Publisher's Note: Today we're bringing you Mr. Dines' take on the state of the markets and the economy right now from his latest issue of The Dines Letter. As usual, it's a must read.
To Your Wealth,
Nick Hodge
Never trust a man who speaks well of everybody.John Churton Collins
After big rises, providing the opportunities to cash out and make money, some stocks are dropping to provide buying opportunities.
We have often predicted the coming trouble in China's banks and real estate, now finally emerging in the mass media. India also has unstable banks. China and India combined have 36% of the world's population. If that many people benefit or get busted, it could affect the whole globe. We still recommend avoiding both nations for buying.
Bloomberg reported on October 20, 2019 that, "Worldwide, growth is slackening and risks are rising. Most major economies will slow next year, and some will slip into recession." TDL's recessionary forecasts include Turkey, Argentina, Brazil, Bolivia, and Iraq, to name a few.
The auto industry, from Germany to East Asia, openly complains of an economic downturn; these legitimate warnings are largely overlooked.
America's GDP growth rate has declined for two straight quarters. Cobalt is trying to stir up a rally, but commodities are mostly down - we'll have more on that in the next TDL. One answer is to hold cash or gold and wait, getting out of some stocks now while it's easy to sell large positions. Berkshire Hathaway (BRKB) is a cautious enough fund to have a record-large $128 billion cash hoard as of November 2019; a big cash balance by astute investor Warren Buffet is another cautionary indication.
Utilities having been going up for 10 years, due to their safe dividends, are now at nosebleed heights. Their high valuations are vulnerable to a further decline. Similarly, the value of "safe" bonds is also near record highs, and yields are at their lowest in the last 2,000 years*. Think of it: investors have never paid more for bonds. Indeed, the interest bonds pay is actually less than zero - less than nothing. This must be a historic nadir, a prequel to a surprise rise in interest rates, believe the unbelievable or not.
Zero bond yields, and low interest rates, the world's price of money, are both now at historic lows, plus zero stock commissions, are all historic markers. Much to our amazement, we are not aware of any calls linking those two events as part of "The Coming Great Deflation," and a source of the rivulet. Those two events will be looked back on as harbingers of something more concerning.
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We are not concerned with the general reason given by the mass media for the recent rally. The China tariff deal is no big deal by any measure. Instead, this little "partial deal," cosmetically named "Phase One," is a hedging move by both sides. China might get a better deal with a different American president, and America will get bragging rights on this issue. A big America-China deal in 2020 is unlikely, so another partial agreement would not impress us. The historic disruption of the world's trading chain is a very big deal - the biggest risk for 2020, aside from the unlikely danger of a war.
Consumer spending makes up almost 70% of the U.S. economy, so Washington running its printing presses might lessen a recession's impact on the American economy. Still, America would need to trade a lot with other countries.
No nation is an island unto itself.
America hasn't had a recession in eleven years, a historic run, so one is overdue. It would not be the end of the world; we've had many recessions and they are usually brief. That doesn't necessarily mean the market must collapse. Due to the impact of mass psychology, we are waiting for overoptimism to assist us in signaling the next top. Markets are close to that signal. Again, a recession is not doomsday and, thinking positively, is a way to get depressed bargains. The ability to buy when appropriate is a key tool for the profit-seeking, successful investor.
A puzzle we're mulling over: the U.S. is the biggest producer of energy in the world. Yet a current media headline reads, "Shale Boom Over." The Saudis are finally selling part of their heirloom Aramco oil company. Is the looming oil glut a hint of a recession?
When will the top arrive? Nobody knows the exact day, but there have often been signs. TDL is watchful for TDLers.
* from Sidney Homer's book, A History of Interest Rates: 2,000 BC Until the Present
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.