The Dines Letter (TDL) offers regular features and the following excerpt is one such feature from our Letter dated 3 July 1998. For our current thinking and our other features, please see our latest issue.
|TDL'S CURRENT MARKET ANALYSIS |
STILL PREDICTING A "BLISTERING SUMMER RALLY"?
What a wonderful life I've had! If only I'd realized it sooner. Colette
You cannot create a man by standing a sheep on its hind legs. Yet by standing a flock of sheep in that position you can create a crowd of men. Max Beerbohm, Zuleika Dobson
Homer's Odyssey described a rock in the Strait of Messina separating Italy from Sicily, on one side of which was Scylla (a nymph who had been changed into a sea monster) and on the other a whirlpool that was the home of Charybdis (another sea monster). Sailors who were being careful to avoid one threat usually ended up being caught by the other, from whence came the Latin expression Incidis in Scyllam cupiens vitare Charybdim which means literally, "you fall into Scylla in trying to avoid Charybdis." This evolved into modern English as being between a rock and a hard place. What does this have to do with the stock market? That would be like asking, "What's the best thing to throw to a drowning guitar player?"*
* His amplifier!
With our predictions of "The Coming Competing Currency Devaluations" having just come true in Russia, Chile**, Pakistan and South Africa, it would be easy for amateurs to have come to a negative conclusion about stock markets elsewhere. Furthermore, with our favored group the Internet stocks figuratively "on fire" and having gone ballistic (for example, see our favorite Internet stock Amazon.com, right) it would have been easy for amateurs likewise to have avoided Internet stocks as "too overpriced."
** 30% of Chile's total exports (including plunging copper prices), are to suffering Asia and gleefully devaluing nations. Commodities prices rise out of reach in their local currencies, even if, for example, copper prices remain stable in US dollars, reducing demand for those commodities, in a vicious cycle. Declining petroleum prices are causing distress in oil-exporting countries such as Venezuela, Russia, and in the Middle East, exemplifying why the natural-resources Sector has been in the dog house.
It is extremely difficult for any Security Analyst to choose winning Internet investments precisely because this brand-new field has not yet had sufficient time to develop sales and earnings that we could analyze using traditional Security Analysis, plus the field itself is in ferment. So far, we have been spectacularly lucky in having chosen winners such as American Online (703-448-8700), Amazon.com (206-622-2335), Yahoo (408-731-3300), CMG (978-684-3600), At Home (650-569-5000) and many others.
But the reason we have so many second-generation subscribers to The Dines Letter (TDL), passed down from parents, is the world-class advice steering between Scylla and Charybdis by detecting the subtle Mass Psychology of each situation. For example, it is precisely the Mass Fear created by crashing Asian currencies that has spurred frightened capital into US and European stock and bond markets. And it is exactly the phenomenal growth ahead for the Internet and telecommunications industries, both being different aspects of Mass Communication, that has created the Mass Greed that has sent investors and speculators storming into these stocks and sending them to levels distantly above what traditional Security Analysis by the unimaginative would have discerned.
Real estate is beginning to worry us. A few years ago, your editor returned from a lecture in Hong Kong amazed that paltry one-bedroom apartments were renting for $20,000 (US) per month, which we thought was untenable and would end in a real-estate crash, a TDL prediction that began to come true after our 1997 Annual Forecast Issue predicted "Hong Kong is in danger of beginning a Major decline around the summer of 1997." Now, again, rentals in New York and also here in San Francisco are approaching the $20,000/monthly level, as people with high current incomes assuming good times will last forever set themselves up for a mighty fall. We are looking for a Major real-estate bear market in America starting around 1999. Why? For one thing, a number of stocks in the construction arena have begun to break down badly; if things are so good, then we wonder why that should be happening. Furthermore, shares of real-estate investment trusts (REITs) have stopped rising and Visual Analysis might have turned bearish. Finally, the last few real-estate Top Formations occurred in years ending in "9." While we have not yet actually come out with the Major "Sell" signal, we recommend that TDLrs begin edging toward the real-estate exits. Why? That would be like asking, "What do you get when you play a country song backward?"***
*** You get off drugs, you stop drinking, you get your job back, you get your woman back, etc!
Now that the first half has ended with a Dow gain of around 13%, higher than nearly anybody else expected, the beginning of the new quarter means that mutual funds can start new positions without needing to reveal them for three months. Furthermore, in coming weeks, companies will begin reporting Q2 earnings, so the action in early July will be important in terms of revealing what insiders know is going on. If we detect something in early-July action that merits immediate attention, we will flash it by Interim Warning Bulletin and then include it in the very next TDL. If you're going to climb, you've got to grab the branches instead of the blossoms.
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17 June 1998
(The Dines Letter (TDL) offers regular features such as TDL's Latest on Gold, and the above report is our Latest on Gold feature and a special writeup excerpted from our Letter dated 20 March 98. In addition to other features covered regularly: TDL's Current Market Analysis, TDL's Latest on Currencies, TDL's Seasonalities, TDL's Newly Recommended, TDL's Supervised Investment Lists -- The Dines Letter also offers timely articles and special writeups as market conditions warrant).