Improving housing metrics / values = improving wealth effect

The following chart was created by the Chief Global Equitis Strategist at Jefferies, Sean Darby (reprinted courtesy of Business Insider).  I like his comment.  “A virtuous circle in U.S. housing has commenced.”  Home values are rising and the willingness and ability of the public to buy is improving.  To be sure, rising home prices may pull more shadow inventory into the market but the facts remain – 5 years of depressed home building is finally restoring better supply/demand conditions.  Rising home values and a rising stock market = rising household net worth. The resultant wealth effect may produce a welcomed tailwind for GDP growth and renewed investment in capital goods and equities.  Jeb B Terry, Sr.Jan. 27, 2013.

Hoem Prices Buyer Flow 1-27-13

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Indeed – investors can be rational. As fear descends, greed ascends . . . “2013 will be a “game changer” as investors reallocate money” – Ray Dalio at Davos

The business press was full of “rotational” comments this weekend.  More people are getting on board with the notion that the huge quantities of cash now flowing into equity mutual funds may be just the beginning of the mother of all reallocations of capital out of bonds and into higher ROI assets – including equities – eh?  The title of this post includes a quote by Ray Dalio at the annual brain fest in Davos (reported by Bloomberg).  Ray is founder of Bridgewater Assoc., an $81 billion hedge fund – when he talks, people listen.  He also said this – “There’s a lot of money in a place that’s getting a very bad return and in this particular year there’s going to be, in my opinion, a shift,” . . . “The complexion of the world will change as that money goes from cash into other things. The landscape will change, particularly later in the year and beyond.”  Barron’s echoed the sentiment with the following subtitle to their “Trader” column . . . “The long-awaited tipping point may have finally arrived, as stocks start looking better than bonds”.  While there may be a market price correction there is ample precedent for the current string of positive weeks of rising stock prices to continue.  Jeb B. Terry, Sr.  Jan 27, 2013

NASDAQ weeks up

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Stocks are up, Street consensus equity allocation remains near historic low

The following was posted by AllStarCharts . . . “Bank of America Merrill Lynch has a Sell Side Indicator that measures Wall Street’s consensus equity allocation. Their model closed out the year at 47.0, which is still near a historic low. This is telling us that although equities keep melting up, bearishness on equities remains at extremes and firmly in “Buy Territory, according to the model. This data goes back to 1985 and hit an all-time low this past summer. As you can see, we haven’t bounced much. Historically when the indicator falls below 50, total returns over the subsequent 12 months have been positive 100% of the time. BofA/ML’s model suggests a 26% 12-month price return based on the current bearish sentiment readings.Certainly seems reasonable -eh? Jeb B. Terry Sr. Jan 19,2013

BofAML Sell Side Consensus Indicator 1-19-13

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Forrester says Mobile Commerce to Quadruple to $31 Billion in Next 5 Years

A recent reporting about Forrester’s outlook for mCommerce stated . . . “Sales of physical retail goods and services made on smartphones were $8 billion in the U.S. last year, accounting for 3% of online sales and less than 1% of total retail sales. . . . Over the next five years, total mobile sales are expected to grow 33% annually to $31 billion, making up 9% of online sales in 2017.”  It should be be no mystery why we have multiple companies in our portfolio that participate in some fashion with this trend.  Jeb B. Terry, SR. Jan. 19,2013.

mCommerce growth 1-19-13

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Huge inflows to equity mutual funds last week

“Cash floods into stock Funds” – WSJ Jan. 11

“Money Pours Back in Stocks: ‘Have to Take This as Bullish’” – CNBC

“Stock Funds’ Huge Week: $18B Inflow Is Fourth Highest On Record” – Barron’s

The headlines are revealing.  Depending on which article you read, last week saw either the 2nd biggest equity fund inflows in history, the most since 2007, the biggest influx to long only equity mutual funds in 12 years, etc. . . . Just know that the inflows were fast and furious.  Some will argue that big inflows means we are at a top – perhaps – I suspect not.  Here is why. Looking at the chart from BofA Merrill Lynch below, we can see that when large inflows are sharp reversals to a string of persistent outflows, such as now and such as notably early 2009 and late 2010, they were precursors to more market upside.  That’s my read anyway.  We can know that all those funds have not yet been fully distributed across the spectrum of market caps and sectors.  The implication to me is that there is a ton of money available to flow to companies who report good earnings or provide improved guidance in the earnings season that has just begun. Jeb B. Terry, Sr. 1-12-13

4th Largest weekly equity fund inflow 1-11-13

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Three market milestones with positive historical implications for 2013.

There are three current market milestones with bullish implications for stock prices.  The first is the fact that we saw two consecutive days (Monday, the last trading day of 2012, and Wednesday, the 1st trading day of 2013) where 90% of the trading volume in the S&P 500 stocks was up volume.  This is rare.  When it has happened in the past (most recently in early 1987), the market has been up strongly in 100% of the cases 3 and 6 months later.  The following table from Sentiment Trader lays out the data. 

90 percent up days 1-6-13

The second milestone is that the S&P 500 was up on a YTD basis for every day in 2012.  This too is extremely rare.  As was reported by Bespoke, “Going back to 1928, there have only been eight other years where the index went an entire year of trading up YTD every single day, with the last occurrence coming more than thirty years ago in 1979”.  The table below the following chart shows that the market was up in all but one year in the following 12 months by an average of 10.5%.

Bespoke 2012 Up YTD chart and table 1-6-13

The fact that the market remained above the 2011 close all year is remarkable given the uncertainties and mood swings we experienced.  You certainly wouldn’t have guessed that outcome given the absolute mad dash to cash we saw in the later part of the year.  Bottom line . . . smart money has been buying as the retail investors panicked over the election outcome uncertainty, fiscal cliff and assorted other big picture concerns.  As John Templeton is reputed to have said . . .”Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria”.  I dare say we are nowhere near euphoria.

The third milestone is underway.  It is a part of market lore that the first 5 trading days of the year can predict the outcome for the year.  So far, the first 3 trading days have seen a gain of 2.8% in the S&P 500.  If the market is up for the 5 days, history (per the Stock Trader’s Almanac) suggests there is an 86% chance that the market will be up in 2013.  If January goes on to be a positive month, then the year has gone on to be positive in 90% of the cases.  It can also be noted that we did see a “Santa Claus Rally” this year in that the market was up the last 5 days of 2012 and the first 2 days of 2013.  The lack of a Santa Claus Rally in early 2000 and 2008 foreshadowed bear markets.  (see Stock Trader’s Almanac blog post here)

SP 500 1st 5 days table 1-6-13


So there you have it.  Three milestones suggesting 2013 can be a rewarding year for those who can bear the risk of buying equities.  Aberdeen’s style is to be substantially fully invested at all times – we are ready if the milestones prove to be correct.  Jeb B. Terry, Sr. 1-6-13

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More jobs – not up a lot – just up and rising by a steady rate

The jobs report was up generally in line with expectations.  This matters because it dispels concerns that “fiscal cliff” and the looming “Obamacare” effective date would depress hiring late in 2012.  It may support a case for improved earnings results over cautious Street expectations.  There is no mistaking the slope of the curve – not too hot, not too cold, definitely not full employment.  Also helps quell fear of a recession.  Jeb B. Terry, Sr. 1-6-13.

Persons Employed 1-6-13

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Consumers feeling the best in years. Best since before the Great Recession.

Two recent polls by Rasmussen Reports show a very strong recovery in consumer sentiment and in how confident Americans feel about employment prospects.  Both are the strongest since before the Great Recession.  Both exhibit multi-month improvements which was consistent with strong stock market gains in the past, notably spring of 2009 and the fall of 2011 and early 2012.  “.  Jeb B. Terry, Sr. 1-6-13.

Rasmussen consumer and emplpyment charts 1-6-13

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