if there is truth here caution is neededNEW YORK (MarketWatch) -- One of this year's top-performing letters still rejects the rally. But, simultaneously, he's toying with a short-term trade, sort of.
Stocks staggered a little higher after I reported Howard Ruff's scathing skepticism about the March rally in his Ruff Times letter. ( See April 6 column.) But now they're down again.
And so certain is Ruff that the rally is rolling over that he barely addresses the topic in his latest issue. But you can tell what he thinks from the only non-hard-asset investment recommendation in his "investment menu" (which the Hulbert Financial Digest treats as a model portfolio): Rydex Ursa Fund, Inv. /quotes/comstock/10r!ryurx (RYURX47.68, -0.51, -1.06%) and Rydex Juno Fund, Inv. /quotes/comstock/10r!ryjux (RYJUX14.48, -0.06, -0.41%) . These are bets that stocks will go down, long-term rates up.
Instead, Ruff focuses, both in his own writing and in a long interview with John Williams of Shadowstats.com, on when the inflation he expects to follow Obama's monetary expansion will actually show up. The answer, in Williams' words: "We will see inflation levels not seen in our lifetime by as early as the end of this year."
This is considerably earlier than most hard-asset-oriented letters expect. They have been made ruefully aware of the power of the government to stave off collapse.
Indeed, Ruff himself is fully aware of this phenomenon. On the strength of it, he has just made a short-term investment call ... sort of.
His argument: Banks are about to bounce.
He writes: "Now there are negotiations with those who determine these things that the 'mark to market' concept should be modified so the banks could find value in these crunched assets. Many sick banks will suddenly find themselves healthy, and their stocks should rise proportionately. If the mark-to-market rule changes soon, bank and brokerage stocks will rally, perhaps dramatically."
"I don't know when or how far -- but expect some action. Bank stocks are cheap, having been battered by the worldwide recession. When the rules are changed, their balance sheets will again have value. Many banks which have been basket cases will follow the order to 'take up thy bed and walk.' There will be money to be made by speculators."
However, Ruff adds disarmingly: "My history of short-term calls is bad enough that I won't take my own short-term advice. But at least I told you about it."
Ruff hasn't added any bank stocks to his "investment menu," so the HFD won't be counting this recommendation.
This may sound odd, but the HFD has never pretended its strict model portfolio approach as a complete guide to the investment-letter experience. ( See Dec. 28, 2008 column.) Many readers value hints as much as specific advice.
Like other hard-asset letters, the Ruff Times was badly hit by 2008. But its 2009 rebound is continuing. Over the year to date through April, the Ruff Times is up 32.2% by the Hulbert Financial Digest's count, compared to negative 1.16% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.
Of course, this contrasts sharply with the negative 39.44% Ruff Times achieved over the past 12 months, slightly worse than the negative 34.69% scored by the total return Wilshire 5000. This was the end of a bad spell for Ruff: Over the past three years, the letter has achieved an annualized loss of 13.79%, significantly worse than the negative 10.72% annualized of the total return DJ-Wilshire 5000.
But Ruff is sharply better that the market over the longer haul. Over the past 10 years, the letter has achieved a 2.05% annualized gain, versus a negative 1.59% annualized for the total return DJ-W.