Market Commentary: June 21, 2010

Now that we have had a 15% correction in the NASDAQ – what’s next?

The NASDAQ peaked on April 23 after 8 weeks of consecutive gains.  It has apparently bottomed on June 9.  I made note in April that extended strings of up weeks were generally precursors to even more movement to the upside punctuated occasionally by modest pullbacks.  Of course a 15% correction qualifies as more than a “modest pullback”.  Nevertheless, I submit that the combination of economic data, earnings outlooks, interest rates and liquidity still favor a rising instead of a falling equity market.

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ScreenHunter_03 Jun. 21 13.34There continues to be a great deal of fear about sovereign debt risks in Europe.  People are forgetting to consider how European corporations are doing.  The following table from Thomson Reuters as of June 18 displays the estimated annual earnings growth, P/E ratios and ratio of negative to positive earnings revisions by country – you will be surprised – I was. (FY1 is 2010 and FY2 is 2011).

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Only Spain appears to be a laggard in Europe.  While there are certainly going to be fiscal consequences of the sovereign debt crisis it is not a given that profits will be similarly impaired for the very globalized European corporate community.

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So, what’s the bottom line? . . . 

I stated in April and in May I would not be too concerned if we had some pullback in prices.  I doubted we would see appreciable downside “failing some exogenous shock to our collective psyche”.  Well – we had the “exogenous shock” – the European debt crisis and the Gulf of Mexico oil spill – and we had a correction in stock prices.  Now we approach what should be a strong Q2 earnings season with prices lower and interest rates also lowerThe combination of the those factors – rising earnings, low interest rates and lower prices should result in a resumption in rising equity prices.

Aberdeen Announces Collaboration Agreement With Research 2.0

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Aberdeen Investment Management, Inc. Collaborates With Research 2.0

Aberdeen Investment Management, Inc. (AIM), is pleased to announce that it has entered into a collaboration with Research 2.0, a next generation technology research firm based in Boston, to provide research services to AIM on publicly-traded, emerging technology companies.  AIM has been providing advice to high net worth clients on micro cap, emerging technology companies since 2003.

Research 2.0 brings decades of experience in evaluating both public and private technology enterprises.  Their founder and Director of Research, Kris Tuttle, formerly ran a 70 person research organization for Soundview Technology Group, which has been described as the leading technology research boutique on Wall Street during the late 1990’s.  Kris also previously served as Director of Research for Adams Harkness & Hill, a well regarded Boston-based regional broker dealer, prior to its acquisition by Canaccord Capital.  He brings particular expertise and knowledge in software businesses.

Steve Waite, head of Strategy for Research 2.0, was a co-founder of a multi-billion dollar investment management firm, Trilogy Advisers.  Steve has managed a number of long-only technology and global equity portfolios.  He is a noted author of two books on investing, and has extensive experience on both the buy and sell side of Wall Street, having worked with several firms including Morgan Stanley, The Capital Group, Merrill Lynch, and Credit Suisse Asset Management/BEA Associates.

AIM’s President, Jeb Terry, stated “the collaboration with Research 2.0 will allow AIM to expand the depth and reach of its technology research that will incorporate the best ideas generated by Research 2.0.”  Research 2.0’s research approach and coverage compliments AIM’s core micro cap, emerging technology focus, and will expose AIM to larger market cap opportunities.

AIM and Research 2.0 each believe the correct strategy to capture optimal upside is one of long term investment predicated on a thorough investigation of the target investment’s business model, addressable market, competitive strengths and weaknesses and intellectual property.  AIM’s present strategy and micro cap focus recommends relatively concentrated investments to maximize returns with minimal turnover and without the use of leverage. In addition, Research 2.0’s resources will bring further diversification of AIM’s investment process with a focus on larger cap technology companies who are strategically well-positioned with global operations benefiting from many of the same waves of technology innovation that are central to the AIM portfolio.

Interested parties can learn more about AIM’s emerging technology practice at their web site at www.aberdeeninvestment.com .  They can contact Jeb Terry, President, via email at jbtsr@aberdeeninvestment.com  or by phone at (214) 347-9114. 

More information on Research 2.0 can be found at their web site: www.research2zero.com . Their principals can be reached by e-mail and telephone as follows:

Kris Tuttle        kris@research2zero.com          617-828-6462

Steve Waite      steve@research2zero.com        203-537-0263

Flash: It Rarely Get’s More Obvious Than This 6-3-10

Several indicators are pointing to a near term recovery from the recent market correction.

For example . . .  The retail money has yanked money from equity mutual funds.  The following chart from BofA Merrill Lynch shows they fled equities at a rate never seen before except at the panic points of Oct/Nov 2008 and March 2009 – the Great Recession market low.

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Bespoke Investment Group (www.bespokeinvest.com) has pointed out that spikes in bearish investor sentiment coincide with market bottoms.

ScreenHunter_03 Jun. 03 09.38ScreenHunter_05 Jun. 03 09.39ScreenHunter_06 Jun. 03 09.39Of course the S&P 500 remains near an all time degree of undervaluation in relation with earnings growth and the 10 year Treasury rate.

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Bottom Line:             The data rarely presents a more obvious case for a rising stock market.  The prospect for a very strong employment report tomorrow could be the icing on the cake.

 Jeb B. Terry, Sr.

President

Aberdeen Investment Management, Inc.

jbtsr@aberdeeninvestment.com

Tel: 214-347-9114

Cell: 214-552-6708

Caution: It’s a risky world we live in. My opinions are based on information believed to be reliable but hey, I could be wrong.  When investing, try to use good judgment and don’t hesitate to seek professional assistance. Remember to set limits and have a plan. . . Good Luck!