Long time readers of this Buy High Sell Higher blog will know that I have subscribed to The Dines Letter for many years (since 1999, actually). Each year I write a post on The Dines Letter Annual Forecast Issue, and each year that post is my most popular post. (Take a look at the “Most Popular Posts” category on the right hand side of this page). Strange, isn’t it, that the most popular posts I write are my thoughts on someone else’s writing….

So, in honor of Mr. Dines, I started today’s blog with a true but irrelevant quote. Mr. Dines likes to do that as well (although, to be fair, some of the quotes are pretty good).

Before I comment specifically on the 2012 Annual Forecast Issue, my thoughts on Mr. Dines, well documented in the electronic pages of this blog, are as follows: I believe he is very good at spotting macro trends well in advance of “The Herd.” He was correct to invest in gold, uranium, rare earths, and internet stocks well before most of the rest of the investing public. That’s not to say that he was the only one to clue in that gold would be a good investment. Doug Casey was also a proponent of gold and uranium many years before their peaks. But, to give credit where credit is due, Mr. Dines was there as well, and subscribers who took his advance had the opportunity to make significant profits.

I have two criticisms of Mr. Dines:

First, while he is good at buying near the bottom, he’s not very good at selling near the top. I’ve never met the man, but I’m sure if he was given a chance to respond to that accusation he would tell you that “it is your responsibility to decide when to sell, based on your own personal circumstances. Set targets for yourself. Sell half when the stock rises 50%, and keep selling all the way up.” That’s a fair point, and I agree. It doesn’t matter what guru you follow; ultimately it’s your money, so only you, and you alone, can decide when to buy and sell.

However, he has had some spectacular failures on this point, the prime example being PNP.TO – Pinetree Capital Ltd. Again, you can go to the right hand side of this page and click on the Topics button and read the 57 previous times over the years that I have referenced Pinetree in these august digital pages, but the most succinct word on the point is my post on March 31, 2011 where I sarcastically commented that Dines Sells Pinetree! That’s Amazing! My point in that post was the Pinetree peaked at $16.15, and Mr. Dines subsequent sell recommendation occurred many months later, in the $3 range. Oops. I still don’t understand how a disciplined technician like Mr. Dines, with proper stop losses, could watch a stock lose most of it’s value before pulling the trigger on a sell order.

My second criticism of Mr. Dines is my perception that he is something of a front runner. I have no proof of this. He quite freely admits that he invests in stocks he recommends. I have no problem with that. In fact, I encourage it. If you aren’t willing to put your own money in your recommendations, why should I? My objection is that he will include a small note in The Dines Letter, or in an Interim Warning Bulletin, saying “buy Stock XXX, no stop yet”, and that’s it. No commentary, no rationale for making the purchase. It leaves the impression that he bought the stock, and now wants the rest of us to jump in.

I contrast that with the apparent approach over at Casey Research, where they explicitly state that they are buying along with everyone else, and they always give advance notice before they sell their own personal positions. Casey may be lying, but at least they are attempting to appear ethical. Also, when Casey makes a recommendation, it is very detailed. In most cases they have visited the mine, talked to management, and reviewed the financials. With Dines, it’s more like “buy because I said so.”

So, with my biases fully disclosed, here are my thoughts on the The Dines Letter 2012 Annual Forecast Issue:

It’s starts out pretty good. Nice summary of mass thought and behavior, and commenting on the “Occupy” protests he summarizes very nicely the problem with government intervention:

Now that students are demanding to know where the jobs are, Washington has decided to “create” them, which is like trying to “create” eggs instead of raising chickens such that eggs follow naturally.

I won’t quote extensively from this four pages of introductory comments, but they are very good, and accurately summarize the screwed up state of our world today.

As for his thoughts on gold, he agrees with me, and with everyone else who reads this blog: gold is going higher. They fly in the ointment at the moment is “when will gold stocks start going higher?” No-one knows, including Mr. Dines who, like the rest of us, is waiting for the psychology of gold share investors to catch up with the psychology of gold bullion investors. It would appear he is suggesting to wait until gold stocks turn up for further purchases.

On the markets, he correctly observes that the blue chips remain in uptrends, while the speculative juniors are not doing as well, in what would appear to be a flight to safety. True, but when will this trend reverse? No-one knows. Not me, or Mr. Dines.

He comments on his favorite rare earth recommendations, and despite significant recent weakness he still rates them a buy. This is a very volatile section of the market, so only time will tell if he is correct. His comments on uranium are the same: they’re down, but not out, so hold on. He doesn’t mention it explicitly, but at the end of the letter he produces a chart showing relative performances of commodities and stock indices, and in 2011 uranium stocks were down 58%, and the Dines Rare Earth Index dropped 64%.

Oops. It’s going to take a really good year to get back to even.

In conclusion, the 2012 Annual Forecast Issue is a good read. Will I take any action based on it’s contents? Probably not, since it confirmed what I already thought. I like gold, and despite what Mr. Dines says I’m not ready to jump into uraniums or rare earths quite yet.

I believe we should all consider a wide range of opinions before making our decisions. The Dines Letter is one such source of information, and so it’s worth a read, if nothing more.

Next week, time permitting, I’ll get back to my own thoughts. Feel free to comment below, or on the Dines board on the Buy High Sell Higher Forum, and thanks for reading.

I have nothing against Mr. Dines. In fact, I think his greatest skill is in identifying trends early. He’s advocated investing in gold for decades, and he has proven to be correct. He was correct to get into the internet stocks, and uranium stocks, and rare earth stocks when he did. His subscribers have no doubt made many millions of dollars from his recommendations over the years.

My problem with his approach is that he occasionally appears to “fall in love” with a stock, and not sell it when it needs to be sold. I’m not sure if that’s just a natural tendency that we investors have (I know I’m guilty of not taking profits quickly enough), or if it’s a more nefarious problem (such as he’s “in bed” with management, and doesn’t want to sell until he’s gotten out himself). Regardless of his motivations, there is one glaring example of this tendency that I have written about many times before. Here are some examples of my previous thoughts on this subject:

• On February 2, 2008 I wrote some thoughts on the Dines Letter, where I described some somewhat suspect recommendations.
• On July 26, 2008, I had this to say in a post on Volatility, Dines and Pinetree:

I can’t pass up the opportunity to quote James Dines from yesterday’s The Dines Letter. He spends most of the letter explaining that markets go up and down, so even if markets go down for a few years that’s no reason to sell. Here’s the classic quote:

“Our recommendation of PNP.TO – Pinetree Capital Ltd. at 0.795 cents (Cdn) subsequently rose 1,931% to $16.15 (Cdn) nearly two-thousand percent in only 17 months, such that a $10,000 investment would have risen to $203,145.”

Unfortunately he didn’t finish the thought, which should have gone something like:

“Ever since that peak I have had a Buy recommendation on Pinetree. I even moved it from my speculative list to my “good grade, moderate risk” portfolio. As of today it is trading at $1.82 (Cdn), so if you had followed my advice and bought it at $16.15, you would have lost 89%, such that an investment of $200,000 at that time would be worth $22,538 today.”

Even better, there’s a letter to the editor in this edition from some guy who spends the first 20 lines of his letter praising Mr. Dines, but then asks why one would continue to hold a stock that adds no value to the companies it invests in (Pinetree is basically just a venture capital firm), has no technical indicators to recommend buying, and has no truly great assets.

Dines then spends have a page explaining that yes, some companies go down, but if their investments start paying off, it will go up. He ends with the classic “You have lost nothing if you own the stock and the price fluctuates.”

Yeah, I guess that’s true. But if you had sold a few dollars ago, the money could have been redeployed and earning you money. It’s called opportunity cost, and it is real.

Oh well, I haven’t owned Pinetree for a long time, so it’s all academic to me at this point.

• I repeated those comments in my post on the Dines Letter 2010 Forecast Issue, which remains to this day the most read post I’ve made on this site.

So why am I making this comments now? Two reasons:

First, I waited a week or two after Mr. Dines first gave his sell recommendation, to give any subscribers of his that still own the stock the chance to sell it. I’m not arrogant enough to believe that my thoughts carry any weight, but I am not in the habit of repeating recommendations from other people. If you want to know what James Dines thinks, subscribe to his newsletter. You won’t read his recommendations, or anyone else’s, regurgitated here.

Second, however, I do note that on March 15 PNP.TO – Pinetree Capital Ltd. did trade as low as $2.57, which is obviously a far cry from the peak, and exactly where it was trading last November. I still maintain that a technician with proper stop losses would have sold this stock a long time ago.

Am I bitter?

Not at all. I actually have a lot of respect for Mr. Dines. He has made a lot more money in this game than I ever will, and until I’ve written this blog for 50 consecutive years I’m in no position to criticize.

He writes a newsletter. It’s our job to read it, think about it, and make your own decisions. If you or I lose money, it’s our fault and no-one else’s. Even Dines himself says repeatedly that the decision to sell is up to us, and you should take profits off the table all the way up, so presumably anyone who followed his advice on PNP.TO – Pinetree Capital Ltd. was selling all the way up, so whatever shares they had left to sell this month were essentially “free”, the original cost recovered long ago.

I just think it’s amusing that he finally decided to sell.

But that’s just me……..

First, Friday was school ski trip day, where all the kids in grades five through eight go skiing for the day. It’s the only field trip of the year where all of the fathers volunteer to go (for most of the trips only the mothers volunteer). It’s a fun day, and all of the father’s get to say “see, I participate in my child’s education!”

Like their father, neither of my sons are athletes. They aren’t great at basketball and all of the other school sports. In fact, the only sport they are much better than average at is downhill skiing. I take them skiing a few times a year, so they’ve had practice, so they are more than competent when compared to their friends who spend their time on hockey and other non-skiing activities.

For my oldest, in grade seven, he looks forward to the trip, because it’s the one day of the year he’s an real athlete. He’s just as good, or better, as all of the other male athletes in grade seven and eight, so he can hang out with them, and be cool. As soon as we get there he says “Bye Dad” and he’s off with his friends.

My youngest is in grade five, so this was his first school ski day. He also knows how to ski, so he was looking forward to it, but somewhat less so since he had never been before. He gets along fine with everyone, but he’s nowhere near as extroverted as son #1. So we spent the morning in the intermediate ski lesson, and at the end of it he got his “two stripes”, which means he can ski on every hill. Only one other kid in his class got two stripes, and the other kid is a real athlete, so son #2 was quite proud of himself.

Back to amazing thing #1: After lunch, we road the lift up with the other two stripe kid, and when they decided what hill to go down my son said “Dad, if you want, you can go back to the chalet.”

Yup, son #2 ditched me. He would rather hang out with the cool kids then be seen with his Old Man. He’s all grown up.

It brought a tear to my eye.

But only briefly. I was actually quite happy to go back to the warm chalet and take my ski boots off and hang out with similarly ditched fathers.

Why am I telling you this story? I’ll get back to that momentarily. First, let’s discuss amazing thing #2:

On the front page of The Dines Letter on February 11, 2011, after a discussion of a particular stock that had “sextupled” in value (albeit over a six year period) Mr. Dines wrote those words that you almost never see him write: “we are satisfied to take the profit on it.”

Yup, a sell signal. Amazing. As we discussed in my commentary on The Dines Letter 2011 Annual Forecast Issue, sell signals are not a common occurrence.

So, what do all of these amazing things mean? Quite simply, it means that things change.

My little boys are not little boys anymore. They are almost teenagers, and while they are happy to have me around to buy them lunch, beyond that they have moved on. They don’t need me as much anymore.

And even Mr. Dines, the “keep an iron hand on the tiller” guy, the guy who recommended holding Pinetree from the top at $16.15 all the way down to the bottom at $1.82, an 89% drop, is actually specifically recommended that you take profits.

Wow.

Well, if things change, I guess I need to change with the times as well. That being said, here’s my plan for this week:

First, I am actually going to read through the current issue of The Dines Letter (which I haven’t really done for a while), and I will review his current thinking to see if he has gotten his mojo back. As I have reported many times before, Dines is great at identifying the start of a trend; he’s less proficient at knowing when to exit.

Second, I am going to review the trends and see where we are at. Specifically:

• has gold topped out (I doubt it)?
• is uranium’s long consolidation over? is it time to get back in?
• are the rare earth’s another area to jump into, now that the initial euphoria has died down? (I do own one or two, but they are not a major holding)?
• are there other trends I should be watching for?

If you have thoughts or comments, please point me in the right direction by posting your thoughts over on the Buy High Sell Higher Forum, and I’ll report back next week.

Thanks for reading, and have a good week.

Why? Why I am commenting on a newsletter written by a man who many of my readers would say is out of touch with reality, given the beating his stocks took in the 2008 debacle, while all the while he insisted on holding on, an “iron hand on the tiller”?

Two reasons. First, if you look at the list of Most Popular Posts at the bottom of the right hand navigation menu of this page, you will see that the most popular post was my posting from January 15, 2008 entitled: The Dines Letter – Thoughts on Mr. Dines and the Annual Forecast Issue. (For you computer geeks out there, the list isn’t really accurate, because most readers either read the site by going to the home page, not a specific page on the site, or through an RSS Reader, which doesn’t count their views. However, for people who found this site by searching for a specific topic, it is the top ranked post of last year, presumably because a Google Search for The Dines Letter rates that post just behind The Dines Letter website itself). So, if that’s what you want, that’s what you get.

Second, I found the issue to be quite interesting.

But before I give my specific comments, allow me to provide some background.

I have subscribed to The Dines Letter since at least 1999. There were many years where his picks earned me a great deal of money. In fact, as my portfolio performance page indicates, the 52% profit I made in 2005, and the 94% profit I made in 2006, were due largely to Mr. Dines’ picks. I suppose you could make the point that those were great years for the markets in general, and anyone with a dart board made money in those years, so perhaps Mr. Dines was just lucky, but I am willing to give credit where credit is due. I followed his picks, and I made money.

Of course I lost 34% in 2007, and 45% in 2008, and many of the stocks I lost on were also his picks. I was only slightly better than break even in 2009, since I was in cash for most of the year.

The classic example, I believe, of a bad pick was what I described on July 28, 2008 in my post on Volatility, Dines and Pinetree:

I can’t pass up the opportunity to quote James Dines from yesterday’s The Dines Letter. He spends most of the letter explaining that markets go up and down, so even if markets go down for a few years that’s no reason to sell. Here’s the classic quote:

“Our recommendation of PNP.TO – Pinetree Capital Ltd. at 0.795 cents (Cdn) subsequently rose 1,931% to $16.15 (Cdn) nearly two-thousand percent in only 17 months, such that a $10,000 investment would have risen to $203,145.”

Unfortunately he didn’t finish the thought, which should have gone something like:

“Ever since that peak I have had a Buy recommendation on Pinetree. I even moved it from my speculative list to my “good grade, moderate risk” portfolio. As of today it is trading at $1.82 (Cdn), so if you had followed my advice and bought it at $16.15, you would have lost 89%, such that an investment of $200,000 at that time would be worth $22,538 today.”

Even better, there’s a letter to the editor in this edition from some guy who spends the first 20 lines of his letter praising Mr. Dines, but then asks why one would continue to hold a stock that adds no value to the companies it invests in (Pinetree is basically just a venture capital firm), has no technical indicators to recommend buying, and has no truly great assets.

Dines then spends half a page explaining that yes, some companies go down, but if their investments start paying off, it will go up. He ends with the classic “You have lost nothing if you own the stock and the price fluctuates.”

Yeah, I guess that’s true. But if you had sold a few dollars ago, the money could have been redeployed and earning you money. It’s called opportunity cost, and it is real.

For the record,
PNP.TO – Pinetree Capital Ltd. is currently trading in the $2.17 range, so holding the stock for another year and a half from the $1.82 it was trading at when I wrote those words in July, 2008 would still not have produced much of a gain.

So what do I think of Mr. Dines? What do I think having both made money and lost money based on his advice?

I am of the view that he is good at identifying big picture trends, like the bull market in gold, uranium, and perhaps rare earths. He is not good at identifying massive market crashes. He is good at identifying when to buy; he is not good at determining when to sell.

If Mr. Dines read that last paragraph, he would say that “it’s up to the reader to determine when to sell; sell small percentages all the way up, to get your original investment back”. That’s fine, and I don’t disagree. However, if a stock is listed as a “buy” or a “hold”, that does not mean “sell”, and a stock that fell 89% should have been sold long ago. If he won’t advise his readers to sell when a stock drops 89%, when will he ever advise a sale?

He doesn’t have a great track record over the last few years. In his 2008 Annual Forecast Issue he spent the first 15 pages talking about how great an investment uranium would be over the next year or two. He was exactly wrong, and anyone who bought what he was advocating in 2008 lost a lot of money.

(Peter Brimelow selected The Dines Letter as the newsletter of the year in 2006. The following years were disasters until 2009. But Brimelow is back, selecting TDL as newsletter of the year for 2009, presumably due to a recovery from the previous horrific results).

I also worry that he has close relationships with the managements of the companies he recommends, and is therefore profiting from promoting a stock in ways other than simply profiting when a stock goes up. For example, it is not inconceivable that he could take a position in a company, and perhaps get warrants or options as well, and then tout the stock. I have no proof that he does this. But it makes me queasy nonetheless.

Part of my queasiness is derived from the disclaimer at the end of every The Dines Letter:

The Dines Letter, James Dines & Co Inc, James Dines
and their respective entities, family, friends, employees, associates, and others may have positions in the securities mentioned, or discussed, in this publication. James Dines, The Dines Letter,
James Dines & Co Inc, and their respective officers, directors, shareholders, employees and affiliates will from time to time, buy or sell the securities (including options and derivatives of such
securities) mentioned herein, without notice and if this concerns you, then do not follow our recommendations. These positions may involve debt and/or equity positions of every conceivable
nature whatsoever, including, but not limited to, options to acquire positions at below market prices.

I have no objection to a newsletter writer buying shares in the companies he recommends. In fact, if he isn’t willing to put money in shares that he is recommending, why would I want to buy them? However, holding “options to acquire positions at below market prices” may be perfectly legitimate, or it may be where the newsletter writer is actually making his money.

My final criticism of his methods is that he very rarely explains the rational for buying a particular stock. He generally simply adds a stock to one of his lists, with no detailed explanation. Other newsletters, such as Casey’s, give very detailed explanations of management, the product, financing and so on to prove they have done some research, and to allow the reader to make their own decisions. Dines just says “buy this”, leaving us to wonder if he has done a detailed study of the charts, or whether he’s simply getting a commission for recommending a stock. More talk about details, and less talk about nebulous “high states” would make for a more informative letter.

The Dines Letter 2010 Annual Forecast Issue

Enough background, let’s talk about the 2010 Annual Forecast Issue.

WARNING: I know that I will get a bunch of posts on the Buy High Sell Higher Forum telling me that I should not be disclosing anything from his newsletter, since I am stealing information from paying subscribers. I agree. However, here’s the fine print, from the bottom of the last page of every The Dines Letter:

The Dines Letter may not be reproduced in whole or in part without explicit permission in writing from a
duly authorized officer of James Dines & Co Inc, except by established publications that wish to quote brief passages for purposes of review.

So don’t worry. I’m not going to talk about any of his stock recommendations (most of which have remained unchanged for the last few years anyway. In fact, of the 44 stocks that appeared on his supervised lists in the 2008 Annual Forecast Issue, 28 still appear on those lists today. Given the intervening stock market crash, that’s remarkable).

Here are my thoughts:

I found the first page to be absolutely remarkable. A review of the last ten years of his newsletters reveals a common writing style. He always refers to himself in the third person. In 2008 he used phrases like “TDL marches to it’s own drummer”, and “as we pondered” and “as we contemplated.” He likes to refer to himself as “your editor”.

What was most remarkable in this year’s issue was that he, for the first time ever, has used the first person. On page one he says they “laughed when I first dared to recommend gold”, they “were furious when I went to China”, “I refused to be stared down” and “I mystified many be declaring that I’d discovered a new Major bull market.” On page one he uses the first person “I” and “my” 18 times. For the last 50 years this guy has written in the third person, and now, after 50 years, he uses the first person 18 times on one page! What gives?

We know that Mr. Dines is a shameless self-promoter. In fact the first sentence of this issue is self-congratulatory:

It is not easy to accept that the first decade of this new
century has already hurtled past, but we are grateful that
our Goldbug! book was our glittering reward.

Yeah! Look at me! I wrote a book!

Throughout every The Dines Letter he has always referred to himself as the “Original Gold Bug”, and the “Original Silver Bug”, and the “Original Uranium Bug”, and the “Original Rare Earth Bug”, and whatever else he was the first to discover. (I think people have been investing in gold for over 5,000 years, but let’s not quibble on that one).

But this time it’s different. It’s not just patting himself on the back. He is not using the third person to tout his accomplishments. He is saying “I”. Why the change? I have some theories.

First, it could be that Mr. Dines didn’t actually write the lead article. I can’t find any reference on the internet to his age, other than Brimelow’s article referring to him as “well over 80.” I guess at “well over 80″ it might be time to hand over the reigns to someone else, and someone else would have a different writing style. However, by page six he has reverted back to his previous third person style, which is indeed curious. If someone else wrote the letter, would they not have written the entire letter? Or does the introduction get written last? Mr. Dines wrote the letter, and then someone else finished it off by writing the first six pages? I don’t know.

James Dines has always closely guarded his privacy. We don’t know how old he is. We don’t know if he is married or single. He did let slip on page one that leaving his Wall Street job “stunned a prospective father-in-law”, so at some point in the last sixty years we know he at least had a date. But that’s it. We know no other personal details.

Could his insistence on the chest-thumping use of the word “I” be his swan song, his final argument for immortality amongst newsletter writers? Is he giving us his resume, so we will remember him forever? Is he writing his own obituary?

I have no idea.

I do know that his arrogance remains intact. Only once in the 35 pages issue does he admit he was ever wrong, and then only in one sentence, buried on page 3:

Nonetheless, I’m lucky but certainly not infallible, as I
later did not take the huge profits built up in uraniums
because I didn’t see any connection between crashing real
estate and uranium mining.

He goes on to admit to the realization that in a general market crash, everything crashes; the good and the bad. Yes, that’s what a crash is, and you would think someone with 50 years experience would realize that.

Another interesting point: on page one is a box with the words “Double Issue”, and indeed it is; 35 pages as compared to the usual 17. Of course the 2008 issue was a triple issue at 54 pages, as was the 2009 issue at 51 pages, so I guess times are tight even in the newsletter business; annual forecast issues aren’t what they used to be.

As for the actual forecast in the issue, it was exactly as expected. If you have read any of his work, you will know the themes by heart:

• The government prints fiat money, which will inevitably lead to the collapse of the currency (which he has predicted for years);
• Gold will go up;
• Uranium will go up;
• Rare earths will go up.

I don’t disagree with any of those conclusions. He did have a brilliant description of government deficits:

Do you know how much money one-trillion dollars is? If
you spent one-million dollars every day, a million dollars
went through your hands every single day, back to the birth
of Jesus, you could not spend one-trillion dollars. And the
American Government’s deficit for the year 2009 alone was
1.4-trillion dollars.

Well put.

So, after this long winded post, what do I think?

I think spotting trends is great, but you can only profit from a trend if you know the time elements associated with a trend. Saying that we will have deflation, or inflation, at some point in the future is no actionable intelligence. Saying that uranium will go up is only valuable information if you say “uranium will go up next week, so buy this stock this week.” It’s great that he predicted currency devaluations back in 1980, but being 30 years early is of little help to me.

In fairness, we are in un-charted territory, and I don’t know of any guru who has a stellar track record over the last few years.

Clearly I have been completely wrong, missing the crash of 2008, and missing the recovery of 2009.

But then again, it doesn’t cost you a penny to read my ramblings, and I have never pretended to know anything. I’m just some guy who gets up early on Saturday morning to pound out my thoughts, entirely for my own benefit, to clarify my thinking and assist me in deciding how to invest. I have a big ego, but not so big that I think I’m brilliant.

So why do I still subscribe to The Dines Letter, even though I haven’t followed his advice for at least two years? I subscribe because I have always subscribed, out of force of habit more than anything else. And I read it because it’s important to get insights from numerous people. I agree that Mr. Dines is good at spotting trends, so his work is valuable for that purpose. I don’t believe his work is valuable for making sell decisions, so for that, you are on your own.

I am already on record with my predictions for 2010 (so whatever I predict, do the opposite). After reading Dines Forecast issue, I’m not really sure what he’s predicting, so we will only know when he tells us whether or not he was right.

I think a printed newsletter is now old technology. He should create a website, give subscribers a password, and post his thoughts there.

Am I too harsh on the old guy? Is it unfair for me, a non-expert, to criticize a guy who has had success over a 50 year period? Perhaps, but this is my blog, so I get to ramble as I see fit.

I’ve enabled the comments section below, and you can comment on the Dines section of the Forum, so feel free to disagree with me as you see fit. See you next week.

The markets were down this week (where have we heard that before?). In Canada, the S&P/TSX Composite climbed to its highest level in nearly two months early in the week, and the pulled back to finish at 9085, down 149 points from Monday’s open. Gold finished the week at $853.50 up 1.3% after leveling off from its pre-holiday rally. In the U.S., the Dow closed at 8,599, down almost 5% on the week.

It appears to me that we are still in a down trend on the Dow (where else can you find this brilliant and decisive analysis?). It would appear that we need a break above 9,500 to confirm that a bottom is in, but I rise to 10,000 would be better confirmation. With all of the horrendous economic news out there, I don’t see that happening.

However, the U.S. gets a new president on January 20. So far, he is very popular. He has done a great job of lowering expectations, warning about 10% unemployment, and talking about the need for tax cuts and economic stimulus. (I thought we tried economic stimulus last year and it didn’t work? Oh well, guess we need to try again).

(Have you noticed that I seem to be using a lot of brackets in this commentary?).

The new president will give a rousing inauguration speech, many parties will be held, and much positive press coverage will ensue. People will feel good. The “dawn of a new era” will induce people to believe the worst is over, and buy stocks. The promise of more economic stimulus will induce people to buy stocks. Therefore, I am assuming we will have a brief and perhaps powerful rally over the next few weeks. For that reason I have closed out all of my short positions (like the RSW – Rydex Inverse 2X S&P ETF), and I am sitting with cash.

On the assumption that this renewed buying strengthens the U.S. dollar temporarily, I have also reduced my gold share holdings. My guess is that the new administration will do exactly what the old administration did: keep the price of gold down to mask the weakness in the U.S. dollar. Gold has been in a down channel since last March, and is now trading near the top of that channel, so I expect some further weakness, which is why I have lightened up on my gold share holdings.

As a result, I am now sitting with 56% of my portfolio in cash.

Do I expect the market to continue rising, and gold to continue falling? No. I expect, after the initial Inauguration Euphoria, that the market will resume it’s descent, and gold will continue it’s long term increase.

I don’t know the exact timing, or even the approximate timing, so I have already put in my stink bids on the stocks I eventually want in my portfolio. I have stink bids in on gold and silver stocks, as well as some junior players in gold, silver, and uranium. If we have big down days I’ll get filled, and then I’ll cash in on the big up days, since I assume we will see a return to the volatility we saw in 2008. If there are profits on the table, I will take them.

(As another bracketed aside, there was an interesting link posted by dananini on the Forum this week regarding our old friends Mr. Dines, and Sheldon Inwentash, and MGA.TO – Mega Uranium Ltd. and PNP.TO – Pinetree Capital Ltd.; I won’t repeat the discussion here, but it’s worth a read).

One of the lessons I learned in 2008 is that there is no shame in holding cash. If the markets crash, I’ll be happy I have cash. If the markets go up, I will wish I was fully invested, but until we see how the world shakes out, cash is not a bad thing.

If time permits this week I will do a review of the uranium sector; there are some bargains to be had, but only if the market turns upward, so I’m keeping my powder dry on that for now.

As always, thanks for reading, and see you next week.

To quote Comic Book Guy from The Simpson’s: “Worst stock market year ever.” My portfolio is down almost 40% this year, and apparently I’m not the only one.

Our friends over at Casey Research, in this week’s The Room publication, admitted that “We certainly didn’t foresee the depth of the pullback in the juniors.”

Eric Sprott, probably Canada’s leading and most successful hedge fund manager, was quoted in the Globe & Mail this week as apologizing for costing his investors so much money. Here’s the quote:

“Mr. Sprott didn’t see those declines coming, especially in gold, in large part because he never expected regulators to act so aggressively to bail out the financial system.

“We apologize for that,” he said on a conference call yesterday after telling investors “we thought we were well positioned because we thought that gold would rally.”

The problem has been the stream of government-backed salvage plans for financial companies such as Fannie Mae and Bear Stearns Cos. Inc. These are keeping bank stocks artificially inflated and taking the wind out of a rally in commodities, he said – a complaint shared by other commodity bulls. Mr. Sprott expects that the U.S. government will rush to help should Lehman Brothers Holdings Inc. and Washington Mutual Inc. need aid.

“The Treasury and the Fed are breaking all the normal rules of engagement,” Mr. Sprott said.”

Yup. Unfortunately shares in Sprott are down 50%, the Sprott Canadian Equity mutual fund is down almost 30 per cent this year, and Sprott Hedge LP fund is down 11 per cent so far in September, erasing almost all the year’s gains.

Even our old friend Mr. Dines said in his IWB on Friday that:

As one of the original pioneers of Visual Analysis (Technical Analysis) we can report to you that it is simply not working, exemplified by the fact that the Oversold conditions normally preceding rallies have dropped into record Oversold lows with no rally yet. We ascribe this to the intensity of the desperation of the sellers to raise cash.

He goes on to say that:

What we did not anticipate was that the uranium-mining stocks, all of them, would plunge along with the rest of the market. Ditto for gold ….

Sure, if we had known that the uraniums would have had this deep a Correction we would have led you out at the Top, but that would be the Low State of 20:20 Hindsight, a form of the Low State of Pastloitering…

Hmmm. I think the reason we subscribe to newsletters is because we want to be lead in at the bottom, and out at the Top. PNP.TO – Pinetree Capital Ltd. hit $14.98 on April 13, 2007. It is now exactly 17 months later, and Pinetree had a great day on Friday, up 14.5% in one day! Unfortunately, even with that big uptick, it is still only trading at $1.34, and amazing 91% drop from the peak. And, for most of that time, Mr. Dines rated it as a conservative buy.

(It was only this week that Dines issued an IWB saying there would be problems ahead, and all of his stocks are now a “Hold”. Well, better late than never. What would it take for this guy to put out a sell recommendation? Perhaps his “hold” is actually a buy signal).

My point here is not to trash Casey, Sprott or Dines. They have all been wrong. As have I.

The depth of the crash is much greater than any of us imagined. Had we expected this, we would have all been short, and we would all now be rich.

I accept the explanation that market players were so leveraged that when they had to raise cash, they sold anything they owned, so everything has gone down. More specifically:

Everyone knew that the U.S. financial system was in big trouble. The hedge funds had made tons of money shorting the financials, and going long the commodities, including gold, accounting for the run up in gold and the tanking of the financials. The boys in charge, Paulson and Bernanke, new that the collapse of the financial system, including Fannie and Freddie, would usher in a great depression, not to mention some serious problems from places like China that had invested heavily in the U.S. dollar.

They needed to save the system by boosting the financials and tanking the commodities. But how, and when?

Exactly two months ago today, on July 13, a Sunday, with the North American and U.S. markets closed, but just as the Asian markets were opening for the week, so that the number of players was few, they launched their rescue program. And, for good measure, the SEC made it more difficult to short the financials.

We had a perfect storm. Like Ike, everyone panicked. The short sellers had to cover their shorts, which they did by raising capital from wherever they could get it. They sold everything, including gold, silver, uranium, and any other type of stock they owned. Of course, with only the Asian markets open, it was hard to find buyers for what they were selling, which started the snowball rolling down hill, fast.

Bank stocks soared, which was the goal, to allow them to raise new equity. As their prices increased, the shorts got squeezed. The dollar rose as foreigners bought bank stocks, which of course meant that the hedge funds that were short the dollar had even more covering to worry about.

The next day marked the peak for gold:

Gold Three Month Chart

Since then, gold has fallen from $975 to below $750, so congratulations are in order for a job well done to Paulson, Bernanke, and Chris Cox (from the SEC for changing the rules on shorting). With the collapse in commodities prices, no-one is talking about inflation, so now there is no pressure to raise interest rates to contain inflation.

It’s brilliant, really. The Gang of Three knew that the hedge funds were highly levered, so it only take a slight push to force them to sell, and therefore take the pressure off the equally highly levered financial players, like the banks and Fannie and Freddie.

Brilliant.

Freakin’ brilliant.

Commodities are down, the banks are saved, gold is a barbarous relic, and all is well with the world.

Except that’s not true.

July 13 was not the end of the world. The banking system was not saved. A crisis was only temporarily avoided. The smart money did not decide to plow more capital into the likes of Fannie and Freddie.

And so, on yet another Sunday with the markets closed, this time September 6, the Boys decided to nationalize Fannie and Freddie. That’s right, the good ole USA, bastion of capitalism, decided to borrow a play from the best communist’s playbook, and nationalized the U.S. mortgage industry.

So perhaps all is not right with the world.

Why do commodity prices increase?

First, because of supply and demand. We may be in a recession that is depressing prices, but ultimately as half the world’s population in China and India continue to consume, prices must rise again.

Second, the intervention of the Big Boys works both ways. They got their wish by driving down commodity prices to save the financial system, but what goes down most often also comes back up. And the harder they fall, the faster and powerfully they rise, just like a spring.

Global real interest rates are negative. Foreign money managers exiting Fannie and Freddie may temporarily have parked their money in the U.S. dollar, but that won’t last for long with negative returns. They will want to put it somewhere, and with commodities very cheap at the moment, it won’t take them long to realize where their money should be.

So what does all of this mean?

First, I don’t believe that the events of the last two months mean that the financials are out of the woods. There will be more problems, more failures, more defaults. The government can’t buy up every financial stock, they can’t nationalize everything (can they)? As the financials come back to earth, commodities will rise again.

Second, I don’t know how long this unwinding will take. I don’t think gold will be $1,000 tomorrow, or next month, but I strongly believe that a year from now, or two years from now, we will look back on September 13, 2008 and say “I should have loaded up, big time.”

So, to play that, I have started to put in stink bids. It’s time to deploy any unused cash, but it pays to be patient. Pick an entry point below market levels, and on the down days, buy.

Since this strategy may take time to unfold, I’ll be doing it with cash, not with margin. I have no desire to get wiped out in a margin call if the Feds decided to nationalize more stuff. It’s not worth the risk.

I’ll be patient. Gold, silver, and uranium will rise again, and I will be positioned, ready, and patient.

Agree or disagree, your comments are always welcome on the Buy High Sell Higher Forum; see you next week.

After I started buying last week, the senior gold producers got hammered;

K.TO – Kinross Gold Corp. was down 16.5% on the week, AEM.TO – Agnico-Eagle Mines Ltd. was down 14.6% after disappointing results, and G.TO – Goldcorp Inc. was the star of the bunch, only down 10.9%. I guess I didn’t exactly pick the bottom when I started buying, did I?

Here’s a quote from Bottomfeeder on the Buy High Sell Higher Forum on Thursday:

Picking the bottom is almost impossible.  So you must buy in “pieces of positions”.

Anyway, I have caught more than a few “advisors” say that this is the way you have to play the commodities, and to me these stocks are to be played as commodities.  The good news to me is that my goal is to invest not trade, so as long as I sell them higher than I bought them I will do just fine.  But when a nice rip is there I try and take them, again selling partials.

Exactly.

You can’t pick the bottom. You can’t pick the top. So don’t try to time it exactly. Decide what you want to own, and begin accumulating. I have never seen a stock go up for 100 days in a row. They go up, they pull back, then they go up again, and so on. Decide what you want, and buy “pieces of positions”.

Last week I mentioned that I increased my holdings in K.TO – Kinross Gold Corp., G.TO – Goldcorp Inc. and AEM.TO – Agnico-Eagle Mines Ltd. They rose after I bought them, but as I mentioned above, they got hammered this week. I don’t get excited when they go up, and I don’t cry when they pull back; that’s just the way it goes.

Here’s how I think you play it: Let’s assume I’ve decided I want 1,000 shares of Company X in my portfolio. I look at the chart, and if it’s currently trading at the high end of the range, with a relative strength over 70, I won’t buy it now. I’ll wait until we have a down day or two, and then I’ll buy perhaps 300 or 400 shares to establish my initial position. If it falls the day after I buy it, I’ll buy 200 or 300 more shares. If it stabilizes, I hold, but put in some bids at below market prices. Eventually I get to my 1,000 shares. I may even get to 1,200 if conditions look good.

Then, when we have a few strong days and I’m well into the money, and the RSI is up over 70, I start selling. 200 shares today. Perhaps 200 the next day, until it stops advancing.

If Company X is a core holding in my portfolio, I will probably not drop below 500 shares unless I’m ready to sell and get out for good.

What do I do now? Gold got hammered on Tuesday and Wednesday, falling from almost $980 to below $920, before bouncing back on Thursday and Friday to close the week at $936.90. We know gold is volatile, so big drops are buying opportunities, and that’s what I’ll do this week. I’ll continue to increase my core holdings.

Our Friend Mr. Dines

I can’t pass up the opportunity to quote James Dines from yesterday’s The Dines Letter. He spends most of the letter explaining that markets go up and down, so even if markets go down for a few years that’s no reason to sell. Here’s the classic quote:

“Our recommendation of PNP.TO – Pinetree Capital Ltd. at 0.795 cents (Cdn) subsequently rose 1,931% to $16.15 (Cdn) nearly two-thousand percent in only 17 months, such that a $10,000 investment would have risen to $203,145.”

Unfortunately he didn’t finish the thought, which should have gone something like:

“Ever since that peak I have had a Buy recommendation on Pinetree. I even moved it from my speculative list to my “good grade, moderate risk” portfolio. As of today it is trading at $1.82 (Cdn), so if you had followed my advice and bought it at $16.15, you would have lost 89%, such that an investment of $200,000 at that time would be worth $22,538 today.”

Even better, there’s a letter to the editor in this edition from some guy who spends the first 20 lines of his letter praising Mr. Dines, but then asks why one would continue to hold a stock that adds no value to the companies it invests in (Pinetree is basically just a venture capital firm), has no technical indicators to recommend buying, and has no truly great assets.

Dines then spends have a page explaining that yes, some companies go down, but if their investments start paying off, it will go up. He ends with the classic “You have lost nothing if you own the stock and the price fluctuates.”

Yeah, I guess that’s true. But if you had sold a few dollars ago, the money could have been redeployed and earning you money. It’s called opportunity cost, and it is real.

Oh well, I haven’t owned Pinetree for a long time, so it’s all academic to me at this point.

It’s not a profit until you sell, and if Dines had recommended selling after a 2,000% rise he would be hailed as a genius. Holding a stock all the way back down isn’t that impressive.

Enough about Mr. Dines. That’s two weeks in a row we’ve discussed him; it’s probably time to stop mentioning him for a while.

As always, I’ll leave it to you to set the agenda by posting your thoughts on the Buy High Sell Higher Forum. I expect better weeks ahead, so I’m buying the producers at these levels.

My portfolio went from a yearly loss of over 7% at the end of last week to a yearly loss of 5.8% as of today. That’s not great, but we are at least moving in the right direction.

As I said last week, I am now starting to deploy some of my cash.

My first purchase this week was to increase my holdings in RH.V – Red Hill Energy, Inc. I like this one; you can read my detailed comments on the Red Hill Energy blog post I posted on Tuesday February 19. I like the company because it has interests in both coal and uranium, so it gives my portfolio some diversification. Even better, they have a joint venture on the uranium properties with MGA.TO – Mega Uranium Ltd., which shares a CEO with PNP.TO – Pinetree Capital Corp. I don’t own either Mega or Pinetree, but knowing how Pinetree operates it’s not a stretch to assume that if Red Hill finds more uranium, Pinetree will be a buyer, which should drive the price up. Even without the Pinetree angle, I like it, and I may purchase more this week.

Next on my list was to get back into DML.TO – Denison Mines Corp., a stock I haven’t owned for many months.

I put in an order and got filled on Tuesday at $6.93, so obviously I’m happy today. I like the chart because:

• the downtrend going back to November has been broken (although the longer term downtrend remains intact);
• the close at $7.70 means we have crossed over the 50 day moving average (currently at $7.75) which is usually a great buy point; and
• the downtrend in the RSI has also been reversed and is moving in the right direction (although now we run the risk of the RSI getting toppy).

My plan is to put in a sell order around the $10.50 level, since I assume we will hit some resistance just over $11. That would give a nice profit, and would allow me then to repurchase on dips. If it doesn’t get to $10.50, that’s fine, I’m content to sit and wait.

My next purchase was AXR.TO – Alexco Resources Corp.:

I think this chart provides a nice contrast to the Denison chart. With Denison, the short term downtrend has been broken; that hasn’t happened, yet, with Alexco. The RSI and 50 DMA have also not advanced as far with Alexco as they have with Denison. Obviously I’m betting that the Alexco chart next week will look more like Denison’s chart this week, so I started buying at $4.13 on Tuesday, so I’m happy with Friday’s $4.40 close.

Other purchases this week included:

• AMM.TO – Almaden Minerals Ltd.
• FVI.V – Fortuna Silver Mines Inc.
• RES.V – Rare Element Resource Ltd.; and
• IGG.V – Invicta Oil & Gas Ltd.

I had buy orders in on other stocks that, alas, were not filled:

• AEM.TO – Agnico-Eagle Mines Ltd.
• G.TO – Goldcorp Inc., and
• K.TO – Kinross Gold Corp.

Obviously this last list is all gold stocks, so it’s not surprising that my “stink bids” didn’t get filled, given the strength in gold this week.

Again, I’m not worried. We all believe that gold is on a run past $1,000. However, my gut tells me that there will be resistance around the $1,000 level, and a pull back to the $850 level would not surprise me, since nothing goes up in a straight line forever. That’s why I’m not chasing anything. If I can’t get the price I want today, no problem, I’ll be patient, since more opportunities will come.

Does my buying this week mean I believe the bear market is over?

Nope.

The economy is in bad shape. More bank write downs are to come. The Fed will have to cut interest rates again. That will cause a flight to gold, which is good, but it also creates a liquidity crunch which, as we all know, is what tanked our uranium stocks last year.

Therefore, I plan to ride the wave over the next month or two, but I also plan to keep tight stops, and at the first prolonged signs of weakness I will run like a chicken for the sidelines. This is not the start of a glorious new age of easy profits. We are not in 2006. Caution, prudence and discipline are more important than ever, which is why, even after my recent buying, I am still 48% in cash (down from over 60% last week). I will continue to deploy cash, but only if there are deals to be had.

The bear is dead (for now); long live the bear (later in the spring, probably).

Thanks for reading, and please continue to post your thoughts on the Buy High Sell Higher Forum.

RH.V – Red Hill Energy, Inc.

Red Hill has been a component of the JDH portfolio for a while now, but I significantly reduced my holdings earlier this year during the correction. I think the time has come to re-visit it.

According to the Red Hill website:

“Red Hill Energy is a publicly traded (TSX-V: RH) mineral exploration company head quartered in Ulaan Baatar Mongolia that engages in the exploration, development and (currently) pre-production of advanced coal projects and a portfolio of uranium exporation projects.  Red Hill is currently advancing three coal resources, in two significant basins towards production with a combined total exceeding the 1 Billion tonne mark of high quality reportable bituminous coal.”

(As an aside, Red Hill has a really crappy web site; I think they should hire a high school kid to re-design it for them, and perhaps even include some up to date information. It’s somewhat embarassing to read on a site what they plan to do in 2007. However, I’m buying an exploration company, not a web design firm, so I’ll ignore that for now).

(As a further aside, the 1 billion tonnes of coal is for all projects, not just the 43-101 compliant ones, as we shall see below).

Coal is obviously an abundant and cheap fuel source, and will be essential for the growth of countries like China and India, until they all have hundreds of nuclear reactors on line.

Red Hill gives exposure to both coal and uranium, which is great.

Here’s the chart:

Obviously the stock has been in a downtrend since April, 2006, but the long term very slight uptrend that started in July 2006 has survived. The RSI downtrend seems to have been halted with the RSI now around 42, a favourable buy point. Also, the 60 cent level looks like a fairly stable floor, so I don’t see a huge amount of downside risk from here.

So, to summarize, exposure to uranium and coal, but high risk because it’s all in Mongolia.

Now, for the kicker.

On December 7, 2007 the following press release was issued:

“Canadian-based Mega Uranium Ltd. (TSX:MGA) has announced the purchase of new mining sites in Mongolia.  On Wednesday the company said it had acquired a 50 percent stake in those sites being operated by Red Hill Energy Inc. (TSX VENTURE:RH). Red Hill currently has ten sites in Mongolia with a total area of 1850 km2. Mega Uranium Ltd is a mineral resources company with a focus on uranium properties in Mongolia as well as Australia, Canada, Cameroon, Argentina, Bolivia, and Colombia.”

In other words, the Red Hill uranium properties in Mongolia are all now joint ventures with Mega Uranium.

As we all know, our old friend PNP.TO – Pinetree Capital Corp. owns, according to their web site, just over 8 million shares of MGA.TO – Mega Uranium Ltd., which isn’t a big percentage of the 180 million shares outstanding , but of course the CEO of Mega is also the CEO of Pinetree, so we know they are joined at the hip.

So let’s put two and two together:

Mega already has an interest in Red Hill. They know what’s going on. Further engineering studies are underway, as noted in a December 21, 2007 press release. That probably means more good news in the future. The press relsease noted that Red Hill has “a combined 208.8 million tonnes of high quality thermal coal.” (They are referring only to their Ulaan Ovoo Coal Project located in north central Mongolia, not all of their properties). At 65 cents per share, assuming around 48 million shares outstanding, Red Hill has a market cap of $31 million, so if you assume that only the Ulaan Ovoo Coal Project has any value, each tonne of coal is worth 15 cents.

Now I realize that coal in the ground is worth less than coal that’s been mined, and I realize that to get the coal from Mongolia to the customers in China requires a few hours on a train, so there are transportation costs to consider, but 15 cents a tonne? Seems cheap to me.

And, that means the other coal projects are worth nothing, and the uranium is worth nothing, which is ridiculous.

If I was Pinetree, why would I not invest directly in Red Hill? Pinetree has an indirect interest in Red Hill through Mega, but this looks like the perfect value play for Pinetree.

Over on the Buy High Sell Higher Forum we have often talked about buying a company before Pinetree invests in it, and then selling it on the inevitable pop. We have also talked about buying companies before The Dines Letter recommends them, again because in the past Mr. Dines has recommended companies after his friends at Pinetree have already taken a position. Well, Red Hill may fit the bill on both counts.

I have had a small amount of Red Hill in my portfolio off and on over the last few months, but I now plan to start buying more in the 65 to 70 cent range. I’m not going to chase it. Red Hill will not be a big component of my portfolio; 2% to 5% will probably be about the right level, given that this is a highly speculative play. However, I think the downside is low, and the upside is large, so it’s a good one for a flyer.

First, I got The Dines Letter, the subject of much talk this week on the Buy High Sell Higher Forum. To summarize the numerous posts on the topic, the general consensus is that Mr. Dines is simply a “tout”, someone who buys a stock, then tells everyone to buy it, then as the price is rising he sells it.

His latest example was a new recommendation buried on page 5 this week (I have deleted the stock’s name so as not to be accused of being a tout):

“Stock X , in Supervised List #5, while up 257%, has been an underperformer for some time, which is why we have intermittently graded it “Hold,” to forestall additional buying. With sky-high silver prices a possibility, this one could nonetheless do very well, as even Cameco was able to rise due to nosebleed-high uranium prices. Nonetheless, we want some more action, and we have lost patience with it to the extent that we are hereby replacing it with Stock Y, which we own, but only buy on a dip below $1.50.”

Wow. Talk about a Freudian slip. We want some action, so buy this stock.

I am amazed that Mr. “The High State of Being Honest” doesn’t bother to tell anyone anything about the stock. Fortunately our Forum members took the 30 seconds necessary to do some due diligence: they punched the stock name into Google Finance and found that:

“Stock Y , formerly Stock Z, is a Canada-based company. It was involved in advanced technology to improve environmental air and water quality. During the year ended December 31, 2006, the Company had not commenced any business activities.”

Even more impressive is the list of directors: Sheldon Inwentash, Larry Goldberg, et al, the boys from PNP.TO – Pinetree Capital Corp. Want more? Here’s the press release Pinetree issued on January 31, one day before Mr. Dines’s letter:

“Pinetree Capital Ltd. (TSX:PNP), announces that on January 30, 2008, further to the conversion of certain subscription receipts, it acquired ownership of 750,000 common shares (“Common Shares”) of Stock Y and 375,000 common share purchase warrants (the “Warrants”). Each Warrant entitles the holder thereof to acquire one additional common share at a price of $1.50 until November 6, 2009. In the event that the Warrants are fully exercised, these holdings represent approximately 3.7% of the total issued and outstanding common shares of Stock Y as of January 30, 2008, calculated on a partially diluted basis assuming the exercise of the Warrants only. As a result of this transaction, Pinetree and its joint actors collectively held, as at January 30, 2008, an aggregate of 5,536,331 common shares of Stock Y and rights to acquire an additional 1,337,500 common shares of Stock Y upon the exercise of convertible securities (collectively, the “Convertible Securities”). Of these totals, Pinetree owns an aggregate of 3,940,536 common shares, including the Common Shares, and the Warrants, directly. In the event that the Convertible Securities are fully exercised, the holdings of Pinetree and its joint actors represents a total of 6,873,831 common shares of Stock Y, or approximately 22.2% of all issued and outstanding common shares as at January 30, 2008, calculated on a partially diluted basis assuming the exercise of the Convertible Securities only.”

In other words, Pinetree controls almost a quarter of the company, and we know that Mr. Dines owns some, so obviously this is a company that is controlled by Mr. Dines and Pinetree. It appears to have no business operations. No revenue. It is a shell company that they bought and are now touting.

Great.

Thank you P.T. Barnum.

The Super Bowl is this Sunday. Many of our younger readers will no doubt engage in various drinking games, like having to take a shot of some beverage every time the announcer says the word “punt” or “no, really, the Giants could win this thing.” I propose another drinking game:

As you read The Dines Letter, take a shot every time he uses what I call Dines Initials Confusing Krazy (“DICK”) which are initials Dines runs together to make him look smart, like DIRUBM, DIWPAT, DROLL, DIDIVE, etc. There were over a dozen in this issue, so you’d be on the floor by the end of it.

But isn’t that how magic works? I re-direct your eye with witty banter while I take the coin out of my sleeve.

Dines is the same. He doesn’t go and visit the company and report back on the management, or the resources in the ground, or the business plan. He simply waits for a call from his buddy Sheldon, and then he tells his sheep that he “wants some action”, so buy this stock. That’s it.

Yikes.

So what’s a guy to do?

Think.

That’s exactly what Forum members were doing this week. When Dines made a recommendation, they immediately did some research and realized buying Stock Y was a stupid idea. Stock Y will probably go up on Monday as the lemmings pile in, but a month from now it could well be much lower as the smart money departs. Protect yourself by using your brain.

Another option is to look to others for advice. Casey is one option. Doug Casey is a far right kind of guy, doesn’t like government, wants us all to hide gold in a safety deposit box for the coming end of the world. (He may be right, but that’s a story for another day).

He is also a tout. Every day his subscribers get an e-mailed advertisement from advertisers that in many cases are companies he recommends. The e-mails are clearly labeled as advertisements, but it does raise the question: did he recommend the stock because it’s a good stock, or because he doesn’t want to offend his advertisers? His website also contains advertisements paid for by the companies he recommends.

However, he also gives the appearance of at least doing some research. He doesn’t just recommend a company. He typically provides a multi-page write up on each new recommendation. He talks about their projects, management, financing, and the “push” he expects in the next few months. In most cases he or his staff has actually visited the company’s projects.

Now, doing a bunch of research does not mean you are not a tout. It may just mean that instead of making up sayings like DICK, you are making up a bunch of research to justify your opinion.

However, with a well reasoned argument in favour of buying a company, as a reader I can THINK and make up my own mind.

I don’t buy most of what Casey recommends. He currently has 45 stocks on his International Speculator publication list, and only 5 of them are marked as a sell, so that’s 40 stocks he thinks you should have in your portfolio. And that’s just one of his four publications. If you owned everything he recommends you would have over 70 stocks (some recommendations are duplicated across publications), which is more than the average investor wants to keep track of.

He does, however, actually issue SELL recommendations, which is a rarity for Mr. Dines. And, he does have a web site that is updated daily with new information, so you can go at anytime to see if anything has changed on a stock you own.

This is not an endorsement of Mr. Casey, and it is not a recommendation to purchase his service. Many of his stocks are down at the moment, so he is not omnipotent.

I reference him here only to draw a contrast between two different styles of newsletters. Dines and Casey may both be touts, but at least Casey tries to pretend he is actually doing some research.

Not that any of it has done me much good. I’m currently down 7.6% on the year, but I am 64% in cash at the moment, and I have no plans to start buying aggressively until there is some obvious evidence that some down trend lines have been broken.

That’s enough of my ramblings for today, thanks for reading, and please continue to post your thoughts on your most loved or hated newsletter writer on the Buy High Sell Higher Forum.