LTI Investment Newsletter - March 2013

7/29/2019 LTI Investment Newsletter - March 2013

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March Investment NewsletterThe US FED is All In

Equities continued to rise in the first two months of 2013. The

S&P 500 is up 6.8%, Dow Jones up 8.0% and the NASDAQ up 3.5%

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

$45,000,000,000 of US Treasuries per month and $40,000,000,000 o

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.

March Investment Newsletter

Written by Alain RoyCEO LTI Long Term InvestingMarch 7, 2013

In this issue:

The US FED is All InTop Five Market Indicators

showing Overbought Markets

Top 8 Economic Indicatorspointing to a weak Canada

Gold and Gold Miners Something Big is Happening

I just got a 10% raiseLTI Book of the Month

The market is near itsall-time highs becausethe central bank isprinting staggeringamounts of money. Thisis very artificial.

Jim RogersLegendary Investor


2/12

At an average home price of

$225,000 the US Federal Reserve

could have bought 12.2 million

US homes. This is the single

biggest 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.


3/12

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.


4/12

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.


5/12

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

recession.

Exports remain subdued and

the year over year change is

at -10%, a level consistent

with past recessions.


6/12

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 imports have also

slowed consistent with 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.


7/12

The Raw Material Price Index is

showing large signs of weakness.

Based on the above data it

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.

The LTI Canadian Recession

Indicator, a combination of the

major leading indicators, shows

our economy is very close to

entering a recession.


8/12

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. Technical indicators

suggest very oversold

conditions.

Junior Gold Mining ETF is

having a similar drop and

technical indicators are highly

oversold.


9/12

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 results in greater

returns versus the physical

metal. 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.


10/12

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 Hulbert

Gold Sentiment

again confirms the

pessimism in this

sector at the

moment.


11/12

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.

Getting a 10% raise in a 0.5-2% inflationary environment is amazing. Once again, do not

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


12/12

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 CandidateCEO of LTI Long Term Investing

Email: [email protected]: http://ltinvesting.com/

Blog: http://ltinvesting.com/blog/Twitter: https://twitter.com/LTInvesting

Disclaimer: 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.

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LTI Investment Newsletter - March 2013