Home remodeling is booming . . .

A little commented on metric in recent weeks was a 30% year over year increase in housing starts.  While that is impressive, home remodeling is up even more!  Home remodeling is up 40% year over year and is at a multi-year high.  To be sure while housing starts remain at a depressed level compared to pre-2008 crash levels, people are behaving rationally and investing in remodeling.  It may be that families are using some of their cash hoard to invest in their current homes.  The housing situation appears to be better than might be assumed from the headlines.  Jeb Terry, Sr. Dec 28, 2011

Source: BuildFax Data Release: December 19, 2011 The Residential BuildFax Remodeling Index rose 40% year-over-year in October–for the twenty-fourth straight month of year-over-year growth–to 147.6. Residential remodels in October were up month-over-month 6.2 points (4%) from the September value of 141.4, and up year-over-year 41.7 points from the October 2010 value of 105.8.

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U.S. economic reports have increasingly exceeded estimates – this usually translates into stronger stocks and weaker bonds – but not now – what gives? . . .

Bond rates remain near all-time lows despite persistent strength of U.S. economic indicators beating estimates.  Usually interest rates rise when the economy strengthens.  The following chart, courtesy of www.bondvigilantes.com , shows the usually tight relationship between U.S. Treasury bond yields and an index of the degree by which U.S. economic metrics exceed their estimates.  The fear of spreading Euro contagion has disrupted this relationship.  Flight capital out of the Euro has bid down U.S. Treasury rates.  The “bondvigilantes” point out that things in Europe will have to deteriorate even further in order for U.S. bonds to appreciate any more.  If the Europeans achieve some stability then we may see a flow out of Treasuries and into equities, an upward move in interest rates and a strong rally in stock prices in the U.S.  Jeb Terry, Sr. Dec 27, 2011

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Tablet sales are booming and are set to continue to boom in 2012. One in three online consumers will be using a tablet by 2014 . . .

Game changer, transformational, these are a couple of the descriptors for the tablet computer phenomena.  eMarketer predicts there will be 55 million tablet users a year from now.  We already know that Apple and Amazon are each currently selling in the order of 1 million tablets and e-readers (i.e. Kindles) – per week.  It is not a stretch to project there will be well over 55 million tablets by the end of 2012.  Keep in mind that tablet users watch far more video than other internet users.  Tablet users are estimated to use 5X MORE bandwidth than a typical smartphone user.  Consequently 55 million tablets is equivalent to 275 million smartphone users.  There are only estimated to be 107 million smartphone users by the end of 2012.  YIKES – that’s a lot of bandwidth demand!  Aberdeen is deeply involved in companies that both enable and benefit from this escalating trend.  Jeb Terry, Sr. Dec 16, 2011

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As smartphones and tablets proliferate, more and more essential communications are migrating off the desktop and onto a wireless device. E-mails are increasingly being read on a mobile device – implications for security and demand for bandwidth . . .

Smartphones and increasingly tablets are always on, always within reach communications (and commerce) devices.  Recent research by Knotice and published by the Center for Media Research noted that the percentage of all e-mails now being read on a mobile device has grown by 51% since 2010.  This says a lot about pervasive presence, the quality of service and the increasing confidence and dependence users have on their mobile devices.  There are positive implications for e-mail security providers, mobile commerce and mobile advertising.  Jeb Terry, Sr. Dec 16, 2011

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Online video ad spending set to continue to boom in 2012 . . .

Online video is surging as more owners of smartphones and tablets spend time watching full-length TV shows and feature films on their mobile devices.  Over 50% of all internet users in the U.S. now watch online videos at least once per month.  As you can expect, ad money follows eyeballs and ad money is moving to online video faster than any other online ad format which means any other ad format.  The following chart from eMarketer displays the growth in dollars and percent.  Aberdeen is intensely focused on this market opportunity.  We have multiple holdings that will benefit from the inevitable shift of ad dollars from conventional TV to online formats.  Jeb Terry, Sr. Dec 16, 2011

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E-commerce is booming this holiday season . . .

The Business Insider web site, Silicon Alley posted the chart below on the trend in e-commerce sales.  The current data from comScore has e-commerce sales rising by 15% so far this year over 2010.  Approximately $26.8 billion has been spent online in the first 42 days of the holiday shopping season.  There was $1.1 billion spent last Monday alone – that was up 19% over the same day last year.  This data suggests the economy is probably stronger than people suspect.  We know there is plenty of cash waiting to get spent.  Jeb Terry, Sr. Dec 14, 2011


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Rail carloads improving – not indicative of an onset of a recession . . .

The Business Insider web site posted the chart below on carloadings last week.  As they pointed out, rail carloadings are a good indicator of what is going on in the real economy.  The picture is encouraging as rail carloads are increasing.  They are an early indicator of economic strength and weakness.  They are now signaling continued strength.  Jeb Terry, Sr. Dec 14, 2011


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Weekly economic indicators have softened but do they signal recession? . . .

The ECRI index of weekly economic indicators have clearly softened this year and particularly so in Q3.  The weakness was coincident with the market unrest over the escalating Euro crisis and the U.S. debt ceiling debate/debt downgrade.  The management at the ECRI believes the chart points to a recession in 2012 – they aren’t saying how deep a recession might be but they are saying that real GDP growth will likely go negative for at least 2 quarters sometime in 2012.  Their outlook seems a bit harsh.  The present recovery has been faster than coming out of the 1991 recession and as fast as following the 2001 recession.  Jeb Terry, Sr. Dec 14, 2011

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We know where the money is – have a look at bank deposits . . .

The key measures are M1 and M2 (if you don’t know what they are, go to Wikipedia or the Fed’s web site).  The pundits don’t appreciate how scared the U.S. consumer/investor has become after all the political theatre in Washington and Europe.  We have had a historic flight to cash that started with the financial crisis in late 2008 and accelerated in Q3 this year with the hysteria over the debt limit debate and debt downgrade.  The U.S. has never had so much cash sucked out of productive investment as fast and parked in zero return assets.  For context, note that it took 24 years for M1 to grow as much it has in the last 3 plus years.  The hoarding of cash is not only an expression of a massive liquidation of investments but also a massive avoidance of productive investment.  In economic terms it means that monetary velocity has contracted.  It is remarkable how well the economy has performed in light of this development.  Jeb Terry, Sr. Dec 13, 2011

While all the money was being stashed in bank deposits, loans have been paid off or charged off.  This can be plainly seen in the above chart.  There are at least two major observations from this – 1) there is terrific unused bank credit capacity that will someday be used to fuel economic growth and 2) it would be unlikely for the U.S. to have a recession if there isn’t excessive borrowing at the margin.

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