Michael Campbell: I want to welcome to the show one of the true legends of Wall Street, James Dines, the man who wrote a book called Mass Psychology which is an absolute must read on how the markets work.

James, with Greece and Europe having a referendum, not having a referendum, bailing out, not bailing out, gyrations in the stock market, moves all over the place, massive geopolitical and economic events…..how does an individual protect themselves?

ames Dines: What’s happening in the world these days is not only profoundly important historically but you cannot invest wisely without clearly understanding it.

Why?

Because this is a brand new kind of market, this is a geopolitical stock market transcending traditional considerations of economics and earnings prospects of a stock or funds on the ground and management. All of that meant nothing to a president of a small country, Greece, who woke up one morning this week and decided by himself to have a referendum on a debt plan and all stocks world wide plunged. The next day he woke up in the morning and cancelled this plan and stocks jumped higher. So we security analysts suddenly must take geopolitics into account, and at a time where we already constructed a very difficult time to invest anyway due to other considerations. So let’s first of all start with geopolitics and I visualize these four facets and what it means.

 

 

For years we have been warning about a debt liquidating depression and now the world is in it. The latest victim is Greece’s government when they borrowed beyond their means to repay by selling us already shaky bonds to big German and French banks who bought them greedily because of the higher interest rates. And note the low state of greed and now that Greece can’t pay the banks might go broke. So the French and German governments loans money to Greece so that they can keep paying interest to the French and German banks so we could all make believe that Greece is still solvent and the banks are all okay. And note the low state of lying, fraud and deceit.

So, if French and German bonds crash,  other linked banks world wide might likewise cave in and England, America perhaps Canada. But Italy is perhaps as shaky as Greece not to mention Spain, Portugal and others. So, clearly the orgy of debt is over and the link to gold would have stopped it but we can come back to that. But now comes the hangover, so what are investors to do now? We’ve been warning for a long time about the fact that there is no place to hide and I noticed that just the latest cover of London’s respected economist magazine had that on their cover. So I visualized that and a few more points. That Greece there is the proverbial canary in a coal mine and I take it has a warning that something might break, something very dangerous is going on in the world and that’s why, especially why we needed to focus on the geopolitical situation. Also geography as to where you put your money. So you should always keep some money in more than one country and my Gold Bug book explains gold. That you should have some gold coins also, why you should get legal tender and where to keep them.

Another point I would say that geographical considerations are also important because there must be revolutions. The whole world is shaking  here and it’s all one phenomenon of mass psychology, these street protests that are all over. Even here in San Francisco. All over America and all over the world these people are coming out on the streets.

The upheaval’s of North Africa alone; will affect Arab history for centuries to come. These street protests, even as they topple some of the hardest hearted dictators institutions might fail.

So consider whether you are protected properly. You need to stick with stocks that have wealth in the ground in more than one country, in countries that are not likely to fail. Because that’s one thing the governments can’t print and because you should never trust sticky fingered politicians anywhere, including my own country. In my Gold Bug book and I mentioned never keep gold or silver on your person or anywhere near your house and it took me years to write that book.

So, we’ve been focusing on geopolitics in the Dines Letter for a long time and I’m going to go into a much more thoroughly in our up coming big annual forecast issue.  So thats whats happening now.

Whether the world breaks at this point or not it’s hard to say. I mean, that’s the one thing that a security analyst can’t tell us, it’s geopolitical. We have to react to it at some extent and it’s very serious and very difficult for me to figure out how to advise people to safely traverse these mine fields.

Anything could cave in.

I mean we can get a terrific crisis happening in Europe and you can just throw all your thinking out the window because it won’t matter. I personally am betting that we are going to come through it. In my last interim morning bulletin, we flashed a buy signal. Luckily within three days of a low and we are still on that buy signal. I say in sort of a double entendre pun that they are going to paper over the crisis. Every time we’ve had one of these upheavals they’ve just papered it over, in other words they just printed more paper money. Print, print, print and it means nothing. I mean, if it were that easy why not just run the print presses and give everybody a million dollars? They’ve lost track of the nature of money and that’s what my Gold Bug book was about. When a person sees a dollar bill in their pocket one night and the next day it’s still there they think it’s the same, but it is not. If we print 1% more money it’s worth 1% less. I’m going to be covering this in much more depth, what it means and how it’s going to play out in my annual forecast issue.

Michael: How do you juxtapose the level of uncertainty with the way the stock market is reacting. With geopolitical revolutions happening, the mystery of what the Chinese might be saying to the European Central Bank, things coming out that are not knowable has created this level of uncertainty. Yet on the other side the stock market isreacting positively.

James: It’s a very important point you are raising as to why you should buy stocks if the situation is so serious. There are two facets to that. The first one is relation of stocks to reality and this is crucial. I will give you an example, a business person who buys copper or iron ore for the business. When they buy it they put money on it, right upfront, that’s what they pay, that’s the price and that’s the reality of it. Stocks however are governed more by emotion and it brings in the element of mass psychology. I wrote the book on the subject precisely because I was confronting exactly the situation where time and again stocks were not moving precisely with the reality on the ground. For example, rare earths. The situation there could not be more bullish and with more reason for optimism and yet the stocks have come down with the rest of the market.

So, I go back to a friend Humphrey from the past where he and I were puzzling this question out many years ago. He came to the theory of contrary opinion but he and I disagreed on one point. He felt that you should be suspicious when the crowd stampedes in one way.  I agreed with him but I went further with one refinement what I call the Dines theory of positive negativisms or DITPON.  DITPON says that when you see the crowd stampeding in one direction you should specifically go the other way which is more assertive. Humphrey was more cautious.

So, when at the bottom here recently when the crisis was really terrible and everybody was so pessimistic I begun to look at DITPON and that is how we got the buy signal on the market and it has been going up ever since, despite all the bad news. This is what confounds people. Remember stock moves not just on the prospects of the underlying company but they also include the mass psychology of all of us. The basis of the book is that every person who hears me now as an individual is vertically seen by a psychologist as a product of your genes and experiences, that’s who you are. Whereas mass psychology sees you horizontally as part of a mass group that we all react infected by things that just mass contagion and mass greed and Dine’s greed/fear oscillator, and all these things interplay with us especially the low states of greed.  And that’s why when I had a signal that this is the time to buy. Now, I think this is going to continue, in fact you might recall in September I said the market is going to keep going and keep dropping into October and then we should begin the year end rally, the traditionally year in the rally. I think we are in that year at a rally and the big question that I am already focusing on is what 2012 will look like.

Michael: On gold, given the problems in Europe what would you think about a long gold short Euro Trade?

James: Well, first of all I am adamantly agains selling short. If you are in the wrong you can lose all your money because you are going on margin. One of the Dines ‘isms says “never sell short”. It also says never get involved with the second mortgage, which of course happened in the real estate before the real estate crash. Margin is very bad and so is selling short. The best you can do is double your money and the worst you can do is lose everything. It’s a stupid bet and the smart way is to find a stock that can go to the upside 5 or 10 or 20 times over a period of time. You remember, you yourself a little silver stock that was a dollar a share when I was pushing it on your program. What is it now, $30, $40 a share? I mean, actually you make serious money in the market as you hang on. You ride out the rough spots. So I’m against selling short anything an the currency markets are especially treacherous because governments control them. Who knows what they are going to do tomorrow morning. In terms of buying gold, listen that’s been one of my answers for year,  since it was $35. The latest buy that we had was 11 years ago on this show when it was $270 or something,  and now it’s almost $2000. Just quietly, patiently holding it.

Yes, there’s scary moments and people will say, “oh, why did I buy this?”  Happens all the time. Even the rare earths, they’ve had several of these drops, but I specialize in long term trends. I don’t do short term trading. I am a long ball hitter. China especially, that’s a whole topic in itself. I was on your show saying that 20 years ago, recommending that. Predicting that China would dominate the 21st Century and I lost one third of my subscribers when I took that position because they said I was so obviously wrong. The future always looks impossible, that’s one of the 64 Dines’ isms, so if you want to start engaging in the future you need to be prepared to believe in the unbelievable if necessary, because what everybody believes is not the way to make money. If you want to follow what you read in the newspaper, everybody else knows the same thing and you are not going to get any rewards for that.

Michael: I’ve always said a bet on the incompetence of government is the most confident bet that I know of. The bet on the incompetence of government can be reflected in gold position. You recommended gold at $272 on this show and of course we saw over $1900 recently since you put out the buy signal 11 years ago. But here today we are in a period where gold stocks, especially the junior ones, are quite far behind the metal. 

James: Well first of all, let me just take a step back a moment. As I went through my odyssey of learning about the stock market, every time I learned something that I thought was important and I wrote a book about it. And the first one was technical analysis. The second one was  about gold and the third one was on mass psychology and the 5th one was about high stakes and low stakes. You need the interplay of all of those to really understand the stock market in depth. But to answer your question it’s not only geopolitics, it’s geography.

Geography is very important. There are some countries in which I would not consider investing because the politicians are way more sticky fingered than others. You know, when you’ve got a gold mine producing gold, and a politician is sitting in a small country and sees all this money leaving the country, it’s very easy to just try to grab some. Or raise taxes, then of course there’s a real down turn and they all get kicked out of office and the cycle starts again. So, you need to really watch out for geography, it’s very important. I’m going to be covering this topic in my annual forecast coming up.

It’s also a question of mass psychology. You need to really study mass psychology, not only of the people around you but also how you fit into it. For the moment there’s a lot of negativity towards gold mining stocks for some reason. There shouldn’t be, because any gold mining company with tons of ore and ounces in the ground should be doing well. The fact they’re not is a function not only of mass psychology but also of stakes. In my fifth book, I think it will be looked back on as my single most important book and it’s attracting virtually no attention yet, explores the depths of our own internal psychology. Our own relationship to money based on a lifetime of contacts with it. You know, perhaps somebody who had a real trouble getting a penny when he is a child, then becomes rich and yet can be very stingy about a penny.

So these ancient twists comes up in us and it’s very important to be able to handle that. To get into the high state of completion and to be able to look at a market such as this with a high gold price and low gold stocks and have the fortitude to be able to buy into a situation like that.  And people don’t, that is why they tend not to buy at bottoms and they tend not to sell at tops. It’s because of their own personal baggage, money baggage. Obviously these stocks are under priced in relationship to the price of gold but then you need to bring in technical analysis. I call it visual analysis these days because it’s more visual in terms of charts. Also the mass psychology of a crowd right now is negative on gold stocks, actually all stocks because of the geopolitical situation I’ve already covered earlier. But we have to have enough self control to handle our own individual baggage and that “High States” book in my opinion is the one, probably the only book I will be remembered for if any. It is only 44 pages, typed written and double-spaced and people tell me they read it again and again and again.

Michael: Can you give us your take on Uranium?

James: The world has a love-hate relationship with Uranium, and it’s very emotional. We all know about Chernobyl and the Fukushima disaster in Japan. Angela Merkel,  the Chancellor of Germany called Fukushima an Apocalyptic event and the truth is not one single person died from radiation. It was built irresponsibly and the whistle blowers were muzzled.

We are going to have to go to Uranium sooner or later. Whatever is on the planet we are going to use up. We have got to stop thinking about the next quarter, we need to start thinking of the worlds assets in terms of centuries ahead. Sooner or later hydrocarbons are going to be used up or they will foul the air and they will be muzzled. They are going to have to go to Uraniumm, there is just no doubt about it and because of that I have taken a long term position. They were beginning to move up very nicely until Fukushima knocked them back down. I think they are very cheap now, dirt cheap, nobody wants them. I will give you an example, when I first recommended uranium it was $8 a pound and now it is $60 a pound approximately, yet the stocks are back down to where they were at $8 a pound and that’s crazy. This is the time to start looking at them and buying a little bit of them and putting them away. Put them away for a couple of years and just wait, that is how you make some serious money. To buy these things for five or 10 cents a share then try to get $10 or $20 or $30 a share for it. That is how you set yourself up for life.

So am very bullish of Uranium long term. They have challenges, they will have to be solved.  The only main danger is this new discovery of shale gas in America that’s unleashed a whole new wave of energy through America. So I think America might not wind up with a lot of the nuclear power plants but I think that other countries will. The Saudis are building a large number of Uranium plants right now, even in the face of Fukushima.  The Saudis don’t have shale under the deserts. So, you need to really step back and not be a victim of the news and the swing of emotions back and forth.

The thing about Uranium is that you really need to look past what’s happening now and realize that we are going to have to go to Uranium sooner or later.

. Michael: Jim, I want to thank you for taking the time with us you can go www.thedinesletter.com to find Jim Dines as always a pleasure. Thank you Jim.

James: It’s my pleasure, remember we are all trying to figure the future and nobody is right every time, the best you can do is if you make seven guesses out of ten that you are right and you are doing great and it is phenomenal.