March Financial Newsletter Written by Alain Roy CEO LTI Long Term Investing March 10, 2011

March Financial Newsletter

LTI Champion
As CEO of LTI I am proud to crown the first ever LTI Champion to

In this issue:
LTI Champion Quick News

Jonny Rubber.

This is an exciting achievement for Jon.

The LTI

BFIG Stock Market Challenge

S&P 500 Analysis Oil and Gas Prices Food Prices Surging Commodities Interesting USA Facts

Champion is a new achievement aimed at recognizing Informed Investors making Smart Investing decisions. Jon will retain the LTI

Champion Crown and the title of LTI Champion until a new LTIite makes positive financial decisions which improve their long term financial future. Jon has been inducted in the LTI Champion Hall of Fame. Page

US Weekly Leading Indicator LTI Book of the Month

2 is a brief summary of the actions Jon took to become the first ever LTI Champion. Congratulations Jon!

The happiest people dont necessarily have the best things. They simply appreciate the things they have
Warren Buffet

Here is a brief summary of the of what Jon did to deserve the LTI Champion crown:

Champion-like Action 1 Rubber finds out his mortgage rate is 1.15% higher than what he could get Rubber breaks his mortgage and obtains a Prime 0.75% mortgage!! Rubber saves $12,000 over five years by doing so Up front costs $3200. So by paying $3200 now JRubs saved $12,000 over five years and $19,000 over the remaining life expectancy of the mortgage In addition Jons free cash flow just increased by $233 per month because his mortgage payments are lower due to the stellar mortgage rate. Rubber decided to use that free cash flow and put that money towards the principle of the mortgage thus significantly reducing his mortgage length and reducing future interest payments Champion-like Action 2 After Jon and I discussed TFSA accounts, he realized his returns in a TFSA bank account was a waste and he decided to open a TFSA with a brokerage firm so he can buy bonds, stocks or any other security type; instead of earning 1.5% interest at his local bank Jon takes time to learn about bonds after a 30 minute discussion on the value of bonds and how they work with LTI CEO Champion-like Action 3 Jon looks into how to buy bonds and actually sent me a list from Questrade (my brokerage account for buying securities). I didnt even know this list existed. This list had all the CUSIP numbers, bond names, coupon rates, maturity dates, yield, etc. It was the master list.

This all occurred in the span of 30 days.

This took patience, initiative and non rubbery

balls. Way to go Jonny Rubber. You are winning. You win here and you win over there. You must have tiger blood or Adonis DNA.

"I am very stoked about being honoured as the first LTI Champion. LTI (and its founder) has given me the courage and inspiration to grab hold of my financial well-being, and start looking out for Numero Uno (namely, my wife Anna), instead of the Big Banks. Thanks LTI.

This month I look forward to funding my self-directed brokerage account with my existing TFSA account balance ($10k) and buying a corporate bond(s) with the help of my buddy Al! Jon D. LTI Champion

Quick News
There was a sharp rise in the HousingPulse Distressed Property Index or DPI, a key indicator of the health of the housing market (Calculated Risk, 2011) o o o California distressed property transactions account for 66% of the market. In Florida, distressed property transactions account for 63% of the market. In the combined area of Arizona and Nevada, distressed property transactions are a stunning 72% of home sales. o The Case-Shiller house price index showed house prices are still falling for the sixth consecutive month, in the USA 23 banks in the US have failed as of Feb 25, 2011 The cost of servicing Irish bank debt and the EU-IMF bank loans will consume 85 per cent of Ireland's income tax revenue by 2012 In the US, we have over six million people who have now been unemployed for over six months, the highest total we have ever had (Zero Hedge, 2011) o Factoring long-term unemployed and part-time workers looking for full-time work in to the total unemployment count, we now have over 30 million Americans in need of employment The value of building permits issued by municipalities unexpectedly fell in January. o Statistics Canada said that permits fell by 5.1 per cent to $5.4 billion, against a 0.5 per cent rise that economists had expected o This is not good my fellow LTIites. Building permits are considered a leading economic indicator and we know many of our large centers such as Vancouver and Toronto are ever so bubbly. This months issue is jam packed, more so than normal. I will try to keep it concise.

Brock Finance Group Investment (BFIG) Challenge for Charity

The BFIG investment challenge for charity kicked off on Monday February 28, 2011. I see some of my fellow LTiites in the competition. I am happy to see that. This is a great cause and we all get to have some fun at the same time.

There participants in

are this

roughly

100

competition.

The first week and a half has been very volatile. Kudos to the BFIG

for putting this competition together and for raising money for the children of Niagara. The Brock Finance and Investment Group Childrens Fund will assist in covering the cost of sports, recreation and cultural programs for children in financial need.

Here are the results as of the close of March 9, 2011

My short term portfolio is under the name AMR (Alain M. Roy). It doesnt hurt to wait until I closed the day in first to send out the newsletter However, it is still early and with the volatility we have been seeing anything can happen. Hopefully lady luck continues to be my friend. Nice work to a fellow LTIite Scott Allison for placing 11th so far. Thanks to Eric, Tyler and the BFIG group for co-coordinating this investment challenge for charity. Great job!

S&P 500 Analysis

The S&P 500 is one of the most commonly used stock market baselines or benchmarks. It is a market capitalization weighted index of the largest 500 companies

actively traded in the USA. I realize that is a mouthful, so if you want to learn more I will steer you here: http://en.wikipedia.org/wiki/S%26P_500

The graphs below are found at the following website: Save this in your favorites.

http://www.multpl.com/ .

I have this site in my Google Reader with the rest of my What is a Google Reader? Read more here:

Financial Blogs that I frequently check.

http://www.google.com/intl/en/googlereader/tour.html

This

graph

here

shows a 100 year trend of the Price to Earnings ratio

(P/E) of the S&P 500. March 23.91. the The P/E as of 9, 2011 is

Meanwhile P/E

historical

average of the S&P 500 is 16.40.

This to me means I should be very careful about the current state of the stock market. I put a dashed line on the graph to help show todays P/E versus historical P/Es. To me, the current market is overvalued. Typically you sell when the market is overvalued and buy when it is under value. I like this website and these graphs because its a big

picture look at if the market valuation based on the S&P 500 P/E/.

This graph is the S&P 500 Earnings. that large Its nice to see US companies

continue to make more and more money over time.

This graph is the S&P 500 Dividend Yield. In general a good buying time would be any spike up in dividend yield. A great opportunity just passed us as you can see. Dont miss the next opportunity !! http://www.multpl.com/

Oil and Gas Prices

Oil has increased at a feverish pace. This has been due to several factors such as the Lybia crisis, general demand in Asian markets and trader speculation. Lybia produces 1.6 million barrels per day of oil and that has halted due to the civil war. The next potential surge in oil may come from a crisis in Saudi Arabia. I have read reports that the Saudi This has for

people plan to protest on March 11. been organized via Facebook.

Watch

movements in oil in the next week if this protest unravels. As shown to the right Saudi

Arabia provides a lot of oil to the world.

Increased driving during the summer season may also keep oil prices high. Gasoline prices are setting records across Europe such as in Italy and the Netherlands. According to the AAA website gasoline prices in the USA are at a two year high.

Most of the worlds oil is produced in the middle east as shown in the figure to the right. First we had a crisis in Egypt I have read

which then spread to Lybia.

reports about protests in Bahrain, Iran and Iraq. And now potentially a large protest in Saudi Arabia. These are definitely shaky

economic times. I will keep a close eye out on what happens to oil and keep you informed.

The fear is that rising oil prices will push inflation up and slow down our fragile global recovery. Increasing oil prices

affects everything almost everything from food to flights to shipping of all gods. The only comfort you should have is a saying that my investing friend Dave Burch told me, The only cure for high commodity prices is high commodity prices. come true in our case. This may

Early polls in the US show that

travelers already plan to cut back their summer vacations

The only cure for high commodity prices is high commodity prices

due to the rising gasoline prices. Oil is sitting at $104.59 (USD/barrel) at the time of this writing.

Many gurus have come out saying that Oil is on its way up still. Time will tell. If we get more protests in the middle east then this is assured. I also like to watch the Brent Crude prices. Brent Crude is a bigger classification of oil than the US Barrel. If you watch both Brent crude pricing and US WTIC pricing covered. then you got the market

Brent Crude is at a two year

high and the US barrel is also at a two year high.

To the right: 2 Year Trend of the US barrel of oil, WTIC

Call Options by traders on $200 oil is at the highest level all year. Traders think itll go to $200 and are betting on this. Nuts!

Food Prices

If the price of gas remains high this will eventually creep into food prices. Reuters has provided a great online tool to follow general and specific food prices. As shown below the food price index is at a two year high in the USA. The last time this occurred there were riots in many different parts of the world. Inflation is rearing its ugly head. This graph can be obtained at: http://graphics.thomsonreuters.com/11/GLB_AGPRC11.html

High unemployment, high food prices and high gasoline prices have led to a large increase in the amount of food stamps used by

American.

This trend is Look

actually alarming.

at the slope of the curve in the last two years.

Close to 14.5 % of the US population are using Food stamps to fulfill a basic life necessity. 44 million

people. Think about that one for a few minutes. Imagine if oil goes higher.

Surging Commodities

When I first looked at the table below I was surprised to see which commodities gained the most in the last year and said to myself, This is a must share with my fellow LTIites. Cotton increased the most in the last year. Look at coffee, corn and soybeans. If you invested in wheat or corn you would have made more money than if you invested in illustrious Gold. Wow, cool. Notice silver in 3rd place.

Silver is getting a lot of press as of late. Eric Sprott is saying that Silver is the next investment of the decade. In the 2000s he was big on Gold and he became rich because of his investments in gold. Now he has a boner for silver. You can buy Erics silver fund on the NYSE using ticker PSLV. You can go to any Bank of Nova Scotia branch and buy silver coins, silver wafers and silver bars. If silver drops below $30 I think I may make a trip to BNS. Remember to buy 0.9999 pure and keep all certificates. And keep it in a safe

somewhere. Not as a door stop. Although it would be one heck of a badass door stop.

USA Economic Update

I came across several figures that blew my mind that I wanted to share with yall. I am going to be short and sweet in this section. No foreplay here.

New

Home

Sales

since

1969.

Thats a doozy

REO Inventory.

Up and Atom!

REO = real estate owned by a bank after an unsuccessful sale at a foreclosure.

As the graph says; major cities in the USA with poverty rates above 25%. Detroit, no surprise I drove

there, unemployment is like 33%.

through Detroit and it looked like the Dinosaur age with all the old decrepit factories.

China owns the vast amount of US debt. Almost as much as the US FED. Notice

Japan in the # 3 spot

Social

Security,

Medicare

and

Medicaid are huge axes hanging over the US governments head.

Defense in 2009. Where

expenditures Hello USA. are thou wait

Canada?..oh

there we are right in the middle. more Italy on

spends

defense than Canada. Ha!

US Weekly Leading Indicator (WLI)

In a past newsletter I summarized my analysis of the WLI, from ECRI, and the S&P 500. My bivariate correlation analysis showed a 90% correlation between the WLI and the S&P 500. ECRI is the Economic Cycle Research Institute. They publish many economic

indicators. A few are free and most require a $50,000 membership fee. Thankfully the WLI is free and is tracked on a weekly basis. Here is the link to their website where you can find the WLI and other indicators: http://www.businesscycle.com/resources/

In the last month the WLI has been see-sawing back and forth. We have seen the same type of volatile action in the stock markets as well.
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 S&P 500 WLI Leve vs. S&P 500

The WLI is a good indicator confirm to if use you to are

130.0

buying at a good time. The graph to the right is a 2011 trend.

125.0

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

950.00

Date

WLI Level S&P 500

WLI versus S&P 500 - 10 year trend

Here is a 10 year graph of the S&P 500 and the

1,800.00

150.0 145.0

1,600.00

WLI.

From a macro
1,400.00 S&P 500

140.0 135.0 130.0

perspective the WLI is a nice way to confirm my entry into a stock.

1,200.00

125.0 120.0

When I combine the P/E ratio for the S&P 500, the WLI, the 52 week

1,000.00

115.0 110.0 105.0

800.00

600.00 11/7/1999 11/7/2000 11/7/2001 11/7/2002 11/7/2003 11/7/2004 11/7/2005 11/7/2006 11/7/2007 11/7/2008 11/7/2009 11/7/2010 5/7/1999 5/7/2000 5/7/2001 5/7/2002 5/7/2003 5/7/2004 5/7/2005 5/7/2006 5/7/2007 5/7/2008 5/7/2009 5/7/2010

100.0

price and the

S&P 500 WLI

Date

companys historical p/e ratio this gives me great confidence to buy and that I am getting a lot of value. The only thing you need is patience.

I will continue to monitor the WLI and update all of my LTIites when something important shows up. It is important to note that the WLI is no longer moving up with the same amount of strength compared to the last six months.

Before I recommend the LTI Book of the Month I want to leave you with the following table. This table shows historical returns in the stock market AFTER a huge run up in the markets. Look at the blue line; that is us now. 101% return in the last 102 weeks. Then look at all historical events in the past with similar or more gains and look how the markets faired 12 weeks or even 52 weeks later. ALL IN THE RED!

Bottom line fellow LTIites:

BE CAREFUL with your money.

Be smart.

With this

newsletter you are now hopefully an Informed Investor which will ideally lead to Smart Investing. This info combined with the S&P 500 P/E historical graph is interesting indeed.

LTI Book of the Month

Knowing how the economy works is critical to long term investing. If you know how to analyze a companies financials, how to value a company in addition to possessing knowledge of macro and micro economics then you are WAY passed most investors in knowledge. It is for that reason that I am recommending a book that explains economics and what leading, coincident and lagging economic indicators are. This is a bookshelfer for sure. Actually every LTI book of the Month is a shelfer. I wouldnt want to waste your time and money. Here are the deets:

Beating the Business Cycle by Achuthan and Banerji $12.99 at Amazon Its so cheap your crazy not to buy it Shelf this puppy !

I hope you have found this issue to be enlightening and interesting. Its now 12:18 a.m. so I should hit the hay.

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