By Peter Brimelow, MarketWatch
NEW YORK (MarketWatch) -- Spring shoots are greening Ground Zero, at least for now. And one value investor thinks a juncture may have been reached.
The Crash of 2008 was devastating to investment letters, according to the Hulbert Financial Digest. (Hey, it wasn't good for Wall Street either.)
Even now, just 19 of the 180-odd letters followed by the HFD made money over the last 12 months through April -- during which the dividend-reinvested Wilshire 5000 Total Stock Market Index lost 34.69%.
But what a difference a rally makes. Over the year to date, 109 letters are above water -- although the total return DJ-Wilshire 5000 is still down 1.16%.
There's a still lot of skepticism about the post-March rally. (See May 4 column.) But Gray Emerson Cardiff of Sound Advice (up 11.7% in 2009) has been mulling a major market move for some time.
He wrote in his most recent issue, published in April: "As noted in the March issue, we are approaching the cusp of a new SuperCycle, during which equities should outperform real estate. But such a turning point requires our Diffusion Index of Leading Indicators, which tracks the overall economy, to confirm our Risk Indicator, which tracks the relative value of equities versus housing prices. Provided none of the data trends we employ to trace economic activity reverses, we should have confirmation in the May issue," which should be out any day.
Cardiff says his "Diffusion Index" tracks four data points (unemployment, building permits for housing, timeliness of supplier deliveries, and the spread between short- and long-term Treasury yields).
He says: "Some investors will wait for improving corporate earnings before considering stocks. By the time that happens, we think the lion's share of price recovery will be over."
Sound Advice is always fully invested. But its value orientation drew it in the direction of oil and hard assets during the mid-decade hard-asset boom. (See April 1, 2007, column.) It worked pretty well, for a while. Although the letter lost 28.35% in the last 12 months -- still better than the market -- over the last 10 years, it appreciated at 7.16% annualized versus negative 1.59% for the total return DJ-W 5000.
Sound Advice hasn't given up on natural resources. Recently, it took the unusual step of directly criticizing fellow letter-editor Arch Crawford of Crawford Perspectives, who turned in the top performance of 2008 by Hulbert Financial Digest count, although claiming to be guided by astrology. (See Dec. 17, 2008, letter.)
Sound Advice sniffed that Crawford was really "a chartist who couches his predictions in astrological language." (Of course, there are those who think that predicting prices by looking at chart patterns is equally flaky. Why not try tea leaves?)
But its real objection seemed to be that Crawford anticipates massive short-term deflation. Sound Advice expects inflation, and for a long time.
Recently, Sound Advice wrote enthusiastically about Leucadia National Corp. , a holding company with interests in energy.
Other Sound Advice hard-asset plays: Anglo American PLC ADS and USAA Metals & Minerals /zigman2/quotes/205465333/realtime USAGX +1.81% .
It also holds Third Avenue Value Fund /zigman2/quotes/207225650/realtime TAVFX -0.44% , which it says "ranks right up there with Leucadia National when it comes to taking advantage of other peoples' problems."
Talking of problems, Sound Advice recently reduced its exposure to Time Warner Inc. , commenting laconically: "Comcast Corp New /zigman2/quotes/209472081/composite CMCSA -3.61% is enough domestic cable exposure for us."