smart-money-report.com Blog

This is interesting. Joel Greenblatt (”The Little Book That Beats The Market”) has a sister in the hedge fund business. She has $177 million under management and she owns two stocks. Not only that, they’re both in the same sector. And, yes, both of them are Magic Formula stocks.

Mark Hulbert says that contratrians are betting gold will outperform stocks. If that’s true, count me in as a contrarian.

Merry Christmas!

Mark Hulbert follows three Dow Theory newsletter writers — Richard Russell, Richard Moroney and Jack Schannep. Russell has been bearish since 1999. Schannep turned bearish on Thursday. Moroney won’t turn bearish until the Dow closes below the June low of 10,706.14.

From Jon Nadler:

There is a disconnect in play between gold – the one asset that no one can default upon – and the pile of paper assets that keeps being worth more and more based on pure promises. The longer such conditions persist, the more pronounced the eventual re-alignment will be. One only needs to ask themselves where the greatest downside risk lies. Gold, or paper?

Indeed. That’s the question — which would you rather own, gold or paper?

The Labor Department announced that the Producer Price Index jumped 2% in November. That’s the highest rate since November of 1974.

There are sure a lot of pundits who think there is value in this market. However, I agree with John Hussman’s lonely voice:

What about the value of the market relative to earnings? Everybody says it’s cheap. Everybody, that is, but John Hussman, of Hussman Funds, who in his weekly commentary writes that at 18-times earnings the market is into its “third phase” — the phase, he notes, that Richard Russell of Dow Theory Letters says occurs when stocks “spurt skyward on the hopes and expectations of a continuing rosy future … The low-priced ‘cats and dogs’ historically make great moves in this third phase.”

Adds Hussman: “To anyone who examines more than one or two decades of market history, even a multiple of 18 is very rich by historical measures, and can’t be reconciled simply by reference to interest rates or inflation. On closer inspection, of course, valuations are even more hostile. Over the past three years, profit margins have widened to record levels, which have detached P/E ratios from other fundamental measures – such as price/revenue, price/dividend and price/book ratios. The S&P 500 is currently about double its historical norms on those metrics. That isn’t a forecast that stocks have to eliminate that valuation gap, but it certainly does suggest that stocks are priced to deliver unsatisfactorily long-term returns from these prices.”

Evidentally, Iran is having trouble producing enough oil to export. Like other oil producing countries it has been using oil as a cash cow and it hasn’t been investing nearly enough in production. Within ten years it may not have any oil to export. This has very interesting implications.

From Greg Silberman:

The market is being juiced up on so much liquidity that no paper assets are being allowed to correct.

Gold is also outperforming other real assets such as Energy and Industrial Metals. The last time that happened was in 2000 before the last Bear market in stocks. This is early confirmation that growth is slowing and a shift to less risky assets is underway. The Fed’s response will be predictable – more money printing!

I am beginning to think the only way the monetary universe will correct is for Gold to move a lot higher against all paper assets and other commodities. As a result, the next 12 months should be very exciting for gold stock investors.

From the Associated Press, silver in clothing is a growing trend:

“It is a growing field, there’s no question about it,” said Michael DiRienzo, executive director of The Silver Institute, a Washington-based trade group. “You’re talking microscopic amounts of silver being used in this application, but over time, it could chew up a lot of silver and that’s what interests us.”

The Mogambo Guru makes the point that a hundred million pairs of socks per year is another million ounces of silver consumed per year. And that doesn’t include shirts, shoes, and underwear with silver-embedded material And then there’s military demand for silver in soldier’s clothing.

Interesting.