June Financial Newsletter Written by Alain Roy CEO LTI Long Term Investing June 15, 2011

June Financial Newsletter

BFIG INVESTMENT CHALLENGE In Februarys Newsletter I wrote the following:

In this issue:
BFIG Investment Challenge Corporate Bond ETF xcb.to Are markets facing headwinds? Weekly Leading Indicator Canadian Utilities cu.to Random but interesting graphs LTI Book of the Month

If you join this Investing contest and beat me I will honour this defeat on the cover of Junes Newsletter and you will be granted Master Investor status for one month. You will be showered with love and affection and be adored by all other LTIites out there.

My boys were hanging out there like mozza balls. this competition.

I was sweating during

We had two other LTIites in this competition and they

were putting up a good showing into the final two weeks. Thankfully I can keep my honour as I finished in 4th place (AMR) with an 11.96% return in six weeks. Glaucon, the LTI CTO, finished in 11th place. Making $11,959 in six weeks is not a bad gig.

Dont Aim Where the Market is Now, But Where Its Going to Be
The Mad Hedge Fund Trader Hedge Fund Manager

CORPORATE BOND ETF XCB.TO In the Key Takeaways section of the April LTI Newsletter I said that xcb.to and xbb.to would be ripe for the buy shortly after my newsletter went out. Newsletter: Here is the excerpt from the April

On April 5th I wrote: 1. Xbb.to and xcb.to (these should be ripe for a buy in the next three weeks). If you want confirmation when I buy them, email me and I will let you know. 2. These two bond funds are almost ready to be bought. I am about to place all of my cash holdings in the above funds.

A few days later, on April 8th, I pounced and bought some xcb.to. This was my first purchase in over 9 months. I bought some more on April 10th and have been holding since. Look at the beautiful run up since I bought it. I can hear the sweet siren sounds of xcb.to in my ears when I fall asleep at nightit sounds like money accumulating! Not only have I made a profit.I have already received two nice dividend payments. Icing on the cake!

On the next page I will explain what my train of thought was when I purchased this and why I purchased this. One of your fellow LTIites bought in around this time as well with a higher amount than me and he is sitting very pretty right now.

April 7, 8 and 9

As most of my readers know, I have been wary of the current run up in markets as there wasnt a heck of a lot out there fundamentally to support it. Here was my process when I decided to buy this ETF:

Technical Analysis (last step of my Four Steps to Investing in Stocks) The price was under the 200 day moving average as shown by the green line The price was near a 52 week low The RSI was below 20%. RSI = Relative Strength Index o In general when the RSI dips below 30% this is an oversold situation and is an indication that a good buying opportunity might be at play. Do not use this indicator alone. The stochastics were below 30% and %D crossed %K. This is a buying signal. MACD was below the 0 line and the bars were getting shorter and starting to increase. Also a buying signal.

200 Day Moving Average

RSI RSI MACD

Stochastic Oscillator

General Indicators Markets were starting to roll over as they faced headwinds on bad economic news Weekly Leading Indicator (WLI) by ECRI that I monitor weekly was flat A double top formation was forming on some of the major indices April and May are generally good months to sell as they are often yearly peaks. There is an old saying, Sell in May and go away. I take this with a grain of salt. The point here is that April is the end of 401 K season, March 2nd is the end of RRSP season, the big traders are getting ready to go on vacation in the Hamptons and summer money flow is usually light. Europe debt issues were still rampant USA was in no better shape

Put all of these items together and I am starting to stack the deck in my favour more and more with each bullet point. This purchase becomes safer and safer

with each point. ARE MARKETS FACING HEADWINDS?

There has been a shift in the last month on the outlook of stock markets and specifically the future of the USA. The Mad Hedge Fund Trader

pointed the Double Top formation in the XLE Energy ETF.

http://www.madhedgefundtrader.com/may6-2011-2.html.

This is a very bearish

sign. A double top formation is a

reversal pattern at the end of a bull run. I circled the double top in the graph to the right. If you see this formation, be watchful.

Google

started

rolling

over in February of this year. Google has one of the biggest market caps out there.

Citigroup,

one

of

the

major banks in the US, is showing the same

trend.

I have read that the big financial companies

often lead the market. AIG is down over 50% since Feb 2011.

Bank of America. Same deal, down 33%.

Goldman Sachs. she goes.

Down

Even one of Canadas largest is dropping.

(Royal Bank)

The

S&P

500 its 50

broke day

through

moving average in early June. The next level of support is the 200 day moving average. This is a bad sign as the 50

day mvg avg is one of the first support areas of any stock trend. The S&P 500 is getting eerily close to the 200 mda.

The financial stocks are saying that we are indeed facing some headwinds in the markets. Next lets have a look at the Weekly Leading Indicator by ECRI. The WLI is

updated weekly and can be found here: http://www.businesscycle.com/resources/

WEEKLY LEADING INDICATOR BY ECRI

The WLI has decreased for the last five weeks and is decreasing from its April 2011 high.
WLI Leve vs. S&P 500 140.0 1,400.00 1,350.00 135.0 1,300.00 1,250.00 WLI Level 1,200.00 1,150.00 1,100.00 120.0 1,050.00 1,000.00 115.0
1/1 /20 10 2/1 /20 10 3/1 /20 10 4/1 /20 10 5/1 /20 10 6/1 /20 10 7/1 /20 10 8/1 /20 10 9/1 /20 10 10 /1/ 20 10 11 /1/ 20 10 12 /1/ 20 10 1/1 /20 11 2/1 /20 11 3/1 /20 11 4/1 /20 11 5/1 /20 11 6/1 /20 11

125.0

950.00

Date

WLI Level S&P 500

The future inflation gauge by ECRI is coming down as well in recent months. Good for gas and food prices but bad for stocks.
ECRI Future Inflation Gauge (FIG) 106 105 104 103 FIG 102 101 100 99 98 97
Ma y-1 0 Ma y-1 1 Ma r-1 0 No v-1 0 De c-1 0 Fe b-1 1 Ma r-1 1 g-1 0 p-1 0 Oc t- 1 0 r-1 0 Jun Jul -10 Jan Ap Ap r-1 1 -10 -11

Au

Se

Date

S&P 500

130.0

CANADIAN UTILITIES (cu.to) Recently, one of the stocks I have owned, since 2009, has marched up with great strength while the majority of other stocks have been experiencing wobbly knees. has been a There

significant run up since mid-March One

of this year.

thought out there in the investment community is that institutional investors fled have the

commodity type stocks and are now putting the money into income oriented stocks. Simply put, they want to invest into safer places and get big fat dividends.

Ive owned cu.to stocks since March of 2009 and they have increased their dividend three times since then, a 14% increase in two years. My dividend yield in 2009 was 4.0%. As of today, my dividend yield is 4.6%. Try getting that rate in any savings account.

To top it all off, this stock has almost doubled in price since I bought it at roughly $33. Many folks may have sold in late May when it went up to $60, however the company continues to increase revenues, increase retained earnings and its fundamentals are still very solid. At this dividend rate increase Ill be at over 5% in yield soon enough. In 14 years, at this rate of increase, this stock will be paying me 10% in dividend yield. Dividends rock hard !! I do not recommend buying cu.to at these prices levels. I bought in the $30s.
May 6, 2011 Feb 3, 2011 Nov 8, 2010 Aug 9, 2010 May 6, 2010 Feb 4, 2010 Nov 5, 2009 Aug 6, 2009 May 5, 2009 0.403 Dividend 0.403 Dividend 0.378 Dividend 0.378 Dividend 0.378 Dividend 0.378 Dividend 0.353 Dividend 0.353 Dividend 0.353 Dividend

RANDOM BUT INTERESTING GRAPHS

The US housing rut. It is difficult to have recovery without a recovery in

home prices.

US Food Stamp participation is back on the rise.

Employment

Index

as

tracked

by

Monster.com is struggling this year.

I dont

expect to see this improve, anytime soon, to the extent that is required to get the US economy back on track, especially in lieu of Obamas announcement to cut government waste.

KEY TAKEWAYS The ETF Bond Fund xcb.to is a good place to store some cash while you wait for a correction. We have seen an example in this newsletter of how the bond fund increased in value while the general stock market decreased in value. investments during times of sell-offs. Markets are facing headwinds and have sold off in the last few weeks. I expect more to come. US Financial stocks and some of the market cap leaders hit a top in February 2011 and have been coming down since. There is a generalization in the investment world that financial stocks are a decent indicator of what is to come. The Weekly Leading Indicator (WLI) by ECRI has been dropping for over 5 weeks and has come off a yearly peak. This is not good. Long-term investing and watching your dividends grow is like sweet music to your ears. i.e. Exxon Mobile has increased its dividends every year for the last 28 years. Their People flee to safer

dividend increase has averaged roughly 10% every year for the last 10 years. In fact, they just increased their dividend in May.

LTI BOOK OF THE MONTH Its time to get more familiar with ETFs and economic cycles. A great book that I own and that I recommend you read is: The ETF Book: All you need to know about Exchange-Traded Funds by Richard Ferri $19.77 at Amazon.com:
http://www.amazon.com/ETF-Book-

About-Exchange-Traded-Funds/dp/0470537469/ref=dp_ob_title_bk

Be Smart!
Alain Roy, P.Eng, MBA Candidate 2014 CEO of LTI Long Term Investing almroy@gmail.com

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. information responsibly. decisions. Please use this

Consult your financial advisor before making any investment