WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 12- 15- 08:
By: John T. Moir
Chief Editor: Clare Mc Kendrick
Position overview . . .
Our recent newsletter, dated November 13th, stated that the US economy could get a modest boost from Obama’s proposed $175 billion economic stimulus plan to rebuild infrastructure and help municipal governments avoid budget cuts, but the questions still remains if the effort will create overall long-term economic growth. We further anticipated that the DOW would remain within a large elevated trading range during the month, between 8,000 and 10,850, as the major stock indices consolidate before resuming the primary bearish stock market downtrend. The actual result saw the DOW continue the downtrend further before entering the period of consolidation, producing a trading range for the month between 7,449 and 9,653.
We projected that the US dollar would remain the preferred global currency of choice, as economies slow all over the globe and various central banks cut their key lending rate, but was overbought and due for a period of consolidation. We anticipated that the US dollar would have a euro fx equivalent trading range for the month between $1.24 and $1.32. The actual result saw the US dollar decline during this period of consolidation, producing a euro fx equivalent trading range for the month between $1.2436 and $1.3072.
We stated that the Federal Reserve and the US Treasury are in a kitchen-sink mode — anything is getting tossed at the crisis, whether or not it make economic sense. This type of government effort was projected to place additional price pressure on the various US treasuries, during the course of the month, and anticipated the US 10-year Note would have a peak yield of 3.70%. The actual result saw all corporate bonds remain under tremendous price pressure, while the US treasuries were the safe heaven of choice. The US 10-year Note had a yield range for the month between 2.92% and 3.91%.
Looking forward . . .
The November jobs report showed that last month payrolls shrunk by 533,000 jobs, the steepest fall since the recession of 1974. There was a 199,000 in downward revisions to September and October’s payrolls, making a total net job decline of 732,000. The unemployment rate moved up to 6.7%, the highest in 15 years, from 6.5% the previous month. It probably would have been a couple of notches (basis points) higher, if over 400,000 workers had not left the labor force, because they likely could not find work. We would not be surprised if joblessness topped 8% sometime in early 2009 and rose to over 10% before it leveled off or slowed in its ascent. The orderly restructuring or deterioration of the Big Three auto makers will play a key role in the eventual percentage rate of the unemployed — between 9% and 12%.
In the past 12 months, 1.9 million jobs have gone up in smoke, and the number of unemployed has swelled by 2.7 million to 10.3 million. The actual unemployment rate, if you include marginally attached workers and folks forced to take part-time jobs because they can not find full-time positions, shot up to 12.5% — a new high, since the Bureau of Labor Statistics began to keep tabs back in 1994.
This failing economy seems to have an endless number of areas to be effected, with the latest one being in commercial real estate. A sure sign of dark clouds gathering over commercial real estate is that the cost of buying protection against default of commercial-mortgage-backed securities has shot way up in a notable hurry. The index that tracks such things has doubled. More notably, the yield on such paper with the highest credit rating is now a startling 12 percentage points above the yield of US Treasury securities of comparable maturity.
Commercial real estate had held up rather, well to a point, through the first half of this year, as the economy started to crumble in earnest, and pundits insisted it was immune to the credit crunch. This illusion made it just about inevitable that the roof would fall in, and of course, it later did in the year.
The outlook grows increasingly bleak, with fewer tenants, and those that remain have paired businesses amid deflating shopper traffic, as consumers lack that old zest for consumption. These consumers, even when they buy something, tend to buy less of it than they would have in the past.
Vendors with impaired businesses need less space and are on the search for lower rents. Institutional investors are busily adjusting their allocation models, with a critical part of that “adjustment” is to unload real estate assets.
The trouble is that buyers are few and far between, and those brave enough to consider bidding for property are having difficulty acquiring financing.
Long-term conclusions and current month expectations . . .
One of the most vexing questions plaguing investors these days is whether or not we are headed for price deflation or price inflation. There are two offsetting influences that will undoubtedly determine the direction of price growth.
History has shown that credit contraction is one of the harshest sources of deflation. The most recent Federal Reserve survey of senior credit officers showed that nearly 70% of surveyed banks have tightened their mortgage-lending standards. Stinginess among lending institutions is largely responsible for the 16% decline in the United States $22 trillion housing market. Margin lending has been cut in half over the last eight weeks, forcing leveraged investors, like hedge funds, to disgorge marketable assets. The pullback in housing and equities, combined with plunging commodity prices, helped push consumer prices lower last month. Yet, prices were essentially flat, without the impact of food and energy.
Persistent deflation is bad for the economy. Companies will find it increasingly difficult to stay current on their debts, faced with declining sales and fixed interest obligations. Consumers, facing similar challenges, will defer spending. Deflation fears have prompted lenders to require yields approaching 17%, when purchasing below-investment-grade bonds. Unprecedented monetary and fiscal intervention in the form of stimulus and bailout programs is offsetting the downward-pricing spiral.
The US dollar, at least for the near-term, could be affected by these actions, causing it to decline in value. We are projecting a euro fx equivalent trading range for the month between $1.26 and $1.43, as the Federal Reserve, through their Federal Open Market Committee Meeting (FOMC) today and tomorrow, is likely to cut the prevailing fed funds rate by 50 basis points (0.50%) to a new level of 0.50%. This could cause the US dollar to decline in value, as the US would now offer the one of the lowest loan rates in the world. We could see the US dollar carry trade in the future, instead of the yen carry trade, which has been used for the past decade.
The Federal Reserve’s balance sheet has expanded by $1.3 trillion in the past year. The US Treasury has backed banks and money-market funds, has taken in the government-sponsored mortgage companies and is toying with bailing out the big auto makers. Eventually, this monetary expansion will push prices higher; however, in the near-term, the US Treasury suggests prices will decline before they expand. The break-even inflation rate between inflation-protected US Treasury Notes and fix-rate US Treasury notes is nearly minus 0.5% for the next five years. We would suggest that investors brace for transitory deflation in the continued near future that will give way to inflation for the long-term. The near-term result could see the US treasuries be price supported, with the US 10-year Note having a peak yield for the month of 3.25%.
The Troubled Asset Relief Program (TARP) has become a classic bait-and-switch. It has become the Bank Asset Rescue Fund (BARP), instead of being directed to help people avoid foreclosure. Funds are being diverted and sponged up to bail out off-balance-sheet entities, make acquisitions and stabilize compensation. Structured Investment Vehicles (SIV’s) are a particularly perfect example of this deception, as they essentially allow their managing financial institutions to employ leverage in a way that the parent company would be unable to, due to capital-requirement regulations.
The US money-center banks and financial institutions, using the spirit and intent of the accounting reform act, Sarbanes-Oxley, became gigantic hedge funds, leveraged 25-to-30 to 1 on net tangible assets. The deleveraging process could continue for awhile and force the stock market to remain under pressure; however, in the near-term, the stock market is due for a period of consolidation, before continuing the decline. We would anticipate a DOW trading range for the month between 8,100 and 10,250, as the major stock indices remove the oversold condition that exist currently in the marketplace.
We have started to believe that we have entered a bizzaro universe. In recent months, we have witnessed a Republican administration overseeing the biggest government expansion in US history, heads of Wall Street firms are turning down bonuses, and some Treasury-Bills are now boasting negative returns. What are we going to see next? Oh wait, the governor of Illinois was arrested for trying to sell the president-elect’s Senate seat — can it be true?
There are a number of new clouds darkening the horizon, with economists spinning new disaster scenarios, analysts warning of another market plunge, and empty parking lots at shopping centers across America. Money is getting tight, and, like the aforementioned governor, most folks are trying to figure out how to make a few extra bucks.
This will be a slim holiday season, with unemployment demonstrating a growth pattern that is a matter of extreme concern. Some people may be just buying for Christmas with the feeling that they will be entering bankruptcy soon anyway so, why not stick retailers with the bill. It is possible that much of the debt being added to credit cards is debt that will never be paid off. Hence, the retailers and the credit-card issuers will suffer along with the depressed shopper. This, pure and simply, could be the case looking into the new year.
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 eight 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, Gregory Weldon with Weldon’s Money Monitor, Jack Ablin with Harris Bank, Herrmann Forecasting by John Herrmann, Robert Maltbie with Singular Research, Bernard McSherry with Cuttone & Company, Option Queen Letter by Jeanette Schwarz Young.
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.