WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 08- 18- 09:
By: John T. Moir
Position overview . . .
Our recent newsletter, dated July 17th, stated that improved liquidity, along with other reasons outlined within the report, could keep the DOW within a broad trading range during the course of the month, between 8,100 and 9,500, before resuming the primary bear market decline. The actual result did see the DOW trade within a broad range, continuing within a period of consolidation, between 8,087 and 9,246.
The US dollar was projected to decline in value, at least for the near-term, and we anticipated a euro fx equivalent trading range for the month between $1.38 and $1.48. We did indeed see US dollar weakness during the course of the month, with an actual euro fx equivalent trading range between $1.3831 and $1.4281.
The US treasuries were anticipated to be under price-pressure for the month, inversely causing yields to rise, with a base-yield on the US 10-year Note of 3.25%. The forecast proved to be very accurate, as the US treasuries declined in price, producing an actual yield range for the month between 3.26% and 3.77%.
Looking forward . . .
Sir Isaac Newton’s studies of gravity and physics, particularly his second law of motion — what goes up, comes way down — was the first to developed the pendulum theory. This theory turns up in discussions of all sorts of non-mechanical topics, including investors’ efforts to understand the stock market.
Stock prices alternate between periods of over-valuation and under-valuation, with the degree and duration of each period of over-valuation is related to the degree and duration of the subsequent period of under-valuation, and vice-versa. In other words, when stocks head downward after a period of over-valuation, they would not stop at fair value, but, instead, they will keep dropping until they hit lows that are in some sense out-of-whack as previous highs were, or close to it. This pendulum theory remains quite relevant, even in today’s stock market, and will continue its relevancy for many years, decades and century’s to come.
The recently released employment numbers showed that only 247,000 jobs disappeared in the month of July 2009, bringing the recession’s toll, since December 2007, to 6.7 million, with the unemployment rate slipping to 9.4%, from 9.5%.
There were some 14.5 million people out of work at month’s end, and the number rises to around 20 million, if including the folks who grew so discouraged they stopped looking for work or those laboring part-time because they cannot find a full-time position.
The ranks of the long-term unemployed, people who have been without work for at least 27 weeks, climbed by no fewer than 584,000 in July to five million — not exactly a sign of a buoyant economy.
The slight decline in the unemployment rate was caused by a sizable decline in the labor force — 422,000 — which is reflective of a job market that is anything but welcoming to anyone in search of a paycheck.
There were, indeed, fewer pink slips handed out in almost 12 months, a heartening moderation of the purge of payrolls that has gone on for it seems an eternity. Apparently, even the most stone-hearted boss gets tired of firing people, and still needs someone in the building to turn out the lights at the end of the day. The average work week increased a little and average hourly earnings were up three cents, to $18.56, but this was owed in part by the non-reoccurring boost in the minimum wage, which does not at all reflect an improvement in the underlying income fundamentals within the personal sector.
The better tone in this July 2009 unemployment report reflected the spurt in auto production, helped by General Motors and Chrysler calling back workers after emerging from bankruptcy, and the federal government’s new hires. We figure that these two factors effectively added 100,000 to the jobs count, which means the consensus estimate of 325,000 job losses was not that far off the mark.
We are wary of the notion that the job market is about to fully turn the corner, and, while the economy can do marginally better than flat growth for the coming year, we remain leery of the stock market looking forward. The stock market has climbed a wall of worry and will often price in a lot of bad news, even as job losses continue, to the tone of two million jobs, since the bear market advance and period of consolidation in an oversold environment began in March 2009.
TOXIC ASSETS ARE STILL A MAJOR CONCERN:
The economy may show signs of life, but the so-called toxic assets are still a major threat to any recovery. The troubled assets on bank balance sheets could lose even more value, if the economy worsens and unemployment rises further.
The $700 billion bailout for the financial sector was initially to help deal with troubled assets, hence the name: Troubled Asset Relief Program (TARP). Yet the TARP program has not relieved banks of their troubled loans.
The bailout money has instead been used to help banks boost their capital to withstand future losses. Capital injections help ease pressure and potentially free up money for lending, but the toxic assets are still a major concern.
Defaults will rise and the troubled assets will continue to deteriorate in value, if the economy worsens. Some financial institutions may be forced to cease operations, if the losses are severe enough.
There are also other areas of concern, in addition to the above, which are as follows:
1.) Valuing assets: In April, for example, regulators gave banks more leeway in how they assign value to assets on their books. Banks, before the rule change, had been required to “mark-to-market.” The problem was that market prices had been beaten so low that banks would have been forced to incur losses on assets that they were willing to retain on their books. Now, however, the greater latitude for valuation creates confusion about the health of the banks.
2.) Public Private Investment Program (PPIP): The federal agencies are about to kick off a new bailout program called PPIP. It is meant to more directly address problem securities, but it has been off to a slow start and it remains “unclear” whether banks will actually participate, based on the current economic climate and conditions outlined within the new program.
3.) Health of smaller banks: Small banks are identified as a major source of future problems, since they have greater concentrations of commercial loans, and they also would not benefit as much from the federal PPIP program. Reason being, smaller banks tend to hold whole loans, and the PPIP program will be aimed at securities. In addition, the recent “stress test” to assess the health of the banking system focused only on the 19 largest banks, so the true health of the smaller banks is unknown.
Nobody really knows how big the pool of troubled assets is because there is no agreed upon definition of troubled assets. The level 3 assets are considered the group tough to put a value on, and among the top 19 stress tested financial firms, there is $657.5 billion in “level 3” assets in the first three month of 2009 — a 14.3% hike in those assets from three months earlier.
Bank supervisors have been instructed to repeat the stress tests, if economic conditions worsen, and the US Treasury may consider new ways to restart the market for troubled assets, if PPIP falls completely.
Federal agencies should push banks toward more disclosure of the terms and volume of troubled assets on bank books, to allow markets to flow more effectively.
There are some pundits that believe that more government involvement will simply prolong an improvement in this area, since they feel that the toxic asset market is already beginning to heal itself and further intervention could be inappropriate, if not counterproductive — only time will allow the true results to be viewable at the economic surface.
Long-term conclusions and current month expectations . . .
The recovery remains tentative, especially in the US, where job losses, while slowing, are still large, and these job loss levels were last exceeded during the 1948-’49 recession.
One broad measure of unemployment that includes discouraged workers who have left the labor force and part-time workers who want a full-time job has never been higher in the postwar period. Consequently, consumer spending remains fragile, despite a massive boost to disposable income from tax cuts and increased Social Security payments. Foreclosure rates remain high, as the government’s mortgage-modification program is off to a slow start. Commercial real estate remains in distress, amid rising office and mall vacancies as well as record apartment vacancies. Manufacturing continues to contract, albeit at more moderating level.
The Federal Reserve has confirmed, at its recent Federal Open Market Committee Meeting (FOMC), that it will let its program to buy $300 billion of US treasuries lapse at the end of October, and some analysts have stepped forward to question the suspension. It could be extraordinarily ill-advised to end the program, which will put a brake on a minimal recovery and place undue pressure on housing at a point where the banks are not healed as of yet.
The expectation of the upcoming suspension of the Federal Reserve purchasing program of US treasuries could cause them to decline in value, inversely driving yields higher. We are anticipating the US 10-year Note to have a base-yield for the month of 3.45%, due to these expectations as well as the continued increasing supply size of the various US Treasury Refunding Auctions. This increasing level of supply of US treasuries are necessary, in order to finance the huge level of government spending that is likely to continue for many years to come..
The health of the economy seems to be deteriorating, with delinquencies on mortgage-backed securities rising to a record 3.04% in July 2009. The rating agency, Fitch, expects the delinquency rate to exceed 5% by the end of this year.
Moreover, some 27%, or 14 million homeowners, currently are underwater on their loans, and it is expected that this percentage will rise to nearly 50%, or roughly 51.6 million residential mortgages, within the next few years.
The toxic loans and securities still threaten the financial-mortgage losses, and the International Monetary Fund (IMF) predicts that there could be $4.1 trillion in global losses from the financial-system meltdown, of which only $1.6 trillion has been reported.
These growing concerns and others could keep the US dollar under pressure, at least for the near-term, and we are projecting a euro fx equivalent for the month between $1.40 and $1.46. The stock market will be affected as well, but still remains within a period of consolidation, and are anticipating a DOW trading range for the month between 9,100 and 10,050, before resuming the primary bear market decline in the near future.
FOOTNOTE: The release of this month’s newsletter was postponed, to the financial benefit of investors utilizing our Private Account Wealth Management Services. Our unique and flexible management services are further explained below — for those investors interested in seeing their wealth continue to grow, in either a rising or declining stock, bond or real estate market environment.
PRIVATE ACCOUNT WEALTH MANAGEMENT SERVICES:
We, at Wavetech Enterprises, LLC, offer our Private Account Wealth Management Services, which is a conservative, flexible, and actively managed investment strategy. Investor’s ordinary and/or tax-deferred funds remain securely in their name at major financial institutions and/or brokerage firms, while we manage them Online.
Our wealth management services outperforms others, since we use a unique and proprietary culmination of the following: fundamental analysis of relative valuations, technical analysis of the changing market conditions, evaluations of various economic business cycles, diagnosing sector market psychology, and strategic investment selections with appropriate allocations.
These services are ideal for individuals, trusts, foundations and privately held corporations that have large stock, bond and/or real estate holdings and are seeking an active management service to generate a long-term average rate of return on investment between 15% to 20% per year (after fees) through either a rising or declining stock, bond or real estate market.
We operate within the “Exemption from Registration” provision provided by the Code of Federal Regulations (CFR) Title 15, Chapter 2D, Subchapter 2D, Subchapter II, Section 80b-3. This provision allows investment firms to grow their business prior to registration, and the large expenses associated with such a process. Investors’ funds remain securely in their name at major brokerage firms and/or banks, while, we, at Wavetech Enterprises, LLC., manage the funds “Online.”
We are pleased to provide a letter written by Attorney, Steven Stucker, regarding the “Exemption from Registration” provision, who has also been aware of our wealth management services, as well as our operating procedures, for more than nine years. Investors are more than welcome to telephone him directly at 775-884-1979 to discuss this provided letter as well as our unique Private Account Wealth Management Services in further detail.
INVESTORS, take action NOW to maintain, keep, protect and grow what wealth you have with our unique Private Account Wealth Management services. What more can we do and/or offer to help you preserve as well as grow your wealth toward achieving both your short and long-term investment objectives? Call us today at 775-841-9400.
John T. Moir
Worldwide Investment Manager
Wavetech Enterprises, LLC
Phone: (775) 841-9400
Acknowledgements: Federal Data, Pat McKeough with TSI Network, Doug Kass with Seabreeze Partners Management, David Rosenberg, Economist, with Gluskin Sheff, Sherry Cooper and Sal Guatieri with Bank of Montreal Capital Markets, Marta on the Markets by T. J. Marta, Congressional Oversight Panel, Deutsche Bank, Paul Markowski with MES Advisors.
Note: These newsletters have no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. These newsletters are issued for informational purposes and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. These newsletters are based on information obtained from sources believed to be reliable, but are not guaranteed to be accurate, nor are they a complete statement or summary of the securities, markets or developments referred to in the various newsletters. Recipients should not regard these newsletters as a substitute for the exercise of their own judgment. Any options or opinions expressed in these newsletters are subject to change without any notice and the Wavetech Enterprises, LLC newsletters are not under any obligation to update or keep current the information contained within. Past performance is not necessarily indicative of future results. Wavetech Enterprises, LLC and its newsletters accept no liability for any loss or damage of any kind arising out of the use of any or all parts of these newsletters.