Alpha Power Investing Newsletter

June 4, 2012

Alpha Seasonal Index

After a rotten week in the stock market with the usual capital flight to safety, the ten-year treasury bond now yields 1.5%. Does anyone believe that this is a good investment? Hardly. With the current inflation rate at 2.4%, investors are losing almost 1% a year in purchasing power by holding the ten-year bond - more with lower-yielding shorter maturities. Long treasuries have become a temporary resting place for capital until the big picture becomes clearer. As such, they are highly speculative and can easily lead to sizable losses when interest rates go up.

Is it any wonder, then, that investors are chasing dividend-paying stocks in the hope that the increasing dividend will dampen the volatility of the stock? Alas, this too is a dangerous game because stocks, including dividend payers, are not cheap.

As of this writing, the ten-year, inflation-adjusted PE ratio of the S&P 500 (the Shiller PE) stands at 20.4. Over the past 140 years, the market has been cheaper than this 90% of the time. It's hard to see how a sustainable bull market can arise under such conditions.

With hostile environments in both stocks and bonds, a tactical investment approach is all that remains for the prudent investor.

We are now into the market's seasonal "dead zone" - the period from roughly mid-May until late-October. Over the past six decades, this period has been up about 55% of the time, containing 80% of bear market losses. All of Alpha's equity programs are now in bonds and will remain there until the fourth quarter.

Next month Alpha will unveil the Alpha Seasonal Index. We have hired one of the top index-engineering firms, Indxis, to calculate the index and to update it daily. Investors will be able to key in the symbol into their quotation service and get values daily. The index is computed using purely quantitative rules which are governed by seasonal probabilities. The chart below will give you a sneak preview of the index's history and performance through the first quarter of this year.

We will be revising our website to include this index and a quarterly fact sheet with performance and risk data.

Jerry Minton, Ph.D.
1-877-229-9400, Ext. 11

Past performance is not a guarantee of future performance. The Alpha Seasonal Index is an index and, like the S&P 500 or any other index, is not investable. The performance of the Alpha Seasonal Index was computed by Indxis based on an algorithm provided by Alpha Investment Management. Indxis is a leading provider of index information to the financial services industry.

© 2012 Alpha Investment Management, Inc.
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