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.

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.

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.

(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.

What do your beliefs tell you about the market? It’s easy for the bull, the optimist, to make the case that all is well with the markets.

This 25 year chart of the Dow shows a long bull market run. The crash of 1987 is a mere blip. Even the crash of 2008 only served to return the Dow back down to it’s long term uptrend line. The recovery in 2009 and 2010 has broken the red down trend line started in 2008, so obviously the correction is over, and all is well. An optimist would assume that the market will continue to recover, and we will see Dow 14,000 sometime later this year, or early in 2011.

The optimist would also point out, as Mr. Dines did in his most recent edition of The Dines Letter, that since March 2009 there have been seven corrections of 4% or more on the Dow, and all of them have resulted in subsequent rises of 7% or more. Whether the May “flash crash” will evolve into another multi-point rally remains to be seen, but the case can easily be made that the trend is up, so jump on board.

Of course the case for pessimism is also easy to make.

First, the market is up huge from it’s lows, and nothing goes up forever, so at some point a serious correction is inevitable.

Second, 70% of the trading sessions in May saw moves of more than 100 points in Dow. There were 16 consecutive sessions with 200 plus point intra-day swings. That’s what you call volatility, and volatility is a characteristic of a bear market, not a bull market.

Third, volume is falling on the markets. Investors appear to lack the a priori belief that this market is going higher.

Finally, it can easily be argued that the market’s gains are due entirely to massive government stimulus. Assuming the government can’t stimulate forever, at some point the buyers leave, and the market drops. Or crashes.

I am of course ignoring all of the other fundamental problems we face, like the oil volcano in the Gulf that will be a problem for many months to come, high unemployment, etc.

I realize the chart looks good, but I’m still a pessimist at this stage. I will continue to look for bargains; my recent purchase of CMK.TO – Cline Mining Corporation has worked out great; new analyst coverage this week helped the stock bounce, so I’m holding. I will probably begin to cover or thin out my gold holdings over the next week, as gold has risen, and the summer months are seasonally weak, so it’s time to raise some cash.

Those are my thoughts. Happy Memorial Day for my American friends. See you next week.

But then I thought that it was not appropriate to waste a lot of digital ink on such matters; there are more important matters to discuss. So, let’s discuss them.

Two weeks ago I said the markets looked gassed. Last week I said I was still surviving; gold was trading just under $1,200, and the RSI was over 82, an historically high level. Last week I said:

My prediction is that gold has temporarily run out of steam, and will probably consolidate over the month of December. A drop back into the $1,050 range would not surprise in the least. (A drop much below $1,000 would surprise me).

Therefore my plan continues as stated previously: I will remain 85% in cash in anticipation of further market weakness, and in December, or January, or whenever I will deploy that cash on weak days, in the hopes of catching the next up wave. The risk, in my mind, is too high to be fully invested, or even half invested, at this time.

Well, guess what?

On Friday some of the air was released from the balloon, as gold peaked over $1,212, and fell as low as $1,149, before closing the day at $1,162 for a loss on the day of 3.74%. Well, you can’t say I didn’t warn you.

You might think a drop is bad news, but I disagree. I think it’s great news, and just the type of price action we’ve been waiting and hoping for. At the close on Friday the RSI was down to 56.38, which is a much better buying level. I believe some of the froth is now out of the market.

How much froth is gone?

Obviously the uptrend line that started at the end of October has now been violated, but clearly no long term damage has happened. A drop to the previous uptrend lines in the range of $1,075 or even $1,000 would not be unexpected, and would not in any way harm our current uptrend.

Again, check out the RSI levels at the top of the chart. They were very high, and now they aren’t, so in my mind that’s very good news.

Does this mean we should start buying gold?

I’ll answer that question shortly, but first, more charts:

Here’s a chart of the ratio of the Dow Jones Industrial Average to Gold, taken at the close on December 2, 2009. To play the home game and do the calculations yourself, divide the price of an ounce of gold into the Dow. If the Dow was at 1,000 and gold was at $1,000, the ratio would be 1. Obviously on December 2 with the Dow over 10,000 and gold over 1,100, the ratio was 8.6

Two points of interest: first, the Dow, priced not in fictional dollars but in actual gold, peaked on August 27, and has traded in a down channel ever since.

Yes, I know, CNBC and all of the newspapers keep talking about how the stock market is up X% this year, but that’s only if you measure in dollars. You aren’t one of those people who still measure things in dollars, are you?

A dollar is like a ruler of a constantly changing length. It’s not much use. Gold doesn’t change. An ounce is an ounce, so it’s a better measure of true worth. And, based on true worth, the Dow is in a downtrend, and has been since August 27.

The second point of interest is that, on December 2, the index was looking over sold, trading outside of the channel, and with a wacky RSI.

After Friday’s drop in gold, the index bounced back to the 9 level, and the RSI is once again heading back to the 50 level, which is a much better buy point for gold (or a sell point for the Dow, depending on your perspective).

While Mr. Dines may still be out of favor due to his spectacular misses of the last two years, it is worthwhile to point out that he has long predicted a return to a 1 to 1 ratio of the Dow to Gold (observed only twice before in the last 120 years). I don’t think it’s a stretch to predict 5,000 on the Dow and $5,000 on gold, so we may see that 1:1 ratio over the next few years.

Why?

You know the reasons. Government spending is at record levels, so governments around the world must dilute their paper currencies by printing more to cover their debts. They will keep running deficits, since although the talking heads on TV on Friday were quick to point out that the unemployment rate was not as bad as expected, there are still a huge number of part time workers, working temporary jobs because they can’t find a permanent job. Those are not the conditions for a recovery.

So, back to the question: will I be buying on Monday?

Yes.

I am currently almost 90% in cash, waiting for a bit of a correction to get better entry points. I have no idea if Friday’s drop was it; I suspect more down side turbulence is ahead. But, with India and China and Russia buying gold by the ton, I find it hard to fathom a drop in gold much below the $1,000 level. It is much easier to envision a scenario where gold hits $1,500, or more, next year.

So, now is the time to start dipping our toes in the water.

(Yes, I know, the time to get back in was in April, and I didn’t, so I only have moderate gains this year, but my objective this year was to not lose money due to the uncertain economic environment. Some of that uncertainty has evaporated (ie. we are all screwed, so buy gold), so I will now inch back in).

My plan, over the balance of the month, will be to increase my stock holdings from 10% to 30%, perhaps more. If we have a big crash on Monday, I’ll be buying a lot more. Gold traditionally does well in the first quarter, so now is the time to build positions.

I will buy the blue chips, like G.TO – Goldcorp Inc., which corrected on Friday but remains in a solid up channel. The RSI at 47 is a nice entry point, so I will add to my holdings.

I will also, for the first time this year, start throwing some money at the juniors. They are obviously very high risk, but as we approach the mania phase of the gold bull market, they will also be the stocks with the potential for 1000% gains, so some risk capital must be deployed in the more speculative stocks.

Next week I will report back on what I actually bought.

Also, fair warning: it will soon be time for year end predictions. You can read our Predictions page to see how we did last year (I did very poorly). Start making your predictions, and I will post the e-mail address for your submissions at the end of this month.

Thanks for reading; see you next week.

I wonder if that’s why the U.S. dollar has been getting hammered recently?

It’s no surprise that countries like China and Russia are getting out of U.S. dollars, since there is no point in investing in a depreciating asset. If I held billions in U.S. dollars I’d be following the same strategy: say some nice things about the U.S., while in the background I’d be liquidating as much as the market can bear. I would use my U.S. dollars to buy hard assets, like companies, real estate, gold, or whatever else I could get my hands on.

Speaking of gold companies, if I had to pick one area to put my money in, that would be it. But not immediately.

Back on June 6 I explained My Conundrum, and I said that while I expect gold to perform very well in the long term, I also expect the traditional summer weakness to set in. I therefore positioned myself with 80% cash, and 20% in senior gold and silver stocks. I didn’t sell everything, because in these volatile times a sudden unexpected event could send gold soaring, and I want to be protected. For added insurance, I sold calls against the gold and silver stocks I owned.

Exactly as expected, in the last two weeks every one of those gold and silver stocks fell. Since I sold at or in the money call options, when the stocks fell the options lost their value, and today they all expired worthless. I therefore get to keep the premiums on all of the calls, which reduces my losses on the stocks.

Yes, I could have simply sold the stocks and then I would have no losses, but long term I will be buying these stocks, and I can’t pick the bottom, so this middle of the road strategy made perfect sense.

What next?

Strategy #2: Stair step stink bids

I’m not sure if that’s a real term or not, but here’s how it works, using AEM.TO – Agnico-Eagle Mines Ltd. as an example.

Agnico-Eagle closed on Friday at $59.98. In the last year it’s been as high as $78.79 (on July 14, 2008), and as low as $27.50 (on October 27, 2008). As an aside, that means that last year, from the summer peak to the fall crash, Agnico-Eagle lost 65% of it’s value. Of course that also means that from the bottom until today AEM has more than doubled in value. That’s volatility.

I therefore plan to put stink bids in at steps along the way. For example, I could put stink bids in at $28, $35, $45 and $55. Let’s say I want to own 1,000 shares (to keep the math simple), and I already own 200 shares (since I’m 20% invested). I look in my crystal ball and I see a down draft happening this summer, just like last summer, so I place my bids as follows:

• $55 – 100 shares
• $45 – 200 shares
• $35 – 300 shares
• $28 – 200 shares

If the price crashes to last October’s lows, I end up owning the 1,000 shares I want. Obviously I fully expect a drop below $55, so I’m only buying 100 shares at the $55 level, just in case I’m wrong. I’m happy to own them at $45, and at $35 it’s a great buy, so I’ll buy even more shares at that level. If another crash happens, I get even more shares at a bargain price.

What if I’m wrong and the share price starts going up on Monday, and never looks back? I guess I won’t buy any shares, but I don’t think that’s likely to happen.

There are of course two other strategies I could employ to build my portfolio.

Strategy #2: Covered Calls

I could repeat what I did in June: By the stocks, and then do covered writes against them. Again, assuming I own 200 shares of AEM that are currently trading at about $60, I could sell 2 contracts for the July 60 call option at $3.15 (you can get full quotes on Canadian options here). If AEM increases between now and July 17, I am forced to sell my shares at $60, but I pocket the $3.15 premium, so in effect I have sold my shares at $63.15, a 5% profit in less than a month. If they stay flat or fall, I have lowered my cost basis by $3.15, which gives me cash to buy more shares at an even lower price in July.

As an aside, as Peter518 pointed out on the Forum, a better strategy is to sell the options on the U.S. markets (for interlisted stocks), since the premiums are lower and the volume is higher, making for tighter spreads and faster executions. That’s true, and if I lived in the U.S. that’s what I’d be doing. However, as a Canadian, and given my negative outlook on the U.S. dollar, I prefer to limit my currency risk by staying with the Canadian options.

Strategy #3: Sell Puts

The final strategy, if I expect the price to drop, would be to sell puts. A call option gives me the right, but not the obligation, to buy a stock at a set price before a set date. A put is the opposite; I can sell a stock at a set price before a set date. If I sell the put or the call, it’s the opposite.

So, I could sell a put option, and if I’m wrong I’m forced to buy the stock. Let’s try an example:

I want to buy AEM.TO – Agnico-Eagle Mines Ltd. at $56. Today it’s at $60, so I sell a July 56 put for $1.65. If the price of AEM is below $56 on July 17 when the option expires, the holder of the option will “put” the stock to me, and I will have to buy it from them for $56. That’s fine, because I was going to place a stink bid at $56 anyway. (Actually I wanted to place a stink bid at $55, but these options trade in $2 increments). I pay the $56, but I already had $1.65 in my pocket, so it really only cost me $54.35.

If AEM goes up, the puts expire worthless and I keep the premium. If AEM crashes I shouldn’t have sold the puts in the first place, since I could now buy the stock for even less, but if I was going to place stink bids anyway, there’s no difference; that’s what I would have paid, with our without the puts.

The only problem with the put strategy is that there are margin requirements. You need some cash, or stock, in your account before you can start selling naked puts, so if I only own 200 shares, I can’t sell puts for 800 shares, unless I have the cash or other security to back up the potential loss.

Which strategy is better?

I’m not sure yet. I’ll do some number crunching and decide. On the surface, it would appear that taking in $3.15 on a covered call, at the money, is better than taking in $1.65 on a put that’s $4 out of the money. But, it depends on the price of the stock at options expiry.

If AEM is $56 on July 17 and I sold calls, my call options are worthless, so I make $3.15, and I own a stock worth $56.

If AEM is $56 on July 17 and I sold puts, the put options are in the money, and I’m required to pay $56 to buy the stock, so I own a stock worth $56, and I have $1.65 in my pocket from the premium on the put.

Conceptually the call strategy is easier to understand, so that’s probably what I will do. I prefer to do the covered writing with two or three weeks left until expiry, not a full month, since the premiums are still relatively high (there has been less erosion) and yet I’m only risking two or three weeks of movement. The perfect time to do the covered write is after a nice two or three day run up. I get great premiums, and it’s more likely a drop will be coming soon, since nothing rises forever.

As I did in June, sometime around the first or second week of July I will again cover the following stocks that I own, in addition to putting in stink bids at much lower prices to purchase more:

ABX.TO – Barrick Gold Corp. (I don’t currently own any Barrick, but if I did, I’d cover it; I’m not a big fan of this stock, so if I put in stink bids they will be at very low prices)

AEM.TO – Agnico-Eagle Mines Ltd.

K.TO – Kinross Gold Corp.

G.TO – Goldcorp Inc.

PAA.TO – Pan American Silver Corp.

SLW.TO – Silver Wheaton Corp.

SSO.TO – Silver Standard Resources, Inc.

The other stocks on my watch lists, the juniors that are not optionable, include:

WDO.TO – Wesdome Gold Mines (buy half a $1.00, half at 60 cents)

LSG.TO – Lake Shore Gold Corp. (buy half at $1.40, half at 80 cents)

CSI.TO – Colossus Minerals Inc (buy half at $1.50, half at 75 cents)

AND.TO – Andean Resources (or ASX:AND) (buy half at $1.00, half at 60 cents)

RMX.TO – Rubicon Minerals Corp. (NYSE.A:RBY) (buy half at $2.00, half at 1.25 cents) and

PG.TO – Premier Gold Mines Ltd. (buy half at $2.00, half at 1.50 cents)

I will eventually have 30% of the portfolio in junior stocks like the ones on the above list, and some others, 60% in the senior stocks, and a further 10% in whatever else appeals to me. Some of that 10% may eventually go into uraniums, or Rare Earth stocks that Dines is hyping at the moment, but for now they are so thinly traded that there is no point in putting any money into them at this point. I’ll wait for the inevitable correction this summer, and then consider my strategy.

So, to summarize: I expect weakness this summer, so I will scalp a few points using a conservative options strategy, I will start buying on dips (which I don’t expect to really start until July or August), and I will position myself for a great fall season.

Happy Father’s Day, and as always feel free to post your thoughts on the Buy High Sell Higher Forum. 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.