Britney cuts off K-Fed. North Korea detonates its first nuclear bomb. Oil topped $78.40 a barrel while the Dow topped 12,000. George Mason makes the Final Four.

E. coli taints our spinach while Tom Cruise jumps on Oprah’s couch.

On a less covered note, the Euro appreciated more than 11% against the greenback in 2006. Meanwhile, American consumers kept spending as their debt kept growing. Few cared to mention that U.S. dependence on OPEC reached its highest level in 15 years.

Let’s move on.

Israel strikes Hezbollah and the Pope quotes Manuel Paleolgue. Zidane headbutts Materazzi. Consequently, the Italians take the World Cup while the Democrats retake Rome.

American military causalities in Iraq top 3,000. Iran still defies the U.N…

On the domestic front, five young girls fall in an Amish Schoolhouse while 12 men die in a West Virginia mine. Americans mourn the loss of President Ford.

On the judicial front, an Iraqi court condemns Saddam Hussein to death while our high court condemns private property for public use.

It’s not all bad.

YouTube brings Saturday Night Live to work. Google pays $1.65 billion. Queen Elizabeth knights Bono while NASA plans a return trip to the moon.

That can’t be cheap… Who’s going to pay for that round-trip flight anyhow? I read that the General Accounting Office released their GAAP study that showed that the federal government is fifty trillion dollars in the hole. Fifty. Trillion. Dollars.

Alex from Phoenix, Arizona was also kind enough to point out that fifty trillion (that’s 50,000,000,000,000) conveniently bestows a somewhat surreal $166,000.00 of debt for every man, woman and child living in this country.

How much do Americans have in savings again?

As Kurt Vonnegut would say, “So it goes, Billy…so it goes.”

So what will 2007 have in store?

Hopefully, The Departed wins best picture while PetroChina (PTR: NYSE) keeps breaking new highs.

In a perfect world, that may be the case, but making predictions and new years resolutions is somewhat of a futile exercise. However, I’ll fall victim to the trap. Here are a couple of things I think we should watch out for over the year ahead:

The Euro will keep appreciating against the dollar. The ECB looks to raise rates to thwart off inflation. Meanwhile, many predict the Fed will cut rates sometime in the coming months. Furthermore, central banks around the globe have signaled a faint desire to diversify some of their dollar reserves. That will put even more downward pressure on the greenback.

Global stocks should keep steamrolling to new highs. Ian Scott, Lehman Brothers strategist, said he expected global equities to produce a total return of 15% in dollar terms…another plug for my global newsletter. I beg your pardon.

So where should you place your money in ‘07? If history were any indicator, small-cap value stocks would be the answer.

In his latest book Hedgehogging, Barton Biggs conveniently points out: “The performance history of growth versus value is clear. Over a period of years, value beats the daylights out of growth, and small-cap value is by far the best of all.”

Take a look at the comparative indexes of growth and value since 1927.

Biggs goes on to point out that one dollar invested in each index in 1927 would be worth $35,957 if you had put it into small value, $4,802 into large value, $1,809 in small growth, and $820 in large growth.

Talking heads and financial pundits may try to coax your money into the latest fad in 2007. Don’t take the bait. Predictions may be all the rage in January, but 12 months from now, precedent should hold true once again.

Sincerely,
Christopher Hancock
January 5, 2007

P.S.: America’s most famous investor has already made over $550 million holding this stock. And he still has $839 million in shares, making it one of the biggest positions in his portfolio…

It’s not a household name — I’d be shocked if you’d even heard of it — but holding it right now could be as smart as taking a time machine back 40 years ago and snatching up shares in one of the greatest blue chip stock stories of our time.

Christopher Hancock

Christopher Hancock lives and breathes emerging markets. He travels extensively and utilizes his contacts across the globe to recommend the best international investments in the world. After working with Citigroup in Hong Kong on the challenges and opportunities associated with the forthcoming RBM flotation reform, Christopher left many of his friends behind and decided to return to the States to pursue a career in equity research.

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