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.

On Wednesday I posted on RIM – Research in Motion – Why I Bought It. I won’t re-hash it here; you can read it for yourself. Then on Thursday I posted that Dines Sells Pinetree – That’s Amazing! Again, I won’t repeat myself here; if you are interested in The Dines Letter or PNP.TO – Pinetree Capital Ltd. you can follow the link and read it for yourself.

Also this week I posted a new page called Silver – Why It’s Better Than Gold. (It isn’t really “better”, but it is different, so take a minute to scan the article. I’ll wait).

Now that you are back, here’s my main point today:

Diversification is often over-rated, and at times diversification is stupid.

Allow me to explain.

I am of the view that silver (and gold) are in a long term bull market, for many of the reasons I referenced in the above noted ed Silver – Why It’s Better Than Gold article. If that’s true, it’s likely that the price of silver will continue to increase for many more months, and perhaps years, to come. Yes, it’s highly volatile, but I think we all believe that in the short, medium and long term, then trend for precious metals is up.

If that’s the case, would it not be logical to over-weight your portfolio in silver? Why bother buying other stuff if you believe that silver will go up by more than anything else?

A financial planner will tell you that diversification is important, because if one sector does poorly, and another one does well, at least you reap the gains from the one that did well. If you put all of your money in the weak sector, you can lose big. They would tell you to invest in “opposite” industries, so you are protected from volatility. By “opposite” I mean counter-cyclical, so you invest, for example, in luxury consumer goods (that do well when times are good), and consumer staples that perhaps do better during a recession.

That makes sense, but diversification also means you will only, at best, get average returns. Your winners will be counter-balanced by losers, so you will never hit a home run.

So, in honor of the start of the baseball season, I will offer an alternate view point: just hit home runs.

If you are confident that silver (or anything else) will do well over the next few months or years, then put most of your money in it. If you are totally completely wrong you will lose big, but if you are right, or close to right, you will win big.

In the last twelve months SLW.TO – Silver Wheaton Corp. is up 153%. Obviously the correct choice a year ago was to put all of your money in Silver Wheaton. Most other investments didn’t do nearly as well. (The S&P 500 was up 13%, which is still pretty good).

Am I suggesting picking one stock and putting everything in that one stock? No, because picking the one perfect stock would be close to impossible. If the president of Silver Wheaton resigns and that hurts the stock, I’m in big trouble, even though I was correct about the trend for silver.

What I am proposing is to diversify within the sector, while still loading up on the sector I want to own. So, to that end, this week I began buying, or increased my positions, in the following silver related companies:

In the blue chip, low volatility category:

PHS.U.TO – Sprott Physical Silver Trust As the name implies, this is a trust started by gold and silver guru Eric Sprott that holds a bunch of silver bars representing 22,298,540 ounces of silver, worth around $840 million. All bars are stored at the Royal Canadian Mint in Ottawa, Canada, and you go on the Sprott Physical Silver Trust website and see a list of all bars. That’s good, because most other ETFs loan out their gold and silver, so you don’t know what is actually there. With this one, it’s there, so you know what you are buying. Approximate portfolio allocation – 20%

CEF.A.TO – Central Fund of Canada Ltd. – This fund holds, by dollar value, approximately 45% silver and 55% gold, so it has great exposure to both metals. The Central Fund website has more information, including net asset values. At the moment the premium is only 5.4% over NAV, which is very low, so it’s a good time to buy. Approximate portfolio allocation – 15%

In the blue chip, higher volatility category (with hopefully the potential for greater gains):

SLW.TO – Silver Wheaton Corp. is the mother of all silver stocks. They have royalty streams from multiple sources, so it’s already a diversification play. It’s my biggest blue chipper winner of the last year, and I have no plans to sell. Approximate portfolio allocation – 10%

SSO.TO – Silver Standard Resources, Inc. – I have stink bids in, but no purchases this week. Approximate portfolio allocation – I haven’t decided yet, but probably no more than 5%.

Of course you want some higher risk, higher reward juniors; here they are:

SVM.TO – Silvercorp Metals Inc. – A junior producer, with lots of upside (and potential volatility, so again, stink bids are the way to play it). I’ve owned it for a while, and I’m up over 100% on it, so I have no further purchases planned, but I am holding. Approximate portfolio allocation – 3% (But it’s currently around 8% of my portfolio due to recent gains, so I’m still debating about whether or not to lighten up).

SMD.V – Strategic Metals Ltd. – I did well of this stock in the past, and I’ve got stink bids in on it now; I’d like to start buying around the $2.80 level. Approximate portfolio allocation – 2%

FR.TO – First Majestic Silver Corp. junior with potential;
Approximate portfolio allocation – 2%

FVI.V – Fortuna Silver Mines Inc. junior with potential. Approximate portfolio allocation – 1%

I’ve got a few others on the list, but you get the idea.

As you can see my plan is the heavily weight the less volatile blue chips, and then place my bets on smaller ones for increased potential return.

That’s the plan; we’ll see if I’m correct, or if I get to play the part of the April Fool.

End of the First Quarter of 2011

Now that the first quarter of 2011 is history, how did we all do in our 2011 Predictions, which you will recall, I invited you to submit at the end of 2010? The winner of the first quarter “guess the price of Gold” award goes to Peter518, who was closest with his prediction of $1,450. The actual closing price of gold on March 31, 2011 was $1,431.90, so that’s a quite close.

For the record, I predicted $1,500, so I was somewhat optimistic (as I usually am). The average for the group was $1,463, so the group was also optimistic, but not that far off.

In the “guess the closing price of the DOW” category, the winner was JohnB, with a prediction of 12,500. The actual closing price of the Dow was 12,319.73, so that’s also very close. Honorable Mention goes to both Peter518 and yours truly, JDH, with our prediction of 12,000. The group average prediction was 12,333, so as is often the case the group was once again eerily accurate.

That’s my report for the week. Thanks for reading; feel free to post your thoughts on the Buy High Sell Higher Forum, and see you next week.

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.

The obvious reason is that when you go to Google and do a search for “The Dines Letter” this blog ranks second only to Mr. Dines’ website itself.

The almost-as-obvious reason is that James Dines is a polarizing figure. He has a large number of supporters who believe he is the greatest thing since sliced bread, and there are also a large number of people who don’t think highly of him at all.

As for me, I’m somewhere in the middle.

On the positive side, I do believe Mr. Dines is adept at identifying new trends. He constantly pats himself on the back for being the “Original Gold Bug” (he even wrote a book about it), and the Original Silver, Internet, Uranium and Rare Earth Bug. And yes, I agree, he was early to the party in each of those “manias”, and he no doubt made his subscribers lots of money.

I don’t want to quibble, but Mr. Dines was not the first advisor to recommend gold, or anything else. There are lots of other prognosticators who share similar views. However, it is true, Mr. Dines does have an impressive track record of identifying trends early.

My complaint is not with his handling of the start of a trend; my objections are with how he handles the end of a trend. You only make a profit when you sell, and “sell” recommendations are few and far between in The Dines Letter. Long-time readers of this blog will remember my epic evisceration of Mr. Dines on this topic in my post back on July 26, 2008 (and for the record, all posts are forever available in the archives):

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.

My thoughts back in 2008 are the same as my thoughts today. Buying PNP.TO – Pinetree Capital Ltd. around 80 cents in November, 2005 was a brilliant recommendation. As the chart shows, Pinetree had broken out of a consolidation phase, and was on the move:

Pinetree continued to run, all the way to around $16 by the start of 2007, but that was it, and from there it was all downhill, to the bottom, two years later, below where Mr. Dines had recommended it. Knowing when to buy is important; knowing when to sell is also critical.

Now, in fairness, Mr. Dines does state repeatedly that you have to decide for yourself when to sell. He recommends taking a portion of your profits at pre-determined limits. For example, you may decide that with each 10% increase in the share price, you will sell 10% of your shares to lock in your profit. That’s fine, and that’s a prudent approach. However, that also means that you are giving up some of the profit, so it’s not fair to look back and say “I made 2,000%” if most or all of the shares were sold long before that time.

So what does he say of interest in his 2011 Annual Forecast Issue? A lot of the same stuff he has said in previous issues. Not surprisingly he likes gold, silver, uranium and rare earths. He also spends some time on “big picture” trends, like this one:

As we study the situation, our Flashforward is clear that there is a new form of “capitalism” ahead. In “The Coming New Social Order” we envision, when some nations come to their senses, mines will be sold but owners will keep an interest in subsequent production. In other words, sell a silver mine, but a percentage of future production payable in silver from that mine would be part of the price paid.

Hey, Jim, have you ever heard of SLW.TO – Silver Wheaton Corp.? Here’s a quote, from the Silver Wheaton website:

Established in 2004, Silver Wheaton has quickly positioned itself as the largest metals streaming company in the world. The company currently has fourteen silver purchase agreements and two precious metals agreements where, in exchange for an upfront payment, it has the right to purchase all or a portion of the silver production, at a low fixed cost, from high-quality mines located in politically stable regions.

Forecast 2010 production, based upon the company’s current agreements, is 22.0 million ounces of silver and 28,000 ounces of gold, for total production of 23.5 million silver equivalent ounces. By 2013, annual production is anticipated to increase significantly to approximately 40 million silver equivalent ounces. No ongoing capital expenditures are required to generate this growth and Silver Wheaton does not hedge its silver production.

So, in other words, Silver Wheaton invests in mines and receives payment, in silver, out of future production. So, Mr. Dines is predicting a brave new world that actually started in 2004. Nothing like getting out in front of the parade, eh?

Does this mean that Silver Wheaton will become a Dines Letter recommendation at some point in the future? Stay tuned…..

Another section in the 2011 Annual Forecast Letter is a “Manifesto of What was Learned From Uranium’s ’08 Crash”. His main point is that you have to ride out the highs and the lows, because no-one ever sells at the top, or buys at the bottom.

That’s true, but here’s a caveat that Mr. Dines needs to explain to his readers more explicitly: the time from the top to the bottom back up to the top again can be many, many years. You can see the Pintetree example above, or you can look at a stock like PDN.TO – Paladin Resources Limited .

From a low of below $1 in mid 2005, Paladin hit $10 in mid 2007. That was a great win. But, if you kept an “iron hand on the tiller”, and didn’t sell, you watched in drop all the way back to the $1.50 range in the crash of October 2008. Yes, it’s true, Paladin is now half of the way back, closing at $5.33 on Friday, but if you had bought at the peak three years ago you have still lost half of your money.

And that, in summary, is my main “beef” with Mr. Dines. He is great at identifying trends, and he is great at buying low, but he won’t tell you when to sell. With him, you must assume a stock will stay on his lists virtually forever. Perhaps I’m exaggerating, but of the 48 stocks currently on his recommended lists, 31 have been held since before the October 2008 crash. If you take out five of his Rare Earth picks from 2009 and 2010, the list is 31 out of 43 stocks, or 72%.

I guess if 72% of his picks are multi-year holds, there’s no need to read The Dines Letter every three weeks, and there is no need to subscribe to his Interim Warning Bulletin, because nothing much will change. And you know what? That’s fine.

The goal of any investment advisor is to make money for his clients. Over the years Mr. Dines has made a lot of money for his subscribers. Like most advisors he missed the 2008 crash, and that cost his subscribers a lot of money, but that’s the way it goes, unfortunately. No-one is right all the time, or even close to all of the time.

If you want to follow Mr. Dines’s advice, my advice to you is this:

First, read his letters, and understand the “big picture” he is painting. He is good at spotting big trends. Your job is to decide if you agree with his assessment of the trend.

Second, ignore all of the hyperbole and self-glossing he does. He has a big ego (as do most of us); just ignore the ego part.

Third, when you buy a stock, pick your sell points. Most investor’s goal is to make as much money as possible. That’s the wrong goal. The goal should be to get to a risk free position as soon as possible. So, if you “get lucky” and a stock doubles, and if you think the stock still has room to grow, sell half of your position and take your original investment off the table. You then have no risk, and still get to share in the upside. Each time it doubles, sell another half of your position. Then, when the inevitable crash happens, you are playing with house money, so the loss is not as damaging.

I’ll leave the comments section on this post open for you to comment, and of course you can comment on the Dines section on the Buy High Sell Higher Forum as well.

The Week Ahead

I’ve said enough for today, although I could write a few thousand more words on the correction we are enduring in the precious metals markets at the moment. I believe it’s temporary, so I’ve been buying this week. Apparently punter, over on the Forum, agrees with that approach:

We should see the super cycle re-issue a bellow in the new year. I’m loading up on every metal and mining stock there is and strapping a rocket to my ass because I see the Chinese coming down the street with a blowtorch to light my ass on fire.

Probably not the words I would have used, but the metaphor is apt; get ready for a rocket ride!

Thanks for reading, and see you next week.

Expert #1: Martin Armstrong

Last week I stated that our favorite incarcerated guru, Martin Armstrong, was predicting bad things for the market. In an essay titled World Share Market Outlook and Grand Unified Theory published on August 10, he states, on page 7, that August is a turning point in time, with particular attention to be paid to the weeks of August 2 and August 30. As the previous charts showed, the week of August 2 marked the high point for the month; it will be interesting to see if the week of August 30 is the beginning of a significant correction. On page 8 he summarizes his outlook by saying:

Only a low the last week of August would warn we could flip to the upside. This is NOT going to be a walk in the park. The markets are going to be very volatile and we have to pay close attention to the outcome of the Sept/Oct time period. We are preparing to make a very important directional change.

Hmmm. Here are the numbers:

The Dow was up 2.9% this week, and both the S&P 500 and the Nasdaq were up 3.7% this week (the first weekly gain in three weeks). Does that mean the directional change is the markets are going to go up? Perhaps, but that’s not what I interpreted from Mr. Armstrong’s “NOT going to be a walk in the park” comment.

Guru score: not accurate, at least not yet.

Expert #2: The Hindenburg Omen

Two weeks ago, in The Hindenburg Omen: Don’t Believe It, But Expect A Crash, I walked you through the reasoning behind this prediction of a market crash:

Named after the famous Hindenburg disaster from 1937, the Hindenburg Omen was created by Jim Miekka, and here’s how it works: if the following four indicators are tripped, a stock market decline is imminent:

1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows are both greater than 2.5 percent of total NYSE issues traded that day (other sources put the number at 2.2%)
2. The NYSE 10 Week moving average is rising.
3. The McClellan Oscillator is negative on the same day.
4. New 52 Week Highs cannot be more than twice the new 52 Week Lows (though new 52 Week Lows may be more than double new Highs).

It would appear that the “Omen” was triggered on August 19, and then again on August 20. Many Hindenburg Omen followers believe that the triggers must occur three times in a row from the triggering of the first event, so whether or not these is a true Omen or not will remain to be seen.

So, does the Hindenburg Omen have merit?

Yes.

And No.

Yes, because every “crash” on the New York Stock Exchange since at least 1985 has been preceded by a Hindenburg Omen.

No, because, as we know, economists have predicted 25 of the last 15 recessions. In other words, it’s not that difficult to back test data to come up with criterion that work in all past cases, but that doesn’t mean it will work in the future.

My thoughts?

I’m not losing any sleep over the Hindenburg Omen. I will not be counting on my fingers 36 days from August 19, expecting to see a crash before the end of September because a series of technical indicators predicted it.

Does that mean I don’t expect a crash before the end of September, 2010?

No, as a matter of fact I would not be at all surprised to see a crash within the next few weeks. I would not be surprised at all, for a number of reasons.

I then went on to describe poor economic conditions, high unemployment, etc. as reasons why the economy was looking week, and therefore a stock market crash was possible. Of course, as of now, the crash hasn’t happened.

Jim Miekka appeared on CNBC yesterday afternoon, after the market close, and here’s what he had to say (if you can’t see the video, you can go to the CNBC website):

He now says: “I’m going to modify my position based on the last several days of action. I still think it’s a possibility that we will have a substantial decline if the McClellan Oscillator goes negative, but it’s positive right now, so if I was in the market, which I’m not, I would stay in the market as long as the Oscillator stays positive, because we are not going to have a substantial break down unless or until the Oscillator goes negative.”

He goes on to say that he will stay out of the market for now, because even though the Hindenburg Omen is no guarantee of a crash, it is an early warning indicator.

Of course, as we all know, it also predicts crashes that don’t happen, so you never know if this indicator will be proven correct. So far, the market has rallied, not fallen.

Guru score: not accurate, at least not yet.

Expert #3: The Dines Letter

In the August 20, 2010 edition of The Dines Letter, James Dines made the point that for the last year the markets have been in a neutral congestion area, neither up nor down, which is why the markets remain at about the same levels they were a year ago. He then has this to say:

In other words, market action is not necessarily menacing; it is either a platform for another upward lunge or a possible breakdown. Indeed, unlike some stock-market Analysts, the market does not always speak, and the jury is still out as we await the resolution’s debut. Until then it would be overly daring to guess in this type of situation.

So, he doesn’t know if we will end this period of consolidation by going up or down. Not predicting anything may appear to be a cop-out, and I guess it is. However, he is also correct. We are stuck in a trading range, and until we break through the resistance levels established over the last year, the market will not rise or fall. We are stuck.

Guru score: correct, much to my amazement.

Expert #4: JDH

Let’s review what I said last week:

Month end is August 31, on Tuesday, so even though that’s not the end of the quarter, fund managers still like to have a nice clean month end, so the market will rally on Monday and Tuesday. Here’s the chart (click to enlarge) of what’s happened over the last four months:

As you can see, the market stalls at the 200 day moving average, then drops 800 or 1,000 points, then recovers to over the 200 day moving average for a few days, then it crashes again. Simple. So, all we need to do is extend the chart for a few weeks:

Easy, eh? We have a big rally on Monday and/or Tuesday, and then we are stable for a bit, and then the big crap-out happens, taking us back to the July lows, and perhaps lower.

See how easy it is to predict the market? Download a chart, feed it into your graphics editing program, and boom, one minute later you know what the market will do. It’s that easy.

(Yeah, right).

So, how did I do? Remarkably well, actually. You can see the “fake” chart I prepared last week; here’s that same chart, but I’ll overlay what actually happened this week:

The green circle shows what actually happened this week. As you can see, the market did not fall as far as my fake chart predicted it would, but it rose as high as I predicted. It would now appear that the market will rally for another week, until it hits 10,800, and then it will drop.

Bear in mind, of course, that my prediction is completely fake; I just made it up. I didn’t do any technical analysis, or any real thinking; I just took last month’s chart, cut and pasted it onto the current chart, and there’s the prediction. It took me less than one minute.

And, so far, it’s working.

Guru score: correct, by blink luck.

The Month of September – What Will Happen?

As regular readers of this blog know, I have no idea what will happen. My predictions are as accurate as throwing a dart against the wall. However, let me take a shot at it. First, some facts:

September is historically a bad month for stocks. September has had more monthly declines than any other month of the year. That’s not good.

Of course, we also all know about the Labour Day Omen (or, for you non-Canadians, the Labor Day Omen), which states that if the market declines in the four day week after Labour Day, it will be a down month, so don’t buy. However, if the market is up that week, the market will keep rising. This indicator is correct more than half the time, but it is not always correct, so it’s just a guide.

(A cynic would say that “duh”, of course the market will continue to move in whatever direction it is going, so an up market is likely to continue moving up, and a down market is likely to continue moving down, so that’s not much of a prediction, Einstein).

The economy is still not strong. The Friday jobs report gave the market a boost because 67,000 private sector jobs were added, but it was not all good news:

• total hours worked did not increase;
• full-time employment crashed by 254,000 jobs, meaning that all of the job gains were for part time workers
• manufacturing employment was down 27,000 jobs

So here’s the thing: we have just completed a massive round of government stimulus, with housing tax credits, and cash for clunkers, and everything else, and yet the economy still continues to drop manufacturing and full time jobs. That doesn’t sound like the end of a depression to me.

Interest rates are near zero, and the banks have about $1.3 trillion in cash, but they aren’t lending it to the private sector; instead, they use it to buy risk free Treasuries. With no lending, it’s doubtful the economy will recover any time soon.

And our big rally this week? Take a look at the chart: it was on low volume, just like what happened at the start of August. We are now back to the 200 day moving average, and a bump above that level is possible, but my dart throw is that the rally is running out of steam, and there is more down to come.

So, I remain largely in cash, with some short ETFs and some puts just for fun. I will also leave my stink bids on the table, because this is the month to be picking up inexpensive gold stocks, a topic to which I will return next week.

For now, Canadians, enjoy your Labour Day weekend, and for my American readers, enjoy Labor Day (because it means the NFL season starts 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.

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.

I don’t typically comment during the week, but since our old friend Mr. Dines issued his 2008 Annual Forecast Issue today, I thought I would comment.

First, let me get my biases out of the way: I have subscribed to The Dines Letter since 1999. I made lots of money on his internet recommendations, but unfortunately lost a lot of that by not selling soon enough. I made lots of money in 2005 and 2006 on his uranium stocks, but lost a lot of money in 2007 by not selling soon enough.

It is my humble opinion that Mr. Dines is very good at identifying long term trends, and he is good at picking buy points, but he is not great and knowing when to sell. (The classic example being a stock that shall remain namelss, but is well know to all of his followers, that fell almost 80% from it’s peak in 2007 without any sell recommendations; in fact, the stock remained on his “Good Grade” list of conservative investors, and remains there to this day).

I’m further amazed by the fact that most of the stocks on his Supervised Lists are rated as a “Hold”.  Perhaps there should be some “Sells” on the list?

However, I will give him credit for this: his Annual Forecast Issues tend to be reasonably accurate. Try this exercise: Pull out the Annual Forecast Issues for the last few years. Read them, and compare them to what happened during the year. Ignore everything he writes during the year. Ignore all IWBs and regular newsletters. Based on my quick scan of his past Annual Forecast Issues, they tend to be more accurate than his regular letters.

Why is this? Probably because it is impossible to be accurate if you try to produce something every three weeks. (I produce this blog every week, and my predictions leave something to be desired……). However, if you lock yourself in a room for a month and look only at the big picture, it’s much easier to grasp the big trends, and that’s the value of this issue.

I found the chart at the bottom of page 30 to be quite interesting. The worst performing sector last year, down 26%, were the uranium stocks. Gold bullion was the best. Uranium stocks last had a down year in 2002 (down 11%), followed by a gain of 118% in 2003.

My point: if something fell yesterday, it is possible that it will recover today, so uranium may be a good investment in 2008.

Or maybe not.

I found most interesting the discussion of silver. I said on Saturday that I thought gold was overbought. In fact, just after the open on Tuesday I sold all of my AEM.TO – Agnico Eagle Mines Ltd. (I didn’t bother doing a covered write; I just sold it). That looks like a good move, since it was up when I sold it, and closed the day down 3.74%. This may be an indication that profits will now be taken in gold, and the “smart money” may be moving into silver.

Of course the newsletter today had pages and pages of Dinesisms, and was largely a re-hash of what he has said before.

However, I think it still has value, if for nothing more than to give us a big picture perspective.

I’m sure if I did a survey of the readership of this blog, the typical attitude towards Mr. Dines would be something like this:

“I made lots of money from his advice in the past, but he has lost his touch. He doesn’t know when to sell, so I’m not renewing my subscription.” As I said earlier, it’s true; uraniums were overbought in 2007, and we should have sold sooner.

However, the fault lies with Mr. Dines, but also with us. We had profits and we didn’t take them, and we have no-one to blame for that than ourselves.

So, here’s my prediction for 2008:

At the end of this year, many readers of this blog will be saying:

“Mr. Dines seems to have regained his touch. His thoughts on gold and silver were bang on, and look, even uranium picked up this year. Maybe he’s not as stupid as we thought he was earlier this year.”

I still plan to think for myself, but Mr. Dines will continue to be one of the many sources I will consult to help form my own opinions.

See you Saturday.