By Peter Brimelow, MarketWatch
NEW YORK (MarketWatch) — James Dines suspects there’s a reason for stock stumbles this year: World War IV is coming.
With stocks almost flat over the year to date, top-performing micro-focused tortoises are on a tear right now. I’ve recently written about a couple — Alcosta Growth Report and Wall Street Forecaster. ( See May 24 column and April 19 column )
In contrast, earlier this year, I wondered if a flamboyant macro-focused hare, veteran James Dines of The Dines Letter (TDL), was about to break free into one of his spectacular runs of success which, way back into the 1960s, have been interspersed with equally spectacular runs of disaster. ( See March 26 column)
It hasn’t quite worked out, although TDL is above water year-to-date through April, up 3.9% by Hulbert Financial Digest count versus 11.96% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. But over the past 12 months, it’s down negative 32.58% versus a gain of 3.47% for the dividend-reinvested Wilshire 5000.
Over the past three years, the letter is up 15.34% annualized versus 19.8% annualized for the total return Wilshire 5000. But over the past five years, the letter is down an annualized 9.09% versus a 1.33% annualized gain for the total return Wilshire 5000.
Further back, the TDL roller coaster is back up: an annualized 7.93% versus over the past ten years versus 5.41% annualized for the total return Wilshire. Over the past fifteen years, the letter is up an annualized 9.3% versus 6.18% annualized for the total return Wilshire.
This wild ride reflects TDL’s predilection for calling dramatic turns — most notably in gold and commodities ten years ago, more recently in uranium and rare earths. Sometimes it works, sometimes it doesn’t. But when it works, it really works.
In his latest issue, Dines is again talking about something off the radar screen for most investors: war, as epochal as World Wars I and II. He writes: “To us, the growing tensions among nations are palpable, especially the convulsions among Arab nations marking the beginning of the end of their theocracies and dictatorships — again to be punctuated by a war.”
Dines thinks this explains what he calls “flash in the pan” rallies this year: “The weird action in the stock market might be about a war — China and Pakistan against India, Muslim versus Hindu, or Afghanistan against anybody, who knows?”
Dines has an equally big idea about commodities: “Something important happened one year ago, and it might be a significant clue to the future economic outlook. The commodities markets made peaks, and they’ve been edging lower ever since.”
His diagnosis: “As we calmly contemplate the commodity situation, it speaks to us that the world is entering an economic slowdown of unknown depth and length.
“We have been staunchly rejecting the supposition that there was an economic recovery after the 2008 downturn, identifying it instead as a ‘flash in the pan’ induced by the stupendous overprinting of paper money washing like a tsunami over the system.
“We have also insisted that, since overprinting caused the previous inflation, it is now being punished by the inevitable corrective deflation.”
Dines has indeed repeatedly predicted an economic convulsion that combines both inflation AND deflation, although I don’t think he’s been clear on quite how they’ll fit together. ( See Jan. 18, 2010 column)
Perhaps he doesn’t know himself. He writes of bonds that “persistently low long-term interest rates are a sign of ‘The Coming Great Deflation’ but if they suddenly erupt higher, it might be a sign of ‘The Coming Hyperinflation.’ The Dow Jones Corporate Bond Index XX:DJCBP +0.0086% penetrating its December 2010 lows would be a ‘sell signal.’”
Curiously, although Dines recommends caution towards stocks, he seems to want to turn bullish. He writes: “Maybe the intense pessimism now extant in speculative stocks will be followed by multiple-year rise from these levels, believe the unbelievable or not. It is amidst such feelings of mass fear that bottoms tend to be formed.”
And he still rates the Dow Jones Industrial Average DJIA -0.60% as a short and intermediate term buy, with a stop at 12,200.