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March Investment Newsletter Written by Alain Roy CEO LTI Long Term Investing March 7, 2013

March Investment Newsletter

The US FED is All In

In this issue:
Equities continued to rise in the first two months of 2013. The The US FED is All In Top Five Market Indicators showing Overbought Markets Top 8 Economic Indicators pointing to a weak Canada Gold and Gold Miners Something Big is Happening I just got a 10% raise $45,000,000,000 of US Treasuries per month and $40,000,000,000 of Mortgage Backed Securities per month in hopes they revive the economy. The US FED has spent $2,750,000,000,000 ($2.75 trillion in combined programs) so far in trying to revive the US economy. largely taken down by Apples weak stock price. One of many factors that has helped lift markets in the past few years has been the FEDs Quantitative Easing program. The FED is currently purchasing S&P 500 is up 6.8%, Dow Jones up 8.0% and the NASDAQ up 3.5%

LTI Book of the Month

The market is near its all-time highs because the central bank is printing staggering amounts of money. This is very artificial. Jim Rogers
Legendary Investor

At an average home price of $225,000 the US Federal Reserve could have bought 12.2 million US homes. biggest This is the single monetary policy

experiment ever in the history of the United States. How the US

exits smoothly from this easing strategy will be very challenging. It just doesnt feel right. Its clear that the FED is all in.

TOP FIVE MARKET INDICATORS SHOWING OVERBOUGHT STOCK MARKETS NYSE McClellan Oscillator This breadth indicator has only been this high six times in the last 8 years.

S&P 500 % of Stocks above their 200 day moving average 86% of stocks in the S&P 500 are above their 200 day moving average. These high levels have only occurred four times in the past eight years. It is important to note that stocks can remain at these high levels for many months.

Ratio of Utilities to the S&P 500 Only five times in the last eight years has this ratio been as low as today. Lower ratios have been consistent with intermediate to longer term tops.

Hulbert Stock Sentiment The Hulbert stock sentiment indicator is at one of the highest levels and has only reached this extreme five times in the past eight years.

S&P 500 High-Low Index This index was recently at 100% which is the highest it could go.

The take-away from these five graphs is that markets are currently overbought from a technical perspective. Market tops can roll along for many months until something triggers a correction.

Buying into equities at this time comes with its risks and I prefer to wait for the next correction to consider putting more of my money into equities. TOP 8 CANADIAN ECONOMIC INDICATORS SHOWING A WEAK CANADIAN ECONOMY

The annual growth rate in retail trade has dropped into the negative territory for the first time since the 2009


Exports remain subdued and the year over year change is at -10%, a level consistent with past recessions.

The inflation rate in Canada has dropped to 0.5%, well below the 2% target set by the Bank of Canada. Deflationary pressures

are just over the horizon.

Canadian slowed

imports consistent

have with

also an

economic slowdown.

The year over year change in housing starts also took a

surprising drop into the negative territory. This could be seasonal effects, but something to keep a close eye on.

The Raw Material Price Index is showing large signs of weakness.







should be no surprise that GDP continued to be weak and the annual growth rate, as shown by the green line, declined to 0.78% year over year. Our economy is growing at 0.8%, this is

extremely weak.





Indicator, a combination of the major leading indicators, shows our economy is very close to entering a recession.

GOLD AND GOLD MINERS SOMETHING BIG IS HAPPENING Gold Mining stocks are getting destroyed lately as both the big gold miners and junior gold miners are down roughly 35% since October 2012 highs. Gold sentiment is near term lows and should this correction continue this could present an excellent entry point into this sector.

Gold Miners ETF GDX down hard. suggest conditions. Technical very indicators oversold






having a similar drop and technical indicators are highly oversold.

Meanwhile the price of gold is down only 10% since October 2012 whereas the mining

stocks ETF, GDX and GDXJ, are down roughly 35% in that same time period. This is consistent with a study I performed comparing silver bullion vs. a silver ETF and silver mining stocks. The mining stocks, as shown

highlighted, decreased more than double that of the actual physical metal they produced. As shown in 2009, the larger swing in the price of mining stocks returns metal. results versus in the greater physical

I believe this same

theme is occurring right now. Public Gold Sentiment is

currently at a long term low. Sentiment indicators cant be used along to time entry points but can help with the bigger picture.

The Gold Miner Bullish Percent Index has not been this low (3.33%) since late 2008 which happened to be a great entry point into gold mining stocks.

The Gold

Hulbert Sentiment

again confirms the pessimism in this sector moment. at the

I JUST GOT A 10% RAISE THANKS TO CANADIAN UTILITIES As you know my love for dividends and dividend growth rate exceeds no bounds. I was pleased to see that Canadian Utilities increased their dividend by 10% for 2013 thus providing me with a 10% raise. Canadian Utilities is now paying $0.485/share every quarter for a yearly total of $1.94/share. I bought this stock back in March 2009 at $33 per share and it has since increased to $78.20/share as shown below. That is a $45/share capital gain and I have a dividend yield of 5.9% growing at 10% per year. Simply unbelievable; this is one of my best performers in my portfolio. You have to start thinking in terms of getting raises when the companies you own raise their dividend because at some point in the future you should plan to offset work income with this passive type of income. If 100% of your income was from dividends this is truly a 10% raise. Once again, do not

Getting a 10% raise in a 0.5-2% inflationary environment is amazing.

underestimate the power of dividends and dividend growth rate when managing your portfolio.

LTI BOOK OF THE MONTH This month I am recommending a movie called Inside Job. It is a movie that has a greed and corruption type slant but it is still an eye opener as it goes through the root cause of the 2008 financial crisis. Enjoy the movie and enjoy the overextended stock markets!

Alain Roy, P.Eng, MBA Candidate CEO of LTI Long Term Investing Email: Website: Blog: Twitter:


The content of this newsletter is to increase your financial intelligence and is

intended as general information only. Any action that you take as a result of this information and analysis is ultimately your responsibility. I will not be held responsible for any negative outcomes of any kind as a result of this information. Please use this information responsibly. Consult your financial advisor before making any investment decisions.