Internet Advertising Revenues Hit Historic High @ $9.3 Billion, +18% Over 2011

This just out from the IAB . . . Internet advertising revenues in the U.S. reached $9.26 billion for the third quarter of 2012, making the quarter the biggest on record, according to the latest IAB Internet Advertising Revenue Report figures released today by the Interactive Advertising Bureau (IAB) and PwC US. These figures show an 18 percent climb year-over-year [vs. 13.6% YoY for Q2 12 – JBTSR], in comparison to Q3 2011’s $7.8 billion. In addition, they mark a 6 percent increase over the Q2 2012 [vs. 4.9% Q2 over Q1 12, best since 8% Q3 seq. growth in 2003 – JBTSR] figures of $8.72 billion. . . .

“This uptick goes beyond a significant year-over-year increase at 18 percent, and also shows a climb from last quarter as well,” said David Silverman, a partner at PricewaterhouseCoopers LLP. “Clearly, digital advertising is continuing its positive trajectory with incredible momentum as it heads into seasonally strong Q4 [expect over 15% QoQ growth in Q4 if equal to 2011 – should be more – JBST].”

Ad dollars follow eyeballs and commerce.  The surging internet advertising spending (inclusinve of mobile ad spending) is yet another proof point of the sea change taking place.  70% of the Aberdeen portfolio is geared positively to this sea change. Jeb B. Terry, Sr. Dec. 19, 2012

Q3 12 Online ad spend 12-19-12

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Bulls popping up all over the place

Recent “smart money” polls are showing decisive turns to the “bull” case.  I have included below recently published polls from Bespoke Investment Group  and Birinyi Associates .The bullish tilt is unmistakable. Bespoke had this to say . . . “As shown below, there were more bulls than bears in our weekly market poll for the sixth consecutive week. Of the 348 respondents, 55% said the S&P 500 would be higher one month from now, while 45% said the index would be lower. This is the longest weekly streak of more bulls than bears since we began conducting the poll at the start of this year.”  

Note that when the Birinyi poll went strongly bullish this time last year and in late 2010 and early 2011 the market did well.  This is not scientific to be sure.

Our own polling of friends and clients on bullish sentiment has also turned measurably more bullish than last year when we made the same poll in late December. These polls are occurring at a time of neutral sentiment measures in the more broadly published investor sentiment polls.  I was reminded this week of the following quote from John Templeton . . . “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria” -(HT to Al Boris).  Jeb B. Terry Sr. Dec 19, 2012Bespoke Market Poll 12-17-12 Birinyi sentiment poll 12-17-12

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US Mobile Ad Spending Jumps to $4 Billion this year, eMarketer says it will be over $7 billion in 2013 – “nice”

Here is what eMarketer had to say today . . .

US mobile ad spending is growing faster than previously expected,  . . . eMarketer expects overall spending on mobile advertising in the US, including display, search and messaging-based ads served to mobile phones and tablets, to rise 180% this year to top $4 billion. eMarketer’s previous forecast, made in September 2012, was for substantially slower growth of 80%, to just $2.61 billion. Now eMarketer expects US mobile ad spending to reach $7.19 billion next year and nearly $21 billion by 2016, a significant upward revision. 

You can see why we are invested in the space and are looking for more.  Jeb B Terry, Sr. Dec 17, 2012

More mobile ad spending 12-17-12

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Here is an eye opener . . . 10 year Treasury rate hit a 220 YEAR low earlier this year.

A recent research piece from BofA Merrill Lynch included the following chart.  Merrill has been championing a concept called the “Great Rotation” where they see a massive and prolonged rotation out of bonds – particularly government bonds – and into stocks.  This rotation is expected to become obvious in “spring 2013”.  Their analyst, Michael Hartnett states “the era of bond outperformance has ended.  Equities have staged a remarkable stealth rally . . .”  I could not be in stronger agreement.  The fact that yields are at a 220 year low in the face of multiple improving economic growth metrics tells me that bond prices are a joke and have extreme downside risk.  The current rate of 1.7% implies a “P/E” ratio for the 10 yr. Treasury of 58X compared to a 2013 S&P 500 P/E ratio of 12.5X.  Jeb B. Terry, Sr. 12-15-12

10 yr Treas Rate at 220 yr low 12-14-12

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Another bullish indicator says we are at a bottom

A friend sent me an interesting post from Stocktwits.com last week that included a chart with an unequivocal message . . . when investors bailed out of the Rydex Total Bull Fund Index in the past they signaled a bottom in the stock market. You can see in the chart below just how obvious that signal has been. The S&P 500 has “rallied at least 20%” each time this condition has occurred since 2009. This is just one of many indicators that suggest we are at a bottom. Early 2013 trading looks increasingly to be to the upside – fiscal cliff or not. Jeb B. Terry, Sr. 12-15-12 Rydex Total Bull chart  buy signal 12-15-12

Chart courtesy of KimballChartingsolutions.com.   Hat tip to Scott Christie.

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Good news – Trough monetary velocity suggests growth can accelerate. Bad news – sharp increase in M1 says people are scared and depriving the economy of growth capital and spending.

The pile of cash in the U.S. economy is phenomenal.  It is being underutilized.  Banks are full of low cost deposits but are challenged to find enough commercial and industrial loans to abate the dropping velocity of M1.  This can all change.  When depositors decide to re-engage with the economy and replace worn out vehicles (check out increasing auto sales – this may be starting) and other capital assets and invest in businesses as proprietors or shareholders, we could see a strong pick-up in economic growth.  Unfortunately a precondition for that scenario is for the idiots in Washington to quit scaring the bejeezus out of the public with threats of taxes and “fiscal cliffs”.  There is plenty of raw material for growth.  The financial strength in the banking system is a bulwark against the fears for a government policy triggered recession in 2013.  We have not had a recession following declining velocity such as we are now witnessing.  Jeb Terry, Sr. Dec. 10, 2012.

The sharp increase in cash serves to slow investment and spending – this is not good.  This may cause sluggish GDP growth in 1H 2013.  Fortunately markets will look beyond that.

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The Imminent Mobile Commerce Avalanche

A recent blog post at Search Engine Watch had the above title and following charts displaying continuing explosive growth in tablet computer sales – as we have noted in the past. The news item here is the implication that at 10% of all eCommerce retail spending, advertising spending on “mobile” could rise to ~2% of all ad spending which would suggest a doubling in mobile ad spending as soon as 2013 per my back of the napkin calculations – not bad for our team -eh?.  Jeb Terry, Sr. Dec. 9, 2012

 

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Home prices are rising and bolstering consumer confidence and financial health

The Carpe Diem blog reported home prices posted a 6.3% year-over-year gain in October, which was the largest annual increase in home prices nationwide in more than six years, since June 2006.  It also marked a period of eight consecutive monthly increases in home prices on a year-over-year basis starting in March.  The CEO of CoreLogic stated . . .“The housing recovery that started earlier in 2012 continues to gain momentum. The recovery is geographically broad-based with almost all markets experiencing some appreciation.” Rising home prices have a long way to go to be considered near a peak.  Rising home prices lead to rising consumer wealth and sentiment.  A strengthening home market is consistent with an expanding economy that can withstand the impact of a “fiscal cliff”.  This is particularly the case in light of continuing accommodative Fed monetary policy.  Jeb Terry, Sr. Dec. 9, 2012.

Chart courtesy of Mark Perry, Carpe Diem blog

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Massive consumer liquidity available to fund growth, forestall a recession.

In all the worrying about the “fiscal cliff” and slow growth in employment, people are ignoring the fact that households have repaired their balance sheets.  Households now have more cash and savings relative to personal income and consumer credit than any time in last 30+ years.  A recession would be unlikely either to occur or be prolonged given the financial health of households and the private sector.  There has not been a recession since the 80’s following an extended period of rising consumer liquidity.  Jeb Terry, Sr. Dec. 8, 2012

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Elevated equity risk premium suggests superior equity market returns lie ahead.

The implied “equity risk premium”, i.e. the amount of return equity investors are demanding for investing in stocks over bonds, is at the 96th percentile of experience going back over 50 years – that’s high!  The data reveals that when the ERP has been above 5%, the S&P 500 has gained an average of 13.8% in the following 12 months.  That performance is almost double the average annual performance since 1960.  Furthermore, the S&P 500 is up 80% of the time when the ERP is above 5% and has been up 100% of the time in 7 instances when it has been above 5.30%.  You can see that we are now at a place when investors are assigning an abnormally high risk premium in equities.  This condition did not persist in the past and will not likely last long going forward.  Jeb Terry, Sr. Dec. 8, 2012.

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