Currently, Dines is a full-throttle bear on the U.S. economic recovery and the overall stock market.
Ahead: Father of all bear markets
With mixed record, one strategist goes on limb
By Thom Calandra, CBS.MarketWatch.com
Last Update: 12:30 PM ET March 19, 2002
SAN FRANCISCO (CBS.MW) -- Financial newsletter writers are doing their job if they inspire passionate belief and scorn in an investing audience.
Jim Dines qualifies on both counts. Since 1961, Dines and his newsletter, The Dines Letter, have played the parts of rabid stock-market bull and disgusted bear. "We sent out a sell signal a week ago and we're looking for a big move into golds," Dines tells me, donning the caps of stock-market skeptic and bullion believer at the same time.
Loyal followers say Dines has led them successfully into and out of gold, platinum, energy and Internet stocks. Others say Dines, an author who has written about mass psychology, is fickle, changing his tune on markets frequently and relying too much on investors' sentiments and not enough on company fundamentals.
"Dines' portfolios on average have lagged the market," states The Hulbert Financial Digest, a Virginia-based service that tracks the model portfolios of more than 180 U.S. investment newsletters. "Taking into account some portfolios that have not existed for the entire period since mid-1980, the (Dines) newsletter's performance, from mid-1980 through Jan. 31, 2002, is 4.5 percent annualized in contrast to 14 percent for the Wilshire 5000 index."
Still, Hulbert Digest credits Dines, known to many as "the original gold bug," with shifting successfully to broader stock-market picks in the mid-1980s and the 1990s, when gold's primary direction was south.
As recently as October, in a television appearance, Dines said gold-mining stocks "could be the greatest buying opportunity of a lifetime." Since that appearance on "Nightly Business Report," the mining stocks, including his recommended Anglogold (AU: news, chart, profile) and Franco-Nevada, now merged with Newmont Mining (NEM: news, chart, profile), have gained as much as 50 percent before cooling their heels.
Dines, speaking from California this week, tells me he still has great hopes for gold stocks, even with the price of gold failing to rise above $300 an ounce so far this year. "We switched out of gold and into the Dow on June 15, 1982, and called it the mother of all bull markets, " he says. "And in 2000, we began to talk about the father of all bear markets."
In 2000, when stock markets around the world already had begun their sell-offs, Dines, an active trader, was intensely negative on real estate, saying a "reverse wealth effect" would lead to a shrinking money supply. That hasn't happened. Indeed, economists say the United States may be in the final stages of a real estate bubble as home prices soar in many regions of the country.
At the same time, Dines in autumn 2000 was early on the energy stocks, including Exxon Mobil (XOM: news, chart, profile) and Phillips Petroleum (P: news, chart, profile), which really haven't gone anywhere in price. To his credit, Dines "stopped out" of his energy picks, including now-bankrupt Enron, in a trading strategy that quickly sheds losing stocks at various percentage levels. See TV transcript.
Dines, who takes great pride in the plain-spoken English of his newsletter, is quick to admit the business of picking investments is part science, part art and part luck. He is fond of saying, when reminded of how he may have dallied too long with Internet commerce stocks, "that proves God gave dogs fleas to remind them they're dogs"
Currently, Dines is a full-throttle bear on the U.S. economic recovery and the overall stock market. He also sees religious wars taking front-and-center on the world stage. A global currency crisis is also possible.
"You have too much optimism," Dines said in an interview. "The people who forecast recession say it never happened. This is Orwellian. Either I am going to be very wrong or very right, but I don't see this recession as over. Bull markets are born amid a lot of pessimism. Business is not visibly better (at publicly traded companies)."
On currencies, Dines wonders how many other currencies will enter deep declines at the hands of the omnipotent U.S. dollar, which seems immune to recession and unshakeable trade and current account deficits. "Argentina, the Venezuela bolivar, the South African rand, they've already crashed. When you go to Argentina, or South Africa, the price of gold (in local currency) has doubled or tripled or more because of currency turmoil."
Dines sees a large shortage of gold supplies in coming years, in part because of growing investment demand for the metal. He says silver prices, about $4.50 an ounce, will rise along with the price of gold. His favorite gold stock continues to be South Africa's Anglogold, the world's second largest mining company. "They hedge their gold sales somewhat, but that may be a good thing with the volatility in gold prices."
His biggest indicator right now? The low points U.S. stock indexes reached in September. "If they hold, I would be looking at a very strong summer rally. If they are broken, run for your life, we are in for the father of all bear markets," he says. Dines adds, "There are a lot of people who have lost money in this market and just want to get out even. The uptrend in the gold stocks is the killer argument. The stock market should move opposite to the golds." |
