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February 21, 2012

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The New Normal


ValuEngine.com Valuation Model No Longer Sees Buyer's Market for Equities
The ValuEngine.com Valuation Model tracks more than 8000 US equities, ADRs, and foreign stock which trade on US exchanges. The model calculates a level of mispricing or valuation percentage for each equity based on what the stock should be worth if the market were totally rational and efficient--an academic exercise to be sure, but one which allows for useful comparisons between equities, sectors, and industries. 2011 was a very volatile year for the markets, and we essentially ended up right where we started in terms of the level for the S&P 500. But 2012 has begun with a bang and the markets have rallied strongly based on better sings of recovery in the US and yet another announced solution to the Euro zone debt crisis. Below, you can see that ValuEngine.com's Valuation Model no longer calculates that stocks are highly undervalued. We would have to say that our valuation figures for the overall market are now smack dab in the middle of "normal" range--40%-60% over or under. That's a pretty big change in just 6 weeks.

MARKET VALUATION
Stocks Undervalued Stocks Overvalued Stocks Undervalued by 20% Stocks Overvalued by 20%

12/30/11
73.03%

02/21/11
52.84%

26.97%

47.16%

39.95%

21.02%

11.68%

17.6%

sp500

1263.02

1361.23

We also see a big change in valuation on a sector basis. Since January 1st, we have gone from a mildly undervalued condition to double digit overvaluation for many sectors. This is once again a sign that stocks are no longer a bargain as they were back in the Summer. In many cases--Tech, FInance, Retail--the valuation model is indicating that it is time to books some profits from the recent run up.
SECTOR VALUATION
Aerospace Auto-Tires-Trucks Basic Materials Business Services Computer and Technology Construction Consumer Discretionary Consumer Staples Finance Industrial Products Medical Multi-Sector Conglomerates Oils-Energy

12/30/11
0.81% overvalued 15.42% undervalued 10.28% undervalued 4.18% undervalued 2.67% overvalued 9.53% undervalued 9.80% undervalued 5.73% overvalued 10.11% overvalued 9.22% overvalued 10.05% overvalued 2.08% undervalued 1.52% overvalued

02/21/12
12.64% overvalued 5.08% overvalued 6.25% overvalued 6.17% overvalued 20.08% overvalued 1.39% undervalued 5.81% overvalued 11.50% overvalued 19.91% overvalued 12.59% overvalued 17.63% overvalued 17.16% overvalued 9.83% overvalued

SECTOR VALUATION
Retail-Wholesale Transportation Utilities sp500

12/30/11
3.55% overvalued 6.07% undervalued 9.33% overvalued 1263.02

02/21/12
18.91% overvalued 11.29% overvalued 12.67% overvalued 1361.23

Here is a chart tracking undervaluation for the year as well as the various periods where we issued an overvaluation watch/warning in 2011. We had some market swings over the Summer, but since that last overvaluation watch in early May, the figures never really shifted out of what we would consider to be "normal" range-(40%-60%)-- until early August. Then, you see that as the market really swooned the Valuation Model switched over and found an extremely undervalued situation. We then began a fade back toward "normal" from October to the present day.

The ValuEngine.com Valuation Model adjusts to the underlying earnings figures and the interest rate environment so, despite the similarity in the Index level back in April/May of 2011--when we had an overvaluation warning on serveral occasions, we see a radically different valuation picture. Better earnings result in lower valuations given the same price levels and interest rate environment.

Now we see a market in which a bare majority of stocks are still calculated to be undervalued--but not as cheap as they were just a few months ago. The ValuEngine.com Valuation Model does not see an overvalued/overheated market just yet, but it is not seeing a bargain hunter's paradise out there either. We will continue to watch and track our valuation metrics so that we may add to our dataset. Custom feeds of our benchmark strategies in long only, market neutral, and other derivations as well as historical data and in-depth tracking information are available to ValuEngine customers for additional fees. Our research and development team is fast, agile, and experienced and can deploy the power of ValuEngine's proprietary models to help you develop a customized strategy and achieve your investment goals. In addition, we are currently testing and developing several additional strategies. To learn more, contact us at support@ValuEngine.com. If you would prefer to put the power of ValuEngine to work for you at our new full-service money management firm, please contact us Info@VECapitalManagement.com (321) 215-4015 (610) 896-8823

Market Overview
Summary of VE Stock Universe
Stocks Undervalued Stocks Overvalued Stocks Undervalued by 20% Stocks Overvalued by 20% 52.84% 47.16% 21.02% 17.60%

Sector Overview
Sector
Aerospace Auto-Tires-Trucks Basic Materials Business Services Computer and Technology Construction Consumer Discretionary Consumer Staples Finance Industrial Products Medical Multi-Sector Conglomerates Oils-Energy Retail-Wholesale Transportation Utilities

Change
0.16% 0.34% 0.18% -0.16% 0.02% 0.38% 0.35% -0.15% 0.35% 0.08% -0.41% 0.69% 0.82% 0.30% 0.74% 0.21%

MTD
1.24% 5.92% 0.17% 1.57% 4.80% 4.75% 3.85% 3.06% 3.26% 2.46% 2.62% 2.63% 5.14% 4.33% 5.46% 1.91%

YTD
7.49% 20.44% 11.95% 9.25% 15.52% 16.63% 12.34% 7.68% 11.00% 13.10% 10.78% 12.86% 9.80% 11.45% 14.47% 3.47%

Valuation
12.64% overvalued 5.08% overvalued 6.25% overvalued 6.17% overvalued 20.08% overvalued 1.39% undervalued 5.81% overvalued 11.50% overvalued 19.91% overvalued 12.59% overvalued 17.63% overvalued 17.16% overvalued 9.83% overvalued 18.91% overvalued 11.29% overvalued 12.67% overvalued

Last 12P/E MReturn Ratio


-5.98% -10.26% -24.16% -3.10% -12.26% -14.05% -5.64% -8.07% -4.05% -10.40% -9.14% -4.52% -18.80% 4.58% -15.81% 0.08% 28.38 32.04 21.97 24.9 43.13 31.19 28.01 23.15 22.42 26.9 40.14 16.16 40.68 21.85 21.94 24.87