Investor Alert

Peter Brimelow

Peter Brimelow

Feb. 20, 2012, 8:16 a.m. EST

Bears burned, bug vindicated?

Commentary: Veteran gold bug still likes stocks — and real estate?

By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) — A veteran gold bug continues to splash about with stocks — and maybe even real estate.

Stocks have been in an upswing since October, and the bears are beginning to feel burned.

Dow Theory Letters’ Richard Russell says that his key indicator “continues to climb without any correction, but personally, I don’t have the guts or the stomach to join the parade.” Stealth Stock Daily’s Dennis Slothower, which I named 2011 Letter of the Year, is now 50% in stocks. See Jan. 5 column.

But one veteran gold bug letter, Forecasts & Strategies, edited by Mark Skousen, has been splashing about with stocks for some time (See Dec. 22, 2011 column.). And it has resulted in some of the best results of its long career.

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Over the past 12 months through January, Forecasts & Strategies is up 11.9% by Hulbert Financial Digest count vs. 3.72% for the dividend-reinvested Wilshire 5000 Total Stock Market Index (1083:XX:W5000FLT) . That makes it ninth out of some 180 portfolios followed by the HFD.

And over the past three years, Forecasts & Strategies is up 24.65% annualized vs. 20.15% annualized for the total return Wilshire 5000.

Things were a bit flatter over the past five years, which include the Crash of 2008. The letter was up just 1.26% annualized — still better that 0.71% annualized for the total return Wilshire.

And over the past ten years, the letter was an annualized 6.08% vs. 4.43% annualized for the Wilshire.

Like many veteran gold bugs, Skousen combines a dark long-term view with a hard-earned short-term respect for the power of the central banks. He wrote recently:

“Despite long-term challenges in Europe and the United States, stocks and commodities edged higher in January, 2012… This election year, we are emphasizing dividend-paying stocks and growth mutual funds, which are deeply undervalued. Indeed, they currently are better values than gold and silver. Stocks have been in a bear market for a decade, while commodities have soared. At some point, the trend has to change, especially if a Republican wins the presidency.”

/zigman2/quotes/211296689/delayed W5000FLT 46,232.94, 0.00, 0.00%

Skousen’s recommended asset allocation:

— Natural Resources 10.00%

— Stocks 40.00%

— Interest-bearing Investments 50.00%

Among Skousen’s other recommendations in Forecasts and Strategies monthly issue published at the beginning of February:

— “Maintain a strong position in high-income stocks and funds, including Aberdeen Asia-Pacific Income Fund Inc. (ASE:FAX) , Western Asset Global Partners Income Fund Inc.  and BlackRock MuniHoldings Quality Fund II Inc. (NYS:MUE)

— “Invest 10% in natural resource stocks that pay high dividends: Enerplus Corp. (NYS:ERF) , Enterprise Products Partners L.P. (NYS:EPD)  and GAMCO Global Gold Natural Resources & Income Trust (ASE:GGN) .

— “Use some speculative funds to invest in Illumina Inc. (NAS:ILMN)  and Cubist Pharmaceuticals Inc. .

— “Permanent Pt (NAS:PRPFX) , which invests in gold, silver and Treasuries, offers some protection on the downside (especially in Treasuries);

— “Invest in my favorite no-load funds Vice Fund (a series of MUTUALS.com) (NAS:VICEX) , Janus Triton Fund T Shares (NAS:JATTX)  Fidelity Select Portfolio Del & Aero (NAS:FSDAX) , and Baron Growth Fund (NAS:BGRFX) .”

Intriguingly, Skousen continues his interest in calling the low in residential real estate, which I first noted 16 months ago. See Nov, 2, 2010 column.

Now Skousen suggests the Case-Shiller Home Price Index may show a bottoming pattern and reports asking its inventor, Yale economist Robert Shiller about it at the recent American Economics Association meeting. According to Skousen, Shiller “said he didn’t know, but the index looks promising.”

Needless to say, this view is diametrically opposed to that of the only other investment letter I know that focuses on residential real estate: Sound Advice. See Feb. 15 column.

But Skousen concludes with characteristic confidence:

“No wonder homebuilding stocks such as PulteGroup Inc. (NYS:PHM) , D.R. Horton Inc. (NYS:DHI)  and Toll Brothers Inc. (NYS:TOL) have risen sharply in the past three months. That trend could continue. I’m recommending them in my trading services.”

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