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,
Nick Hodge
“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.
