The E-mini S&P 500 is in the sell zone on the weekly chart. Traders can expect a pullback over t...
James Dines: "The Original Goldbug"
02/17/2017 9:00 am EST
Gerardo Del Real, a leading metals and mining expert, recently launched the Resource Stock Digest. In December, he had rare opportunity to interview the legendary James Dines.
Gerardo Del Real: This is Gerardo Del Real for Resource Stock Digest. I have a real treat for you today. Joining me today is the legendary Mr. James Dines. Mr. Dines is the editor of The Dines Letter. He's also authored several books including Goldbug!, Technical Analysis, Secrets of High States, and Mass Psychology.
Mr. Dines has a legendary record in the investment community. His contrarian approach to investment analysis has led Mr. Dines to accurately forecast trends for many decades, from the unexpected gold boom of 1974, to the internet revolution of 1996, Mr. Dines has consistently gone against the grain and delivered gains that have been passed down for generations.
Now Mr. Dines is "The Original Goldbug", of course he's the original "The Silver Bug", one of the original founders of technical analysis. He also predicted the internet boom, the uranium boom, the rare earth crisis, and as the original "Pot Bug" he recognized the profit potential at it's earliest stages.
Mr. Dines most recently called the bottom in gold and silver stocks. Mr. Dines, it's a real pleasure, thank you so much for your time today.
Mr. James Dines: Oh, I'm looking forward to it.
Gerardo Del Real: Now, I briefly recited a few of your better known accomplishments and I only recited a few because I could go on for a while. I really believe we are in a unique time in history for hard assets and as I mentioned, you recently called the bottom in gold and silver stocks and I'd like to get your take on precious metals and the potential for a powerful and sustainable bull run.
Before that, I'd like to start by asking you about a topic that I know you're passionate about which is your career long struggle to reinstate a link between gold and paper money. Why is that so important to you?
Mr. James Dines: Well, many people want to change the world for the better - to give back - but I wanted to contribute the biggest possible change I could. I immediately perceived that severing the link between gold and paper money would lead to inflations, depressions, and uncontrollable debt.
And that's always resulted in a calamity. You can see Venezuela's currency crashing toward oblivion, ruining many of the helpless and nonchalant. It's only those who own the biggest asset in the world - gold - who are surviving.
Venezuela's crashing despite the largest oil reserves in the world, so a currency crash really trumps all other considerations in understanding the future. I'm driven to warn the rest of the world that there is a debt crisis because it is unpayable. At $20 trillion there's no way it can be repaid.
This has happened before in history, often, and it's always ended the same way. Knowledge of currency is crucial to survival and also having some preparation for it happening, because it always happens suddenly. I feel sorry for the people in Venezuela, Zimbabwe, anywhere there's a currency crisis. Currencies are crucial, there's nothing immutable about them.
Gerardo Del Real: Now, you mentioned Venezuela, the most recent example, what's happening there's absolutely catastrophic and it underscores, I believe, the importance of your point. I see why that's so important to you. Now you've stated publicly that the next wave ahead in gold will take prices much higher. How high do you see gold prices going? How long do you see the bull market running and where are we in that process?
Mr. James Dines: Well, when they severed the price of gold from paper, I started of The Dines Letter because I had to work to try to forestall it. It was at $35 an ounce and I foresaw a great gold and silver boom in at least three phases.
The first one took gold up to $850, the second $1,800 approximately, and my next targets are between $3,000 to $5,000 an ounce. That depends on the folly of the world's leaders but the end will be tragic. Please understand that gold is not rising, the value of our paper money is shrinking, by oversupply - supply and demand.
Government banks are not only printing too much money, they're bragging about it, they're proud of it. They're competing with other government banks. There's a cycle in currencies, they move up and then they move down to correct the excesses.
We had a long inflation and they did it by deliberately creating paper money. After that happens, it turns down. The government continues to print paper and can't understand why there's no inflation coming out. This to me is a condemnation of their whole economic Keynesian theory.
The idea that you can just print money and go into debt that leads to prosperity forever is a false idea and has misled governments for centuries. This is the first time the whole world is doing it at once. We are now in a downturn for the inflationary process and they're trying to increase inflation.
It's pathetic. It's just not happening. Though, here's a killer aspect of this: they don't understand the difference between the word inflation and higher prices. They use the two synonymously, but inflation is not higher prices, that's why they're so confused.
Inflation is an increase in the money supply, the result of which is inflation. Furthermore, once the deflationary process has begun, which of course began in 2008 with the crash - they call it the great recession because it's typical, politically correct.
Once that started, we're in a deflation, which is masked by the printing of stupendous amounts of paper money and $4 trillion of it in just the last eight years alone. It's like ersatz bread, it's made partially of sawdust so you feel full but you're starved. That's why there's so much poverty in America, it's because the money is being eaten from the inside out.
The biggest danger of all that I see is a phenomenon that I cover in my Goldbug! book called a hyper-inflation. When you print too much money on top of the deflationary phase of the inflation cycle, you're liable to get hyperinflation, nobody's using the word now, you'll hear more about it.
This hyper-inflation, I call it in my book the supernova of inflations. You really need to have some gold coins, I could discuss coins if you want, but that's something you should have.
Gerardo Del Real: Excellent. Now, I couldn't agree more, you mentioned Zimbabwe earlier and they've had their period of hyperinflation. You mentioned Venezuela and they appear to be in the very early stages of that.
Now, coincidentally, mining companies are notorious for not being the best stewards of capital and as we have this debt cycle happening you also have a lack of quality discoveries or projects in the pipeline to replace depleting reserves with the mining companies.
Where do you see the best risk/reward proposition in the precious metals space? Is it with the miners or the juniors or is it a stock pickers market, which is a combination of both?
Mr. James Dines: Well, there are opportunities in both. It depends on your level of risk profile. You see, that golds and silvers move together is one of my discoveries, was the Dines Wolfpack Theory. When one moves, the other moves.
Recently the smaller companies, the smaller mining companies are like riding a fast horse, you can have bigger percentage gains but they're not as safe because they're not as established. If you get a big longterm gold and silver blue chip, you can hold it and ride out the declines. If you get one of these small ones, some of the juniors, they're risky, you really need to know what you're doing and keep track of the company as it evolves.
Gerardo Del Real: Excellent. Now you also mentioned rare coins here, just a question ago, and I'd love to get your thoughts on that. Do you see those as a good way to protect yourself from the debasement of the currency that's going on on a global scale right now?
Mr. James Dines: I do, and it's a unique moment in history. You've got these gold coins and they're beautiful, you can get a one ounce gold coin for just a little more than the value of the gold in it. That's amazing because normally there's a premium, there's the transportation and storage cost and insurance and what have you. Right now, they're selling right near the price of gold itself.
The advantage to gold coins, well there are many, the first one is you got gold in your hand and nobody can print it away. In case of a desperate time, you might really need to have access to them, although you should never carry gold and silver on your person, never leave it near your place of residence.
These coins are value and in these terrible times like in Venezuela, if you have gold coins, you're king. Another advantage is the kicker. The kicker is that they will someday have a numismatic value.
When President Roosevelt seized all the gold of Americans in 1933, almost all the modern gold coins were melted down and they only spared what they called "collectors items." Those are still available but they're all very scarce. I think someday, people have collected all kinds of art and automobiles, someday they're going to wake up to the fact that coins can be collected also.
You can get them back to 1775 and this will never be seized by the government, these are really historic pieces of history - Benjamin Franklin might have held it, George Washington might have handled it.
I think not only because they're cheap in relation to gold, a much better buy than ingots, for example. I think that at some point there will be a numismatic advantage and as big money pours into this tiny market, I think you're going to see what happened to cars selling for millions of dollars and paintings going for $50 million.
I think these coins are a great idea. For specific examples, my personal favorites are the Saint-Gaudens double eagle and also in the silver I like the Walking Liberty, beautiful, just works of art and they're available cheap.
Gerardo Del Real: Mr. Dines, I had the pleasure of speaking with Van Simmons from David Hall Rare Coins a few months back and he echoed a similar sentiment and so he may be somebody I reach out to soon now that you're giving this caution and this advice to everybody. I think it's timely advice.
Now, switching gears a little bit, obviously your contrarian calls are legendary. Uranium appears to be a commodity that is absolutely despised but it has some very compelling supply/demand fundamentals supporting it in the mid-term. You correctly called the uranium boom in the mid-2000s, can you share your thoughts on the uranium market today and the opportunity that may exist there for contrarian investors?
Mr. James Dines: Uranium is a very interesting topic. First of all, we've just had a five or a six year crash in natural resources. That has ended with the arrival of Trump. Whether you agree with him or not, if he thinks he's going to rebuild the country they're going to need a lot of industrial metals from antimony to zinc, steel, iron ore, everything. Even oil is moving up here.
Uranium is the only exception, or one of the only exceptions, there aren't very many I guess, I can't think of any others. I've been studying it lately and just in the last few days, one of my favorite uranium stocks has leaped 40%.
I'm noticing some buying come in, so I sat back and thought about it and the way I see it ... Well, two things. First of all, when I called the first uranium boom, I got into uranium within one dollar of the bottom at $8/lb and subsequently had a fantastic rise for a commodity, up to $150/lb.
First I noticed the bullishness and the metals. This time we're getting an alternation. I think I'm seeing buying coming into these uranium stocks and I'm calling a new bull market in uranium is somewhere around these levels.
We still haven't picked the exact price but I think that this is a good time to buy them. I thought back to what Trump said. He believes that climate change is a hoax and he intends to use our coal reserves full blast. Well fine, I can't get into that discussion, I'm just a reporter.
What that says to me is that he's going to need something to balance that extra pollution coming in and I suspect it's going to be uranium -- nuclear power because that produces no pollution. Also, I noticed he never uses the word nuclear, so I'm basing this strictly on instinct.
The fact that he's not mentioning it and nobody else is, I mean it's as disregarded and hated as it was when it was $8/lb at rock bottom, $8.50. I'm looking for some opportunities in the uranium stocks. I'm bullish on uranium, and pretty much all raw materials.
Gerardo Del Real: Wow, that's a big deal Mr. Dines. You are officially calling a new bull market in uranium around these price levels?
Mr. James Dines: Yes.
Gerardo Del Real: Wow, wow. All right, so I had the good fortune of listening to your keynote address in San Francisco where you were inducted into the hall of fame. One of your quotes among many that stood out was your comment that, "When the mass mind is locked in a conclusion, it takes an earthquake to dislodge it."
I'm going to repeat that one more time. "When the mass mind is locked in a conclusion, it takes an earthquake to dislodge it." What do you see today as a mass mind conclusion and what do you see as the potential earthquake that might dislodge it?
Mr. James Dines: Well, my book Mass Psychology covers a great many things. It pioneers the idea that in addition to the financial consideration, stocks are a function of the mass mind. If you're in a board room or an area where there's a lot of brokers all together and they move in one direction, it's very difficult to resist it.
That is how we're swept up into the mass mind. It takes a great deal of self control and High States, what I call High States, to really be able to resist it and to understand it.
The obvious example is the mass mind was locked into the conclusion that Trump would lose and it took an earth quake to dislodge it. When I recommended gold at $35, I mean I was literally first. It was first of all a felony for Americans to own, which was part of Roosevelt's call in 1933.
It took a lot of guts to stand up against the mass mind, and once you understand what it is you can move in the opposite direction. The advantage of understanding it is these earthquakes are mostly always profitable, and that is because the mass has everybody corralled into one area.
When there's a break into the next area, if you're drinking upstream from the herd at the moment, you can make a great deal of money. I recently did it with pot stocks. I recommended pot because I saw it being legalized and the election. I saw the trend of people accepting it more and more every year. I don't smoke pot -- I don't smoke anything -- but I can see that the public wanted it and it was going to happen no matter what I thought.
It could be war, it could be a currency crisis, or basically anything that triggers the mass mind. If you really understand what's going on around you - that is, affecting you, because we are after all, all humans and we do react to similar things.
Once that sweeps through us, it's very important to understand that you are being swept along. It's like the lynch mob, or whatever. It's important to remain in control. Another example right now is pure carbon, which most people think is just carbon, "What's so valuable about that?" It's actually graphite. To be specific, it's essential for batteries, automobiles, electric devices.
There's a big boom coming on that, and already Tesla is a well-known investment. The mass mind is still locked against graphite, they don't think of it. That's how you make your money in the stock market, by anticipating, by drinking upstream from the herd before they see it.
Gerardo Del Real: I think that's timely advice Mr. Dines. We've talked a little bit about gold, you see $3,000 to $5,000 per ounce. You believe $3,000 to $5,000 an ounce gold. You believe that we are in the third wave of this gold bull market that's resuming. You also mentioned uranium, you called a new bull market in uranium around these price levels.
The last and very interesting point was the point regarding graphite. I think you're absolutely right and hopefully I look forward to having you back on soon. It's been an absolute pleasure, I want to thank you very much for your time. Is there anything else that you'd like to add Mr. Dines?
Mr. James Dines: Well, yeah. Mass Psychology is very good. There are two things I'd like to mention. Bonds. Bonds recently went below par, which meant that when you bought a bond, you were going to get back less than you loaned. And you've got to be crazy to do that!
That's where the mass mind has driven the idea that lower interest rates cause economic upturns. These are the Keynesian economic crackpot economics that is obviously bankrupt because they've driven it below zero and it still hasn't stimulated the economy.
They've been doing it for seven years. The savers, middle income people who used to make some money on their money in banks, have been getting nothing for years. It's been stolen from them by others.
I think that that event in itself will be looked back on forever as an incredible moment in history that was significant. When you get such an extreme in mass psychology it usually represents a major turning point. I would say that not only are interest rates going up but I think they will go up enough to create a bond crash.
And I think that the Government bonds should be sold. I think that you should run for your life if you own them. It's difficult to believe they could go even more negative in interest rates, but so what? Would you lend money to somebody and get less back? What kind of idiot crackpot economics is that?
Gerardo Del Real: It's not very sustainable.
Mr. James Dines: No. I would say bonds are headed for a crash. Then furthermore, there's a new movement going on here in the mass: it's called passive investing. Because the market has been so difficult the last few years, it's really been making a top.
A lot of stocks have gone down a lot, what I call internal deterioration, is the term I use. When that happens it usually means subterranean change in trend, as stocks mill around at a junction point.
They've now discovered passive funds, the Vanguard for example is now bigger than all the other funds in that group combined. What it means is you can buy into the fund and all they own are stocks in the Dow Jones Industrial Average, which they never sell.
Basically you're buying the average. The trouble with that theory is that sometimes the average goes down for a long time, possibly for years and you're in those, locked in. Anyway, that's the latest mania going on now, and so much money is coming out of utilities and other income instruments to prepare for higher interest rates.
That money is going somewhere. It's obviously going into these passive funds by investors who have given up trying to run their own money. I think that's even a worse position than being in the market. Personally I think you should be out of the market with the exception of precious metals if you wanted exceptions.
Gerardo Del Real: Wow. Mr. Dines, thank you again. I
really appreciate your time, thank you for taking the time today. This is
Gerardo Del Real for Resource Stock Digest, I look forward to having you
back Mr. Dines.
Mr. James Dines: You're welcome Gerardo, I'm glad to be of use to you.
Gerardo Del Real: Thank you.
Editor's note: You can learn more about The Dines letter, including Mr. Dine's latest warning about currencies and gold, by clicking here.
Related Articles on STOCKS
Fed Chair Jerome Powell, former Fed Chair Janet Yellen and former Chair of the FDIC Sheila Bair, hav...
Crude oil is getting a boost on trade deal hopes as well as a week of optimism that global central b...
“IVZ has rallied more than 15% since its Christmas Eve closing low of $15.71, … [and] n...