Market Commentary – September 21, 2009

Posted By on September 21, 2009

General Market Comment:    September 21, 2009

 We have some charts and comments from Merrill Lynch this week that I found of interest.  Merrill has started a series entitled “Global Quant Panorama” where they address global investment strategy.  A cornerstone of the work is a new data series centered on an amalgamation of global economic and market indicators they call the “Global Wave”.  I found the study instructive. It reflects the broad adoption of commonly applied U.S. analytical conventions and reporting and the increasingly tight integration and co-dependency of the global economic players.  It is a logical framework to appreciate the prospects for the earnings contribution from international activities for U.S. companies.  I have heard 60% of the earnings for the S&P 500 companies are attributable to international activity.  The “wave” is rising – surprise, surprise.

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Today’s lack of consumer confidence and capacity utilization lead to tomorrow’s operating leverage and above trend earnings margins and growth.

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The turn up in both global confidence and utilization support the rising earnings expectations I have pointed out in the recent past.

There should be no surprise that equity market performance is well correlated to and leads Merrill’s Global Wave.  We should see the equity markets return to a level of positive year over year change in October.

 ScreenHunter_09 Sep. 21 13.38

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 Merrill’s view on valuation is straight forward – stocks are cheap.  This chart uses long term earnings to calculate the P/E ratio for their global stock index.  Keep in mind that the “E” part of “P/E” will be rising faster than the “P” part over the intermediate term as operating leverage kicks in over the coming quarters.

ScreenHunter_11 Sep. 21 13.38 ScreenHunter_12 Sep. 21 13.38

 The debate over whether there will be another market “crash” will now start to shift toward the possibility of a drop in October – the month that has seen the most market crashes in history.  We will continue to let others debate – our job is to make money.

 As I said last week . . . “The here and now data supports the case for rising tech stock prices and low and behold they continue to rise.  I continue to believe we will NOT see any material correction (i.e. down 10% or so) as we move toward Q4.  Q4 continues to shape up to be very strong.  Money managers that have missed out on this year’s great rally will likely be forced into the market in the October / November time frame as the Q3 earnings season unfolds.

DISCLAIMER

About The Author

Mr. Terry draws upon over 30 years of investment experience in the areas of venture capital, leveraged buy outs, foreign emerging markets and public stock markets. From 1976 to 1980, Mr. Terry was engaged in venture capital and corporate finance at First National Bank in Dallas. From 1980 to 1986 he was engaged in private equity investing in diverse industries. From 1986 to 1990 Mr. Terry was Co-General Partner of a private hedge fund affiliated with a high net worth Texas family office, involved in investment activities including convertible arbitrage, venture capital and strategic investing in public securities. From 1991 to 1996 Mr. Terry managed a team of four professionals to provide hedge investment services to high net worth clients. Hedge services included rigorous fundamental evaluation and technical analysis of portfolio companies. Prior to starting Aberdeen in August, 2001, Mr. Terry was a VP in the Private Client Services Group of Bear Stearns & Co., Inc. focused on technology and emerging markets. Mr. Terry has an MBA from Columbia Graduate School of Business and a BBA from Southern Methodist University. Aberdeen Investment Management, LLC is a Registered Investment Advisor in the state of Texas.

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