WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 12-21- 09:
By: John T. Moir
Position overview . . .
Our recent newsletter, dated November 20th, stated that market bipolarity, intended or not, may be heightened by the massive, concentrated Quantitative Easing (QE) by central banks, as well as fiscal largesse, instead of a middle-way that allows fundamentals to flow. We further stated that heightened volatility is likely, even with central banks various attempts to control the market movements to less than what occurred this past winter. We anticipated that the continued QE could cause the DOW to remain within an “elevated period of consolidations,” at least for the near-term, with a projected trading range for the month between 9,650 and 10,850. The actual result saw the DOW remain elevated, but with a narrower trading range than forecasted, between 9,678 and 10,495.
We stated that currency-debacle risk can no longer be treated with benign neglect by central banks nor segregated in portfolios, and anticipated that the US dollar would remain under pressure, at least for the near-term, with a projected euro fx equivalent trading range for the month between $1.46 and $1.53. The actual result saw the US dollar decline in value as forecasted, with a euro fx equivalent trading range for the month between $1.4633 and $1.5140.
We also stated that the lack of near-term confidence in the US dollar could cause the US treasuries to remain under price pressure, with an expected base-yield for the US 10-year Note of 3.30% or higher, during the course of the month. The actual result saw the US treasuries decline in price, inversely driving yields higher, producing a US 10-year Note yield range for the month between 3.20% and 3.56%. ..
Looking forward . . .
The price change in risk securities has recently moved from a sharp improvement to a much slower grind, while credit fundamentals have improved. Performance inside sectors has begun to diverge, as valuation stabilize overall, based on issuer and security-specific considerations. This is a far different paradigm from the rising tide that lifted all boats somewhat less selectively earlier this year.
For example, as exports will be a key driver of US growth — contrasted with consumer spending, which is likely to lag — some credit-risk reshuffling is expected going forward.
The initial unwinding of accommodative policies — the knocking away of the support columns — has started. The Federal Reserve purchases of US Treasury securities reached its $300 billion goal, and the agency debt and mortgage-backed securities programs are nearing their phased exits. The Federal Reserve Bank of New York is gearing up reverse-repo programs and other operations, with the intent to unwind the alpha-bet soup of government initiatives that have provided extraordinary liquidity to the financial system, without disrupting markets or the economy.
We have to be concerned, if the sum of these programs simply created a mountain of cash in the economy. Instead, these steps filled a hole left by a weakening in loan demand and by zombie banks unwilling to lend. Unwinding it all, however, will be fascinating — seeing how far deficit-financing can run, before that falls in its own hole as well. Together, these will make 2010 an intriguing year.
Investors have been recently celebrating the latest weekly jobless numbers that showed only 474,000 new claims for unemployment insurance. However, we have noticed that the Emergency Jobless Insurance Claims, filed by people who have exhausted their regular benefits, at last count reached a peak of 4.2 million, and we expect this figure to keep rising into the stratosphere.
That glum prospect is borne out by the October Job Openings and Labor Turnover Survey — familiarly known as JOLTS — released earlier this month by the Bureau of Labor Statistics. The job openings remained stagnant at the 1.8%-1.9% rate that they have been stuck in since March 2009. All told, hiring continued to lag behind separations (firings) for going on two years now. Moreover, the latest survey of small businesses, the major source of jobs, by the National Federation of Independent Business, does not offer much hope for a hiring binge anytime soon.
The small business owners are not exactly overflowing with confidence, since owner optimism remains at recession levels. A scant 15% of the small business surveyed showed gains, while 43% reported weaker sales, citing feeble consumer spending. Capital spending by these small and independent outfits is on hold, with both outlays and planned outlays at record low levels.
Small businesses also continue to shed jobs, although not quite as vigorously. A mere 9% increased their employment rolls by an average 2.3 workers, while 21% slashed payrolls by an average of 4.2 workers.
Long-term conclusions and current month expectations . . .
In the late 1990’s, the US dollar was bid up by the technology boom, producing a massive pricing headwind for American producers. The US balance of payment deteriorated from a deficit of just under $100 billion, or 1.1% of the Gross Domestic Product (GDP), in 1995, to a deficit of more than $450 billion, or 4% of GDP, in 2000. That headwind lingered long after 2002, when the US dollar began its downturn, and the balance of payments continued to deteriorate into 2005, swelling ultimately to almost $750 billion, nearly 6% of GDP.
By 2006, however, the cumulative currency change had begun to take hold, as the deficit began shrinking noticeably. The flow of red ink fell over that year’s four quarters by more than $50 billion, to an overall deficit of $695 billion. In 2007, that deficit shrank by an additional $134 billion, to a yearly flow of $564 billion, barely above 4% of GDP. The deficit kept shrinking in 2008 and 2009, in part because of the global recession, but still more because of the effect of cumulative US dollar weakness. The US balance-of-payment deficit, whatever the mix of influences, has shrunk at the last measure in the third-quarter of this year to $348 billion, only 2.7% of GDP, reversing more than 10 years of relative deterioration.
This improvement reflects adjustments in both exports and imports, between 2004 and 2009, when overall imports of goods and services rose by only 11%, while exports expended by 28%. The currency effect, by making American-based goods cheaper, improves export prospects and the ability of domestic producers to compete with imports. The US dollar could resume its primary trend lower, and we are projecting a euro fx equivalent trading range for the month between $1.42 and $1.52.
The American consumer has slowed down as expected, while the trade situation has shifted in favor of producers. Households cut back on outlays during this time — absolutely and relative to income — as the flows of personal savings soared, from almost nothing in early 2008 to an annualized rate of nearly $600 billion by spring of 2009. The saving flow rate, since then, has moderated. Households should continue with this pattern, guaranteeing a respectable rate of savings by keeping spending in line with income.
Spending can increase in such an environment, if households can maintain their savings as long as they make increases in outlays no faster than increases in income. Of course, either of these unfolding trends could reverse in the foreseeable future.
The fear of a stock market decline is keeping a tremendous amount of money on the sidelines, earning some of the lowest rates in many generations. As of October 31, 2009, money-market balances were in excess of $3.3 trillion, down from $3.9 trillion, when the DOW was at its March 2009 lows. Real estate helped produce this mess and it will be the one to lead the way out. New-home sales were up 6.2% for the month of October, and up 5.1% over year-ago figures. Even better, existing-home sales are up 23.5% against a year ago. Inventory levels have slipped to a more moderate 6.7 and seven months’ supply, respectively, the best in more than two years. However, the government has extended and expanded its first-time home buyer-credit program, and we have a sneaking suspicion this freebie may have influenced the numbers more than a little.
We would like to assume these government interventions are clever, but there are a number of hangover issues prevention a sustainable recovery. First, there are an alarming 27% of those with mortgages now under water. Second, unemployment is at 10.2% and still rising, reducing the time frame for a housing recovery. Third, only one lender has remained active, actually too active, in the markets, helping to extend 96% of the loans to homes — the Federal Housing Administration (FHA). The FHA just reported that 14.4% of its loans are late, and this late-payment percentage appears be continuing to rise.
A support for stocks may be better earnings, compared with one year ago, markets dealt with financial problems and earnings plunged. Now earnings have turned; 2008 reported earnings for the Standard & Poor’s 500 are expected to end 2009 up more than 200%. These earnings have produced the continued “elevated period of consolidation” for the entire stock market, and we are anticipating the DOW to remain elevated, at least for the near-term, with a trading range for the month between 10,200 and 11,000. This counter-trend elevated ascent within the stock market could cause the US treasuries to decline in price, inversely driving yields higher, as investors are lured to the stock market. The US 10-year Note could, therefore, decline in price during the course of the month, and have a base-yield of 3.20% or higher.
We would like to cheer, as we expect markets will, but we suspect much of this gain may be related to the large increase in productivity — squeezing more out of employees who kept their jobs. The Department of Labor third-quarter business productivity was up 9.8%, its best showing since 1972.
We fear the desire by many to continue and develop too much stimulus is creating the next bubble — one that may dwarf those of 1999 and 2007.
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 ten 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, Canaccord/Adams by Eric Ross, Stephen Mack with Mack Investment Securities, National Federation of Independent Business, Bureau of Labor Statistics, Milton Ezrati with Lord Abbett.
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