Of much more interest than my jumping the gun was the news that Martin Armstrong has been released from prison. (Thanks to onlooker, sidewinder and others on the Buy High Sell Higher Forum for bringing this to our attention. I started the Forum so we could share our knowledge; this is a good example of exactly that process in action, which is why even though I rarely comment on the Forum, I check in on it every day).

Martin Armstrong was released after 11 years in jail. For those of you not familiar with his case, you can Google him and find out more. Of interest as well was his release of a report dealing primarily with his expectations for gold called How – When, which you can download from his website.

His prediction is that June 13/14, 2011 will be a key turning point for the market. He says:

The best of all worlds for a bull market shall be for gold to make a low on that day. This will be the best possible signal that the next 4.3 years will be very interesting indeed.

What does he mean by “very interesting indeed”? He means that if gold continues trading as it has, we are set up nicely for the next stage of the bull run. He continues:

As I have said previously, there does not appear to be a likelihood of any real BEAR MARKET with a profound crash. The key support lies in the $1,000 to $1,100 zone. Because the important support is so high, it is not likely that there would be a big V type bottom.

Of course, like all prognosticators, he doesn’t spell it out exactly, because presumably no-one can see the future. However, he does say that:

Only a monthly closing BELOW $1,150 would signal a bear market. This does NOT appear to be in the cards.

He says that there is major resistance in March at $1,531.19. So far gold has only managed to trade just above the $1,440 level in March, before dropping back below $1,390, before recovering to close on Friday at $1,418. His prediction for March:

Instead of holding the December 2010 high, gold will exceed it in March 2011. If we do not surge beyond $1531.19, then we can still pull back at the very worst to $1,040-$1,150. Getting ABOVE that level to $1775, on the Middle East stuff, then the base support will simply move higher in the $1400-$1500 level.

So he’s saying that there is key support down to $1,040, but even a decline to $1,000 is not damaging.

I guess we wait and see. Mr. Armstrong, like all prognosticators, is sometimes correct, and sometimes wrong. I’ve watched in the past as his key dates come and go, so there are no guarantees that he will be correct on this one.

However, I am of the view that gold is headed higher, and it makes sense to me that a pause to build a base is a good thing, so for now, I’m holding all of my gold and silver holdings.

As for the other gurus:

James Dines of The Dines Letter is of the view that we are nearing the bottom of this correction, and it’s time to start selectively buying.

Casey Research is more cautious, preferring a wait and see position for at least a few more days before giving the all clear.

And George Ure and Clif High over at Urban Survival continue to say we will be entering “release language” around March 25. Unfortunately for George and Clif, they seem to have missed things like a massive tsunami and nuclear melt down over the last 10 days. I realize no-one can predict the future, but this is a big miss. If they are actually reviewing forward looking data from the internet, this one should have been obvious. Oh well, so much for their “rickety time machine”.

To be fair, they did talk about “rivers of radiation” in their last report, but they went on to blame this radiation on “unknown energies from space”. Sorry guys, I don’t consider that to be a correct prediction.

As for me, I have no doubt that the currency collapse will continue, so gold and silver are the only form of money that will retain it’s value. And yes, the nuclear industry took a big hit with the earthquake in Japan, but the simple fact is that we have no other choice if we want the lights to stay on. Coal is dirty, and coal mines collapse. The sun doesn’t shine all the time, and the wind isn’t always blowing. Natural gas pipelines can explode, and oil is the most dangerous energy source of all (if you consider spills in the Gulf, and wars in the Middle East). Ultimately nuclear is it.

That’s my report. I’ve just returned from a week’s vacation in Florida, so my report is somewhat abbreviated today while I recover; you can read all about it in my post on Universal Studios Orlando Sucks – My Vacation Report.

Thanks for reading and contributing; see you next week.

(For those of you who have never heard of Dines or Casey, you can read my post on Doug Casey, and Casey Research: A Comparison to The Dines Letter, and my detailed comments on The Dines Letter 2010 Annual Forecast Issue for more background).

Mr. Dines is a master of self-promotion. He has labeled himself “The Original Gold Bug”, and the “Original Internet Bug” (well, not anymore), and his latest, “The Original Rare Earth Bug”. In his most recent issue of The Dines Letter, published on July 23, 2010, under the headline TDL’S LATEST FROM “THE
ORIGINAL RARE EARTH BUG”, Mr. Dines comments that:

The big news reported in our latest flurry of Interim Warning
Bulletins (IWBs) is that China has slashed its export quotas by
around 70%, so deeply that even America and Europe are
beginning to notice that they are at the mercy of China’s
supply of nearly 96% of the world’s estimated Rare Earth
production – with 60% of that total reserved for China’s own
use! This is not some Old World commodity, such as OPEC’s
petroleum cartel, but the future of many vital new technologies
including windmills, electric cars, cell phones, high-tech magnets,
lasers, superconductors and military weaponry. We predict that
China’s Rare Earths will emerge as a new monopoly the likes of
which the world has never seen before, believe the unbelievable or
not.  (Bolding and italics reproduced from the original – JDH).

Cool. Perhaps I should use bold type and italics more when I write as well.

Mr. Dines has a portfolio of eight rare earth element stocks, and he recommends placing an equal amount of capital into each. I’m not going to tell you the names of the stocks; you can buy a subscription if you want to their names. Not surprisingly, the results have been mixed. Here are the returns:

As you can see, one stock made a 904% return; obviously without that stock in the portfolio, the portfolio would have been slightly above break even. However, you can’t argue with the fact that, if you had put an equal amount into each stock, you would have more than doubled your money in Mr. Dines’ rare earth element stock picks.

For those of you who would like me to play Devil’s Advocate, Stock #5 in the list above was first recommended on July 7, 2009 at around 30 cents. It exploded to over $3.70 in the next two and a half months, and then peaked again in April of this year at over $4. By the end of last month it had dropped back to $2, before recovering to around $3 today. In other words, this is a very volatile stock, and your returns will change dramatically depending on the day you check your portfolio.

Equally interesting is that this stock has an average volume of approximately $250,000 worth of trades. That’s a very thinly traded stock. An order for $10,000 in shares can have a material impact on the price.

Dines’ disciples will tell you that he is very good at uncovering a new bull market before the rest of the investment world catches on. There is an element of truth to that statement. He was an early proponent of gold, and internet stocks, and uranium stocks. He was not the first; but he was early in the process.

His detractors will tell you that if you have a newsletter read by 25,000 people (and I just made that number up; I have no idea what The Dines Letter‘s circulation is), and each of those readers invests $1,000 in a stock, you instantly have orders for 100 times the normal daily volume of the stock. It’s therefore not that hard to create a self-fulfilling prophecy: he tells his followers to buy, and up goes the stock, which makes him look very smart indeed.

Frankly, it’s a great business model. He picks a thinly traded stock, and tells everyone to buy, and his personal holdings go way up. Obviously that strategy is not as successful with large cap blue chip stocks, since it takes a few million in orders to budge the price in any direction.

Dines and Casey

So, what does all of this have to do with Dines and Casey? Every day the Casey Research organization publishes Casey’s Daily Dispatch, a free publication. On August 5, 2010 the headline was Talk vs. Action on Rare Earths, and the they commented on, you guessed it, Rare Earth Elements. Here’s a snippet, with emphasis added by me:

A number of subscribers have written to ask why we haven’t taken the plunge on the rare earth element (REE) plays that have been making so much news lately.

Actually, we did, in our Casey’s Investment Alert service, well before the REE bubble inflated last year, and having made a bunch of money and taken profits, we still have some risk-free chips placed on our favorite REE play. This was a very high-risk move, made because the company in question also had a strong gold story. If the market hadn’t gone gaga over REEs when it did – for no reasons anyone could have predicted with any high degree of confidence – we’d have likely taken a loss on that bet.

The critical point here is that the market for REE juniors took off because a writer made a big splash publicizing the REE market, not because of some sudden and real change in the underlying supply and demand in that market. Many companies in the sector shot up two, three, even five times, without anything changing in their fundamentals.

That worked out great for those of us already invested, but once a “flavor of the day” inflates a bubble, it’s time to take profits, not buy.

That said, there has now been a seismic shift in the REE market, in the form of the Chinese, source of over 90% of the world’s REEs, cutting their exports by 72% recently. Here’s a link to a story on this.

So, with the REE plays having sold off since the bubble peaked last year, is now finally time to buy?

Maybe. Or maybe not.

First, note that in spite of the major shift in the market the Chinese have created, popular REE stocks, like RES, AVL, and CCE, have not gone through the roof.

Second, the highest-profile REE play out there at the moment is the new IPO of Molycorp (NYSE.MCP), which has the past-producing Mountain Pass project in California. And yet, the company had to reprice the IPO at a lower level, and the shares have not taken off, as of this writing.

These are clear signs that REE plays really were in a flavor-of-the-day bubble, but more importantly regarding the junior explorers, as far as I can tell, none of them can say yet how much it will actually cost them to produce a pound or kilo of the metals they propose to produce. If this were off-the-shelf technology we were talking about, we might go with reasonable estimates from similar projects, but it’s not. Ranging from technical factors such as crystal size to the specific mix of metals in each deposit, these minerals are each unique, meaning there is no simple, economic production process. Until these guys can say what it will cost them to produce what they have, we cannot say that what they have has any value at all.

That doesn’t mean that they will all fail to figure out their processes, just that until they do, we’re likely to remain on the sidelines.

To repeat: Rare Earth Element stocks went up because “a writer made a big splash publicizing the REE market.” I did a Google search for Rare Earth Elements, and I couldn’t find any particular writer attempting to make their name publicizing this type of investment. So what do I conclude?

I conclude that Casey Research is referring to “the Original Rare Earth Bug” himself, Mr. Dines. No reading between the lines is required to conclude that the Casey Organization are not big fans of Mr. Dines. Why? Two reasons, I assume:

First, they are competitors. They both write newsletters, and they want investors to subscribe to their newsletter, so it behooves them to cast their own product in the best light possible. (Note to self: I’ve never heard either Casey or Dines use the word “behooves” before). They both recommend precious metals stocks. In fact, they both recommend many of the same precious metals stocks. They also follow uranium stocks, so it’s not surprising that there is some overlap in their subscriber base, and it’s logical to assume that they know they are being compared to each other, and they want to win that competition.

Second, Casey presents their analysis in a more analytical fashion than Dines. It is very common for a Dines Letter to include a note “Stock ABC added to Supervised List #3, no stop yet”, and that’s it. No explanation, just “buy”. Conversely, all Casey recommendations contain the Eight P’s (people, price, push, etc.) to explain why the stock is being recommended. Generally a recommended price is also given; in many cases Casey’s advice is “don’t buy yet; wait until the price drops to $X”.

Does that mean Casey is good, and Dines is bad? No. It simply means they have different approaches. Dines devotes a great deal of time to the big picture; he explains why he believes, for example, that gold, or uraniums, or Rare Earths are in a bull market. He then picks the best stocks in that market and recommends them. Casey also discusses the big picture, and then provides detailed analysis on each stock he recommends.

Of course it is entirely possible that both Casey and Dines “front run” the stocks they recommend, taking positions in advance of their formal recommendations. Dines admits as much in his disclosure policy, and Casey publishes paid advertising from companies he recommends, so neither of them are “pure as the driven snow.”

(For the record, no-one pays me to say anything, but if any readers want to pay me, feel free to send money………).

So what’s my conclusion?

Caveat Emptor. Buy beware.

Over the years I have both made and lost money following the recommendations of Dines, Casey, and many other market commentators. Ultimately you have to make your own decisions. I advise everyone to think for themselves.

Read what each commentator has to say, and decide for yourself if you agree with their reasoning and thought process. If you do, follow their advice, or tailor it for your own purposes. If you don’t agree with their reasoning, don’t follow their advice. Simple.

All gurus have their pet projects. Both Dines and Casey are fans of precious metals. When gold and silver are up, their stocks do well, and vice versa. In many instances their skill is being in the right place at the right time, which is why if you review their returns over the last few years you will see they have good years, and bad years, just like the rest of us.

Gurus are a resource, but not a substitute for your own thinking.

So think.

That’s it for today. The economy is in terrible shape with rising unemployment and declining consumer spending (which is 70% of GDP), but the market is oblivious; all is good, so the market continues to rise. That can’t continue forever, but as we all know the market can be illogical for a lot longer than we can remain solvent, betting against it, so for now we bide our time, remain with lots of cash, buy the odd put for downside protection, and sit and wait.

Thanks for reading’ see you next week.

If a newsletter writer can get a few thousand subscribers, they can recommend a small cap penny stock, and if each of their readers buys a few shares, the price of the stock goes up, making the newsletter writer a genius. Until, of course, there is no more buying, and the price falls.

In the past I have subscribed to two publications: The Dines Letter and various Casey Research publications.

The Dines Letter

I started subscribing to The Dines Letter in 1999. I made a lot of money from his recommendations in 2005 in 2006. I lost a lot of money in 2007 and 2008 (the painful details are all to obvious on my Portfolio Performance page). Overall, during the period from 2005 to 2008, I made nothing. So much for following the “guru”.

You know you’ve got problems when your bio on your website starts with “James Dines, truly a living legend, is one of the most accurate and highly regarded investment analysts today.” Yup, “living legend” pretty much summarizes it, all right.

I have nothing against Mr. Dines. He has no doubt earned a very good living for himself over the years, so more power to him. His commentaries are interesting, and at times very insightful. He was correct to suggest investing in uranium stocks ahead of the boom. Unfortunately knowing when to buy is only half of the equation. You must also sell, and unfortunately for Mr. Dines’ subscribers, he advised “holding” all the way down.

My favourite quote, which I commented on in my July 26, 2008 posting, had him bragging about PNP.TO – Pinetree Capital Ltd. which had fallen 89% from it’s peak. Priceless. I don’t need a guru to show me how to lose 89%. I’m fully capable of doing that on my own, thanks very much.

Casey Research

The problem with Dines is that he will recommend the purchase of a stock, but he will often not give reasons. It often looked as though he was recommending the purchase of a penny stock simply because he already owned it. With his subscriber base he could often drive up the price, temporarily, but longer term it was just a pyramid scheme. Which is why I started to read the publications produced by Casey Research.

Casey Research has well thought out, reasoned opinions. They have publications that specialize in Big Gold stocks, junior speculative stocks, and the excellent The Casey Report with general commentary to tie it all together. They actually visit the companies they invest in. They talk to management. They run the numbers. They integrate their specific company analysis with a well thought out view of the economy in general.

And, in 2008, their recommendations got killed. Investing in their recommendations cost their subscribers a ton of money. Trust me, I know.

Unfortunately a well reasoned, well thought out approach is of no use in the worst bear market any of us have ever experienced. The correct strategy, in hindsight, was to be in cash, or to be short for the last two years, and Casey didn’t figure it out.

That being said, I still read Casey publications. I just read everything with a critical eye, because ultimately I am responsible for my own decisions.

So where else can you get information to help you make investment decisions?

Blogs

Obviously I am somewhat biased, because I post to my blog every week. My blog is not full of information; it’s full of my opinions, so in that sense is useless if you are looking for usable information. However, that’s the point of a blog: you read someone else’s perspective on the world, and you take what they’ve said, and use what you want, and ignore the rest. So, who do I read?

My favourite blog is the Urban Survival web site, written by George Ure. He posts his thoughts five days a week (and usually on Saturday as well) at 7:55 am CDT (8:55 am Toronto time). George is a bit of a nut. He has no clue how to use spell checker, so there are numerous spelling errors every day. He is partners with the HalfPastHuman guys who use predictive linguistics to predict the future. They analyze words being used on the web, and use that to predict the future. If there is talk of earthquakes, they will predict when an earthquake will strike, for example. (For a more lucid explanation of this, read sidewinder’s post on the Forum from Wednesday). (And that’s the second time I’ve quoted sidewinder today; perhaps he should be writing this blog instead of me……..).

Having read the site daily for a number of months, it’s my impression that most of the predictions are incorrect, or the predictions are correct but the timing is wrong. It’s easy to predict that “the market will crash”; that prediction is only meaningful if you can tell me when the crash will happen, and how severe it will be. Unfortunately, George’s predictions don’t have a lot of value from that point of view.

So why do I read him every day? Because even though his predictions are often a bit off, his general thought process is basically correct. He believes we should take care of ourselves, and I agree with that basic philosophy.

His daily reports are free; you can subscribe, for a nominal fee ($40 U.S. per year), to his Peoplenomics newsletter, that is published every Sunday evening. Again, you may not agree with everything in it, but the perspective is what’s important.

To keep up with happenings in the gold conspiracy world, I read the GATA web site, that republishes information from other sites. It’s free, and is a quick read most days.

I also like Juggling Dynamite, a blog written by Danielle Park, a Canadian investment advisor. She has a good, down to earth perspective, and it’s also free.

Investor’s Insight, written by John Maudlin, has been quoted repeatedly on the Buy High Sell Higher Forum (by davidslane, I believe). Mr. Maudlin writes comprehensive and often somewhat technical commentaries, also free each week. While you may not get any concrete investment ideas from his writing, it does give you another perspective on the financial world.

Finally, and this will be offensive to some of you, I’m a big fan of Planet Moron, a satirical look at the world. Those of you who love all forms of government, and believe that government should be more involved in our daily lives, will NOT like this blog, so be warned.

I read a bunch of other non-investment related blogs as well (like Seth Godin’s for example), but that’s a good introduction to what’s out there.

How Do I Read All of This Stuff?

If you are going to read blogs, you need a blog reader. There are lots of them out there, including ones from Google Reader. My preference is one called Wizz RSS. It’s a free download. I use Firefox, and it sits on the left hand side of my browser screen. When I want to read the blogs I subscribe to, I click the title of the blog, and in a separate pane it displays all of the blog entries I have not yet read.

As an example, if I click on the Buy-High-Sell-Higher.com blog, it highlights all of the entries in the blog. The green dots indicate blog entries I have not yet read (in this picture it’s last week’s blog entry, “Happy Days are Here Again – Briefly”. I can then click on the link to see a preview of it, or double click on it to go to the website to read the entire entry. To subscribe to a new blog feed, simply go to the blog you want to subscribe to, and click on the “Find Feeds” button (circled on the picture), and it will grab the feed and add it to your watch list.

Simple.

What other blogs are worth reading? Feel free to post your thoughts on the Buy High Sell Higher Forum.

The Markets

Now, for some brief comments on the markets.

Last week I said that Happy Days are Here Again – Briefly, and I had closed out my short positions, and I went long, buying the RSU – Rydex 2X S&P ETF. I also gambled and I also bought some call options. I bought the April 76 S&P 500 calls (the SPYs, ticker symbol SZC C APR 76.00). I said I believed we are still in a depression and a bear market, but the RSI on the major indices had fallen to very oversold territory, and a small bounce was inevitable.

Well, Tuesday was more than a small bump; it was a huge up day.

See a profit, take a profit, so at the close on Tuesday I sold my RSU and my call options, at a nice profit, thank you very much. Not a huge profit, but in this market if there is cash on the table, I take it. And I did.

Then, Wednesday morning, the Dow approached 7,000 but never quite made it there. 7,000 is a meaningless number, but psychologically traders believe it’s important, so a failure at that level usually isn’t good. So, I immediately went short again, buying some RSW – Rydex Inverse 2X S&P ETF, which go up in value when the markets are falling. As a gamble, I also picked up some S&P puts (the April 65 puts); if the market does fall, I’ll make a buck. If it doesn’t, I invested so little it won’t matter.

Of course Thursday saw the Dow go back up and through 7,000, so I may be crazy on this one.  Friday’s close at 7,224 would also appear to indicate I’m on the wrong side of this trade.  I don’t think so.  This is probably nothing more than a dead cat bounce, with more downside to come.  Time will tell.

The game plan from here is to expect further market weakness, so I will remain in cash, and gold and silver stocks, with a few short positions like the RSW to round things out.

In the medium term I assume we will be testing much lower market levels, and I assume gold is going much higher, so I will continue to add to my positions on weaknesss. Time will tell if I’m early to the party.

That’s it for this week; feel free to post thoughts on your favourite blogs on the Buy High Sell Higher Forum, or any other topic you see fit. Thanks for reading; see you next week.