility stock price plunge? Small potential gains are not worth the risk.
10. Historic havens: In fact, during last year’s market drops, gold and silver mining stocks often rose, evidence of haven buying! There is no income from gold bars or coins, so hold a few for personal safety, but gold and silver-mining shares are the prime havens! Perhaps a little diversification into platinum and palladium miners. Aforementioned Sibanye is the world’s largest platinum miner, and second-largest in palladium, but it is no longer at rock bottom so should be bought on dips.
As mentioned, gold and silver are great safe havens, and many of their stocks even pay dividends, which should rise along with bullion prices. Demand for both will rise due to currency fears as governments are undeterred from printing money irresponsibly, eventually triggering a flight to haven’s safety and increasing value. A hyperinflation would create even more demand for the havens.
11. Pot: Cannabis will still be in demand as a cheap form of entertainment, medicine, and additives. But this brand-new industry is too new for its companies to pay dividends, and remains hampered by legality and tax-obsessed governments worldwide. Nonetheless, at today’s low pot stock prices, and certainty of growing demand, surviving pot stocks will attract long-term money.
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.
Bank of Montreal CEO sees growth in U.S. share of earnings
Bank of Montreal expects its earnings contribution from the U.S. to keep growing, even without any mergers and acquisitions, driven by a much smaller market share than at home and nearly C$1 trillion ($823.38 billion) of assets, Chief Executive Officer Darryl White said on Monday.
“We do think we have plenty of scale,” and the ability to compete with both banks of similar as well as smaller size, White said at a Morgan Stanley conference, adding that the bank’s U.S. market share is between 1% and 5% based on the business line, versus 10% to 35% in Canada. “And we do it off the scale of our global balance sheet of C$950 billion.”
($1 = 1.2145 Canadian dollars)
(Reporting by Nichola Saminather; Editing by Leslie Adler)
GameStop falls 27% on potential share sale
Shares of GameStop Corp lost more than a quarter of their value on Thursday and other so-called meme stocks also declined in a sell-off that hit a broad range of names favored by retail investors.
The video game retailer’s shares closed down 27.16% at $220.39, their biggest one-day percentage loss in 11 weeks. The drop came a day after GameStop said in a quarterly report that it may sell up to 5 million new shares, sparking concerns of potential dilution for existing shareholders.
“The threat of dilution from the five million-share sale is the dagger in the hearts of GameStop shareholders,” said Jake Dollarhide, chief executive officer of Longbow Asset Management. “The meme trade is not working today, so logic for at least one day has returned.”
Soaring rallies in the shares of GameStop and AMC Entertainment Holdings over the past month have helped reinvigorate the meme stock frenzy that began earlier this year and fueled big moves in a fresh crop of names popular with investors on forums such as Reddit’s WallStreetBets.
Many of those names traded lower on Thursday, with shares of Clover Health Investments Corp down 15.2%, burger chain Wendy’s falling 3.1% and prison operator Geo Group Inc, one of the more recently minted meme stocks, down nearly 20% after surging more than 38% on Wednesday. AMC shares were off more than 13%.
Worries that other companies could leverage recent stock price gains by announcing share sales may be rippling out to the broader meme stock universe, said Jack Ablin, chief investment officer at Cresset Capital.
AMC last week took advantage of a 400% surge in its share price since mid-May to announce a pair of stock offerings.
“It appears that other companies, like GameStop, are hoping to follow AMC’s lead by issuing shares and otherwise profit from the meme stocks run-up,” Ablin said. “Investors are taking a dim view of that strategy.”
Wedbush Securities on Thursday raised its price target on GameStop to $50, from $39. GameStop will likely sell all 5 million new shares but that amount only represents a “modest” dilution of 7%, Wedbush analysts wrote.
GameStop on Wednesday reported stronger-than-expected earnings, and named the former head of Amazon.com Inc’s Australian business as its chief executive officer.
GameStop’s shares rallied more than 1,600% in January when a surge of buying forced bearish investors to unwind their bets in a phenomenon known as a short squeeze.
The company on Wednesday said the U.S. Securities and Exchange Commission had requested documents and information related to an investigation into that trading.
In the past two weeks, the so-called “meme stocks” have received $1.27 billion of retail inflows, Vanda Research said on Wednesday, matching their January peak.
(Reporting by Aaron Saldanha and Sagarika Jaisinghani in Bengaluru and Sinead Carew in New York; Additional reporting by Ira Iosebashvili; Editing by Sriraj Kalluvila, Shounak Dasgupta, Jonathan Oatis and Nick Zieminski)
U.S. to work with allies to secure electric vehicle metals
The United States must work with allies to secure the minerals needed for electric vehicle batteries and process them domestically in light of environmental and other competing interests, the White House said on Tuesday.
The strategy, first reported by Reuters in late May, will include new funding to expand international investments in electric vehicles (EV) metal projects through the U.S. Development Finance Corporation, as well as new efforts to boost supply from recycling batteries.
The U.S. has been working to secure minerals from allied countries, including Canada and Finland. The 250-page report outlining policy recommendations mentioned large lithium supplies in Chile and Australia, the world’s two largest producers of the white battery metal.
President Joe Biden‘s administration will also launch a working group to identify where minerals used in EV batteries and other technologies can be produced and processed domestically.
Securing enough copper, lithium and other raw materials to make EV batteries is a major obstacle to Biden’s aggressive EV adoption plans, with domestic mines facing extensive regulatory hurdles and environmental opposition.
The White House acknowledged China’s role as the world’s largest processor of EV metals and said it would expand efforts to lessen that dependency.
“The United States cannot and does not need to mine and process all critical battery inputs at home. It can and should work with allies and partners to expand global production and to ensure secure global supplies,” it said in the report.
The White House also said the Department of the Interior and others agencies will work to identify gaps in mine permitting laws to ensure any new production “meets strong standards” in terms of both the environment and community input.
The report noted Native American opposition to Lithium Americas Corp’s Thacker Pass lithium project in Nevada, as well as plans by automaker Tesla Inc to produce its own lithium.
The steps come after Biden, who has made fighting climate change and competing with China centerpieces of his agenda, ordered a 100-day review of gaps in supply chains in key areas, including EVs.
Democrats are pushing aggressive climate goals to have a majority of U.S.-manufactured cars be electric by 2030 and every car on the road to be electric by 2040.
As part of the recommendations from four executive branch agencies, Biden is being advised to take steps to restore the country’s strategic mineral stockpile and expand funding to map the mineral resources available domestically.
Some of those steps would require the support of Congress, where Biden’s fellow Democrats have only slim majorities.
The Energy Department already has $17 billion in authority through its Advanced Technology Vehicles Manufacturing Loan program to fund some investments.
The program’s administrators will focus on financing battery manufacturers and companies that refine, recycle and process critical minerals, the White House said.
(Reporting by Trevor Hunnicutt in Washington and Ernest Scheyder in Houston; Editing by Mary Milliken, Aurora Ellis and Sonya Hepinstall)
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