This Week’s Commentary – June 16, 2007 – Fat Bottoms, Second Guessing, Dines, and the Summer Ahead

by JDH on June 16, 2007

No silly quotes this week; let’s get right to business:

Three weeks ago, and again two weeks ago, I expressed the opinion that we may have reached a “fat bottom”, or a double bottom formation, meaning that the end of the consolidation was near. Last week I started questioning my reasoning, since my example stock, FRG.TO – Fronteer Development Group Inc. made an intra-day low of $12.15 on February 27, and didn’t violate that level until June 8 when Fronteer touched $11.72, before closing at $12.25 on the day, and closing at $12.25 last Friday June 8. Yesterday (Friday June 15) it closed at $12.21, for a flat week.

Not knowing what this meant, I offered two theories:

First, I postulated that there is not much difference between $12.15 and $11.72, and since it was separated by more than three months, it may be meaningless. It could be that the “two cheeks of the fat bottom” occurred on February 27 and June 8. That would be good news, and it could be onward and upward from here.

This one optimistic paragraph last week was then followed by a lengthy dissertation by me about why this action may be bad news. (Something about 200 Day Moving Averages, Capitulation, and Sir Isaac Newton).

Fortunately, sanity prevailed, and I concluded with the comments that “I don’t plan to do any significant selling”, and “some further buying may be in order”, and “the time to not sell is when you are scared and feel that you must sell. Do the opposite. Buy when you are scared, sell when you are happy. Hopefully this week everyone is scared, so we can start buying.”

It appears that my final comments last week were most prophetic, since overall we had a good week. I’m currently down 5% in my main portfolio for the year, but considering last year I was down much more than that at the bottom, and still rallied to make 94% on the year, I’m satisfied with where we are at.

The Dines Letter

Now, some thoughts on Mr. Dines, and The Dines Letter which was released on June 15, 2007.

First, as readers of this blog know, we do not discuss specific recommendations of Mr. Dines. However, to quote him from page 7 of this week’s letter, discussing the unflattering comments published in Toronto’s Globe & Mail about PNP.TO – Pinetree Capital Corp., MGA.TO – Mega Uranium Ltd., and Mega and Pinetree’s CEO and Chairman Sheldon Inwentash:

We have never objected to the press quoting from The Dines Letter, or paraphrasing from it – which the reporter could have done if he had even bothered to study it – except for our specific stock recommendations which, in all fairness, are reserved for paying subscribers.

Therefore, it is my policy to delete any references to specific recommendations contained in posts on the Buy High Sell Higher Forum. However, as Mr. Dines also says on the same page, “We have freely given uncounted thousands of interviews on television, radio and in newspapers in a lifetime career spanning many years…”, so once Mr. Dines recommends a stock in a public interview, we are obviously free to comment on it. (Go to Google and read a bunch of his past interviews).

So, I have no objection to commenting on his thought process, let’s just stay away from recommendations until he chooses to make them public.

That being said, I found this week’s newsletter quite entertaining. His defense of the Globe & Mail article was quite entertaining, as were his comments on the uranium market, stock market, and gold and silver. It appears that he is getting mixed reviews over on the Dines section of the Forum; some people seem to think he has lost it. I think his comments are reflective of all our thinking. We wish we knew what will happen tomorrow, but ultimately all we can do is make educated guesses.

I believe that as investors we must all do our own thinking. He is one source of perspective. The comments on the Buy High Sell Higher Forum are another source of perspective, as are the countless other newsletters and newspapers and blogs out there.

Do I think he has a big ego? Of course he does, but who am I to argue (I did start my own blog so I can rant every week, didn’t I)?

Is he always right? No. He should have told us all to sell in March and start buying in July. No-one has a crystal ball, so I can’t hold that against him.

What I do know is this: As a subscriber since 1999, I have made a lot of money off of his recommendations. I have also made money on stocks he didn’t recommend. We all need to do our own thinking, but I believe The Dines Letter is a worthwhile addition to my investing arsenal.

The Summer Ahead

So, where is my thinking at today?

I believe we have hit the bottom for most uranium shares, and they will start a slow and steady trend upward for the rest of 2007, with occasional bumps along the way.

I also believe that inflation and an impending recession are going to screw up the economy. I have never disclosed on this blog what I do for a living (I’m not in the investment industry, and I’m not an insider at any public company), but I can tell you that in my line of work I see, first hand, what the economy is doing to the “average Joe”, and it’s not pleasant. Interest rates are creeping up, fuel prices are high, and real wage growth in most industries is non-existent. That all bodes well for gold and silver, so over the summer months I plan to increase my holdings in that sector.

What do you think? What are you buying? Why? To find out, I have started a new topic on the Forum: 2007 Summer Predictions; please post all well reasoned thoughts, so that we can all learn.

Thanks to all for reading and contributing.