Small businesses are indicating a better tone to business, this has been coincident with a stronger equity market.

Lost in the blather about the train wreck that is Obamacare, the economy, the mini-correction in the market and the Winter of 2014 is growing evidence of improving private sector business conditions.

A recent research piece from Prime Executions (here) focused on the unmistakable improvement in the NFIB Small Business Survey.  They stated “The “Plans to Hire” component, and “Sales Expectations” component, both indicated increased strength during January. These components follow positive readings for capital expenditure plans and non-farm productivity in the prior week, which are also indicators that can point to further labor market improvement.”  While these comments are valid observations from the following chart I found it more interesting that the lows in optimism coincided with prior market lows and the highs have tended to point to new market highs.

NFIB Small Business Optimism Feb 2014

In addition to being optimistic, small businesses and other private sector players are putting money where there mouth is and hiring new employees.  This is clearly evident in the following chart courtesy of Scott Grannis of Calafia Beach Pundit.

Public v Pvt Sector jobs Feb 2014

The rise in the market seems to be confirming the strengthening in the private sector – where the earnings come from -eh? Aberdeen stays focused on the fastest growing part of the private sector – technology.  Jeb B Terry, Sr. February 18, 2014.

Aberdeen Investment Management – a guide service for micro-cap technology investment

Amazing inflows to bonds and outflows from stocks – this kind of movement does NOT happen at stock market tops.

By now you are aware that the S&P 500 fell 3.6% in January.  Such a drop is not good, but certainly not all that bad.  While the drop from top to bottom was a brisk 6.1% in 21 days, the recovery has been an even more brisk rise of 6% in only 9 days!

The reversal would appear to have legs if the following charts on inflows to bond funds and outflows from equity mutual funds and ETFs are reliable contrarian indicators.  First – these moves are spectacular!  We had a bona fide, “fire in the theatre”, “head for the exits” event in the first week of February – right about the time the equity markets hit their lows – or as I like to say, “hit the point of the thud”.  There was a record inflow to bond funds as nearly $15 billion sought the safety of bonds.  Over $20 billion ran away from stocks – also a record.

What is remarkable is that the equity markets fell as little as they did. The stability was perhaps attributable to the very positive earnings performance this earnings season.

As you may already suspect – the panic exhibited by fund flows is a positive contrary indicator that is consistent with the brisk recovery we have seen and should see more of in the coming days.  In fact, analysts at Minyanville (here) found that in all 8 prior occasions when the S&P 500 dropped similarly as it did in January/Feb. since 1928 that the market was fully recovered within 2 months.  It looks like we will beat that average easily.

The following two charts are courtesy of Deustche Bank by way of Matt Phillips.  The original data was compiled by EPFR. Record weekly bond fund inflows

 Record Equity fund outflows Feb 5 2014

While the two charts undeniably show that the “great rotation” from bonds to equities may have been interrupted in early February it is certainly NOT conclusive that the “great rotation” has been stopped.  The following chart from EPFR does an excellent job displaying the trend in the shift away from bonds to equities. Cumulative bond - equity flows Feb 2014

Our call is with the bulls.  Our read of the data is the great rotation is still only in its early inningsJeb B. Terry, Sr. February 17, 2014

Aberdeen Investment Management – a guide service for micro-cap technology investment

The tipping point on time spent using smartphones over PCs was breached last year.

We look at our smartphones 150 times per day according to one of our portfolio company’s management teams.  That means not only are we spending lots of time on our mobile devices but we are “inspecting” our devices in a way and with a degree of attention that is profoundly more engaged than the way we typically “watch” TV or surf the internet on our PCs.  The TV ad world is driven by measurement of the time people spend watching various shows.  Time spent on mobile devices now far exceeds time spent on PCs.  At the margin – mobile taking time share from all other forms of media.

Here are some comments from Business Intelligence (here) relating to a recent Nielsen study.

  • People spend seven hours more per month on their smartphones than they do on PCs.  That equates to 27% more time on smartphones than on PCs.
  • Smartphone hardware improvements and an aggressive rollout of 4G LTE connectivity have led to a snowball effect — people found more opportunities to use apps and mobile websites since cell coverage improved dramatically, and their phones also became better at supporting popular and time-intensive activities — games, streaming video, or viewing photo-heavy social media feeds.
  • Roughly 58% of the U.S. mobile subscribers aged 13 and above now have smartphones.

Time spent per user - mobile v PC 2-13-14The market for multiple forms of monetization including ads, subscriptions and in-app purchases is still in its early days.  2014 may prove to be pivotal in the shift of ad dollars away from conventional media – think TV – to mobile formats – and by that I mean other than Facebook news feeds and Google searches.

Aberdeen’s portfolio is broadly exposed to opportunities in the mobile ecosystem.  Jeb B. Terry Sr. February 16, 2014

Aberdeen Investment Management – a guide service for micro-cap technology investment

Oh My! . . . The Dow seems to be tracking the climb on 1928-1929! Are we headed for a repeat? . . . Seems doubtful.

Scary picture . . .  This has been making the rounds on the internet lately.  The reporters of the story are a true testament that fear sells better than optimism.  A casual glance at the chart does seem to imply a possible correlation of the current rise compared to the famous rise in 1928-1929.            Dow 1929 vs Dow 2014-notional 2-14-14

But hold on bear breath . . .

The clever analysts at Bespoke Investment Group (here) paused for a minute and noted that the jiggering of the two “Y” axis had more to do with the “correlation” than the actual rate of climb.  The following chart is a classic illustration of “form” (the above chart) being trumped by “substance”.

Not so scary picture . . . It seems that in the ’28-’29 episode the Dow rose 96%!  The Dow is only up 24% now.  Hmmm . . . there is a big difference in the two periods –eh?  And guess what – the Dow was still up more AFTER the crash than the Dow is up currently!  Dow 1929 vs Dow 2014 - percent change 2-14-14

The market is NOT as extended or overbought as in the past.  Earnings continue to beat expectations.  We at Aberdeen are not presently concerned about the technicals or the fundamentals of the U.S. stock market. Failing a “black swan” event (such as the long awaited Japan or China debt bomb(s)), we are positioned for more upside.  Jeb B. Terry, Sr.  February 16, 2014.

The Internet of Things (fka M2M) is finally reaching a take off point

We have been following the promise and predictions of “machine to machine” aka “M2M” and now aka the “Internet of Things” or “IoT” for over 10 years.  There has been sound logic and much innovation but there was never the full complement of low cost sensors and communication devices, adequate wireless bandwidth, configuration of a cloud based big data infrastructure and multiple business cases to induce all the players in the ecosystem to get on board.  In short – it was a classic case of “solutions in search of needs” as I have written about in the past (see my post here).  The technology was increasingly adequate but still “early”.  It now seems we are entering a period where in fact, not theory, we have “needs in search of solutions”Hence, the projections I am about to reference may have the highest degree of validity we have seen to date.

The projections have been offered by the familiar and usual suspects – Gartner says there will be 26 billion connected devices, ABI Research says 30+ billion devices, Cisco believes there will be 50 billion connected devices – all by 2020.  The chart of Cisco’s projections follows below.

IoT proj by Cisco Jan 2014

A recent article pointed out that even if we reach Cisco’s projection “we would have only penetrated about 3% of all objects that potentially could be connected to the Internet of Things.” How do you like them apples?!

Of course logical questions are which businesses will most benefit from the surge and how should we invest to ride this wave.  Its simple – The IoT is all about what? – Its about being “connected” of course – most of which will be wireless.  Its also about being able to gather data from billion of sensors and to be able to analyze all that data in a reasonably fast fashion to generate courses of action.  There will be many, many hardware/chip/cable makers and other “stuff” that will make up the “connective tissue” of the IoT.  We at Aberdeen are choosing to stay focused on software and service providers – the companies that will operate all that stuff and will develop and likely host all the software that will command and respond to all the connected devices. This wave has years to go and will generate multiple trillions of dollars of value.  Jeb B. Terry, Sr.  February 9, 2014