Sheer craziness...

Sheer craziness... 'Just one more bubble'... Up the 'Wall of Worry'... Greek default fears... Clark's bearish call... BofA Tower up for auction... Sjug's homebuilder play... Contrarians, take note: Shipping... Porter's HSY hit...

 The stock market is not egregiously overvalued, but it definitely has pockets of sheer craziness... For example, the social networking stocks have more than a whiff of 1999 about them. Groupon, Zynga, and LinkedIn are all trading at ridiculous valuations only a social media-worshipping fanatic totally devoid of financial knowledge could love. LinkedIn, the business networking website, trades at 1,000 times earnings. Groupon, the daily coupon website, has $1.3 billion in sales, no profits... and a $15 billion market cap.

And then, there's Facebook... The giant social networking site has filed the paperwork to go public… and it's expected that after its IPO the company's market value will be $75 billion-$100 billion. At that level, it'll sell for as much as 212 times its 2011 free cash flow. Facebook is a great business, but it's not that great. No business is that great. It's obviously not worried about making its equity attractive to anyone who knows what he's doing...

 So here we are again, staring straight into the eyes of a bona fide "new era" Internet bubble. I have no doubt it'll end badly for the folks who are holding these stocks today. It always does. You'd think humanity would learn... but it never does. Why is that? Why would anyone buy one single share of LinkedIn at 1,000 times earnings? Were they too young to know what happened in 1999?

Think of all the otherwise sane adults who lost their shirts in the 2000-2002 bear market owning stocks at 40, 60, 80, or 100 times earnings… or absent earnings (as so many companies were), owning them at huge multiples of sales. And it looks like at least some of these people are at it again!

It's like that crazy bumper sticker that showed up in Silicon Valley after the bubble burst in 2000: "Please God, just one more bubble." The Almighty apparently reads bumper stickers. But I shouldn't blame Him. The social networking bubble is no one's fault but the poor, sad fools who are buying stocks at these prices. As they're about to learn the hard way – for the third time in a little more than a decade – that all bubbles pop.

 And yet, U.S. stocks overall are not horribly overvalued at all. The S&P 500, representing about 75% of U.S. stocks by market cap, trades for about 14.5 times earnings. Its long-term average is a little more than 16 times earnings. So it's slightly undervalued by that measure. Overall, perhaps you could say stocks are on the cheap side of fair value. It's harder to find bargains than it was a few months ago, but many fine businesses are trading at reasonable prices.

 Another bullish sign: the "Wall of Worry" is built up high. It's been said for a long, long time that "stocks climb a wall of worry" – that extreme negative sentiment usually gives way to a market rebound. Fund manager Lloyd Khaner decided to turn that old expression into something tangible that investors could use as a general sentiment indicator.

Khaner compiles an ongoing list of "worries" – trends and current events that could disrupt the global economy. Khaner says when 15 or more worries stack up on the wall, negativity and fear are high, and it's time to look for bargains. When there are fewer than 10 items, consider selling. Today, the wall is comprised of 22 items… so Khaner's bargain hunting.

Perhaps more than any other issue today, worries about Greece keep the wall standing tall and straight...

 Yes, the whole world is still scared to death that Greece will default. In a joint meeting yesterday with French President Nicolas Sarkozy, German Chancellor Angela Merkel warned Greece that "time is running out." Merkel is pressuring Greece to accept the terms of the $171 billion proposed bailout. But Greece is balking at the austerity measures attached to the money. And Greek leaders, who were supposed to meet yesterday to finalize the deal, pushed the meeting until today.

Greece has a 14.5 billion euro bond payment due March 20. The market fears it may fail to reach a deal before then and default. We don't share those fears. The world won't let Greece go bankrupt. Why suffer that pain, when creating capital is so easy?

 Rest assured, the world's central banks will keep printing money. And they'll keep buying gold, too...

"The supply side of the supply-demand equation is very tight. There is a growing demand side from the increase in jewelry off-take in central Asia, but also the central banks starting to buy gold. These are the emerging markets central banks, not the G20 central banks," Mark Bristow, CEO of $11 billion gold miner Randgold Resources, told CNBC yesterday.

These central banks are buying gold to hedge their foreign-exchange risk. And remember… their foreign-exchange risk is mostly in U.S. dollars. They're buying gold because they're afraid of what's going to happen to the U.S. dollar. They see the Federal Reserve promising to keep interest rates depressed until late 2014... instead of its earlier target of mid-2013. That's a huge signal. It says, "We are going to ease and print our way to higher prices for everything if it's the last thing we ever do."

We recommend you do the same thing those emerging-market central bankers are doing: Buy gold.

 Just because stocks aren't overvalued doesn't mean the market can't act badly. Mr. Market loves to get you all excited and then pull the rug out from under you. Our trading guru, Jeff Clark, is afraid Mr. Market is getting ready to do just that. Jeff sent the following note to his S&A Short Report subscribers this morning...

He said he doesn't see many good positions from the long side... And lots of great trades are setting up on the short side. The market is reaching an overextended extreme. Jeff recommends shorting one sector in particular that is due to break down. And he believes readers could make 140% on this trade.

Given the recent rise in the market, it's a good idea to hedge your gains with a few short sales. And Jeff is ready with lots of weak stocks waiting to break down... To learn Jeff's favorite short play today, click here...

 The largest, tallest skyscraper in the Southeast U.S. – the 55-story Bank of America Plaza in Atlanta – is going to auction on the courthouse steps tomorrow. The $363 million BofA Plaza loan became delinquent in December 2011 after the owner, commercial real estate firm BentleyForbes, stopped making payments.

In Atlanta's largest real estate deal, BentleyForbes bought the 1.25 million-square-foot building in 2006 for $436 million from Bank of America and real estate investment trust Cousins Properties. Since the 2007 peak, the Plaza has lost 54% of its value... The Plaza was appraised in March at $202 million.

While the Plaza is the highest-profile Atlanta building in delinquency, it's far from the only one... Atlanta has the highest rate of late payments on commercial mortgage-backed securities (loans on commercial property that have been bundled into securities) at 25.3%. That's up from 10.4% a year ago and more than triple the national average of 7%.

 BentleyForbes paid $348.80 per square foot for Bank of America Plaza in 2006. Replacement cost is around $320 per square foot. The new buyer could conceivably buy this trophy property for half of replacement costs. That's a great deal. You just have to have enough cash to cover the note while improving the building and attracting new tenants. Its biggest tenant, Bank of America, said it would reduce the space it leases from 30% to 15%... and the rate will drop by half, Fitch Ratings said in a December report. Ernst & Young, which had leased 196,000 square feet, left for a new building in 2007.

 The 1,023-foot-tall tower would be the tallest in the U.S to go into foreclosure since 2007. In March 2009, Boston's John Hancock Tower – New England's tallest skyscraper at 790 feet – was sold at auction for $660 million to Normandy Real Estate Partners. (The building was appraised at $1.3 billion in 2006.)

Then, Normandy sold the Hancock Tower one year later to Boston Properties for $930 million, a 41% gain.

 While U.S. commercial real estate is still carving out a bottom, our Steve Sjuggerud believes residential real estate is a buy... He wrote about it extensively here and here. Steve says "the [U.S.] housing bubble is completely over" and "U.S. houses are the best deal in history."

The SPDR Homebuilder ETF (XHB) is approaching its levels from September 2008. And the iShares Dow Jones U.S. Home Construction ETF (ITB) – which Steve recommended to his True Wealth subscribers – hit a 52-week high last Friday. Steve has also recommended three stocks related to the housing market that will pay you an average of almost 15% a year in income. They're incredibly cheap... And as long as the housing market doesn't dive from here – which Steve is convinced it will not –  you'll make easy, double-digit gains each year. To learn about True Wealth and access this opportunity to collect huge income, click here...

 Contrarians take note... Shipping rates have gone negative. Commodities giant Glencore hired a ship from Global Maritime Investments at minus $2,000 a day for the first 60 days. The shipping company is literally paying Glencore to use its ship.

Steve Rodley, Global Maritime's U.K. managing director, said Glencore's charter put the ship in a better position for its next cargo... "Our other option was to stay in the Pacific and earn poor revenues or ballast to the Atlantic and pay the fuel ourselves," he said.

The Baltic Dry Index (the BDI), a measure of commodity shipping costs, dropped 61% last month to a 25-year low, falling 33 days in a row. 

 We wrote it. Did you buy it?

In 2007, Porter called Hershey (HSY) "our best no-risk opportunity ever." He recommended the stock around $40. Hershey's stock recently reached the $60 level, after the company pushed through a 10% price increase on its products in 2011. Shares were up 30% last year, edging out McDonald's big move by hundredths of a percent to become the biggest gainer among large-cap consumer staple companies. And it increased its quarterly dividend 10% to $0.38 from $0.345.

 New 52-week highs (as of 2/6/12): Cisco (CSCO), Enterprise Products (EPD), Invesco High Yield Investment Fund (MSY), and Prestige Brands (PBH).

 There are so many reasons to write in to us... Tell us if the situation in Europe is influencing what you're doing with your money. Let us know if you've benefited recently from Jeff Clark's trading advice. Let us know if you bought Hershey. Or maybe you're in the commercial real estate business and have something to say about it. Write us at feedback@stansberryresearch.com.

 "Thanks for the mailbag, especially the February 3 rendition in the Digest. That rendition took me back to the happy days of my youth when I was able to place the blame on someone else instead of taking responsibility. Oh Happy Days! Seriously, it made me smile. I do not know how you tolerate some of us subscribers, but keep on keeping on. Thanks – very satisfied.

"P.S. Rhetorically, why would anyone pay and not read all the issue? Cannot imagine why someone would not read the Portfolio page – should be the first thing read." – Paid-up subscriber Derek Frey

 "Well, reading your latest, Herb has foolish, unrealistic expectations. He expects perfection in this world? I enjoyed the polite way you told him to flake off.

"I like to think I paid for my Alliance subscription with money I didn't lose due to your timely notifications. I am very happy to act early, as once I didn't back in the late '80s.

"And I do pay attention to your model portfolio. Anyone who is serious about their finances would. Including hedging with short sales. Very much so. It has greatly simplified my life. I've got so much other stuff to deal with, it is a relief to have comprehensive investment information and advice so readily available." – Anonymous

Regards,

Dan Ferris and Sean Goldsmith

Medford, Oregon and Miami Beach, Florida

February 7, 2012