Marching Lockstep Towards the Edge of a Cliff

Publisher's Note: We're fortunate enough to have access to the legendary Mr. James Dines and his renowned research. What follows are his "Cautious Considerations" from the most recent issue of The Dines Letter. Happy Fourth of July!

-Nick

Who goeth a borrowing Goeth a sorrowing. Few lend but fools Their working tools. Thomas Tusser, The Farmer's Daily Diet

That the future is unknowable is one of life's givens.

An awareness of the possible future is viewed by others as an eerie ability to see around the next corner, and is worth hunting for.

Our vision of investing caution is based on the perception that the world's prosperity is at risk of serious danger, and the unprepareds could suffer economic hardship.

The stock market's roots go deep, so a knowledge of history is very helpful because we are all humans, running on the same genetic algorithms, regardless of the century into which each of us has been afforded a "slice" to experience.

We carefully laid out in our Goldbug! (Get a free copy here.) book what we had laboriously extracted from many sources, which led back to the Genoa Conference of 1922 that doubled the money supply, and created the boom of the 1920s.

Other roots go even further back, to the creation of the Federal Reserve in 1913, and actually germinated from President Abraham Lincoln's 1861 seizure of the gold that banks owned to back their own private currencies.

Washington's politicians then used the stolen gold to found a currency "as good as gold" and establish a monopoly on money creation.

Disturbingly, the rest of the world's economists, having observed America's apparent financial success, copied its Keynesian methodology developed in the 1930s.

Thus virtually the whole world is now marching in lockstep like lemmings towards the edge of a cliff.

Our evidence?

Here are a few glimmers in the darkness:

1. Bonds: A significant plunge in the bond markets in recent weeks has already sent interest rates significantly higher, especially hurting countries with worrisome debt loads (Argentina, Brazil, India, Italy, Turkey), and undermining the stock averages of so-called "emerging markets" that had unwisely borrowed in US dollars (Chile, Indonesia, Malaysia, Mexico, Philippines, Turkey). With many more to come. Indeed, almost overnight, Turkey's currency plummeted out of the sky like a bird hit with shotgun pellets, the very suddenness of it a possible harbinger of other currencies destined to eventually return to earth.

Many other nations greedily borrowed when interest rates were near historic lows around zero, which meant that capital was figuratively "free" when borrowed. It induced many to giddily borrow money they didn't need, while figuring that banks and bond buyers were suckers. But now that interest rates are rising from near zero, as those loans mature, capital required for investment is becoming more expensive and emerging countries that borrowed money in dollars might not be able to afford the new bonds' much higher costs - which might push some over the economic edge.

2. Recessions and bear markets have often reached America as part of the economic cycles of sine/cosine, be it four years, six or eight - whichever. America's last recession was in 2008, 10 years ago, now being called "The Great Recession" by today's economic geniuses who missed having predicted it. But we believe it was the start of what we have long called "The Coming Great Deflation." We predicted that in our book The Invisible Crash, in which we also warned a deflation could degenerate into a hyperinflation if overprinting of paper money accelerated.

The economic tragedy of Venezuela's economic breakdown is a foretaste of what misguided currency policies could do to other countries. Venezuela has what might be the largest and richest oil reserves on this planet, yet its people don't have enough food to eat!

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3. The size of debts worldwide is out of control. Nation after nation has borrowed amounts greater than their entire GDP (Gross Domestic Product). Worse, the mass media appears to passively accept that as "normal," instead of sounding any kind of alarm at all.

4. Despite some Chinese buying, there is a fading real-estate boom, in some areas, much like in 2007, before the 2008 crash. Some landlords in large cities, such as New York and London, are already giving discounts to sign new tenants. San Francisco and much of its Bay Area is still booming, so far an exception to the trend because land for new housing is very scarce.

5. Geopolitics and wars: There is some possible good news, as this is written. As noted, the risk of a nuclear event with North Korea thankfully appears to have been reduced. As long as negotiators are talking, it's a positive sign that fearsome missiles will not be flying. However, the next crisis might involve Iran. That would be more critical because it is linked to a religious war within Islam that has been smoldering since 632 AD, aggravating the increasingly bitter divide between Shias and Sunnis that we in the West too often cannot fully comprehend. We do observe that America is siding with the Saudis, for historic reasons related to oil, and Russia likewise with Iran, which risks dragging modern superpowers into Islam's multi-century conflict.

6. We still envision "The Coming End of Capitalism as we Know It," in "The Coming New Social Order." There are no international "anti-trust laws," so militarized cartels and monopolies will come into being.

We have long warned that China was locking up elements, from antimony to palladium and Rare Earths. One thing about elements is that they are unique. China is also buying control of cobalt, and other battery components necessary for electric vehicles.

The idea that anything available today would always be available for sale will prove to have been incorrect. You can't build a missile without Rare Earths, and China controls over 90% of the world's production, so those who would war with China should keep that in mind.

When might these events unfold?

We suspect they will not happen for as long as the leading averages remain in their Major uptrends, which would indicate that the market does not perceive them as imminent.

That is a good thing, because, who knows, the world might somehow stave off the Hamletian witches' brew described above.

The tide is still not clearly going out, yet, so we have not needed to activate our "everybody out of the pool" plans. Thus, investing may continue, albeit with one foot pointed toward the exit in case of an abrupt volcanic eructation.

Above all, anticipate a shift to havens, when fear finally grips investors, with some assets allocated to gold, silver and the five cryptocurrencies we have long favored for long-term holders (Bitcoin, Ethereum, Bitcoin Cash, Ripple and Stellar Lumens) regardless of their short-term moves.

Cryptos are declining, with hysterical fear in the mainstream media, but the net results are so far relatively flat; down to 2017 levels but still in long-term uptrends.

Get James Dines' full currency analysis by clicking here.

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.