Private Account Management Services
Newsletter Issued 02-06-02:
By: John T. Moir
Chief Editor: John Allen
Associate Editor: Barbara Crenshaw

Position overview . . .

It was stated in the January 13th newsletter, that the DOW had reached a plateau with a high of 10,300 on January 7th and was expected to decline to 8,950 in three weeks with the possibility of extending over several months. This projected top proved to be accurate to the day, but the decline only extended to 9,529. Thus, our short positions were profitable due to the 750 point decline.

It also was indicated in the Newsletter that the US treasuries would rally into January 24th or 25th, perhaps representing a major top near term top, especially for maturities between 10 to 30 years. The US treasuries did rally but only into January 15. The movements within the treasuries proved to be profitable for our clients with the early rally and later decline for both long and short positions. Clients were notified of this early top and advised to enter the recommended non-managed funds positions in inflation-protection index bonds.

It also was stated in the Newsletter that the US dollar would be supported near-term due to the higher projected yields from the various treasuries. However, the US dollar extended it’s rally when the Japanese government announced that it will be phasing out deposit insurance over the next 15 months. Japanese bank depositors responded to this announcement by moving funds to more secure currencies and banks, propelling both the US dollar and several European currencies higher.

Looking forward . . .

Our technical wave pattern analysis of “greed and fear” is now indicating that the DOW reached a near-term bottom on January 30th at 9,529. We are now projecting a bear market rally in the major stock indices with the DOW moving up to either 10,650 or 10,800 over the next few months. There will be some resistance at DOW 9,925, 10,000, and 10,300 as it works it’s way up. However, please be advised that this rally will only be confirmed with a close above the first resistance level of DOW 9,925. Otherwise, we could simply resume the downtrend with the next level of support below DOW 9,529 at 8,950.

Expecting that the Federal Reserve may postpone cutting the Fed funds rate cuts for the next few months, we will remain a seller of the various US treasuries on rallies. Also, if institutions start to reallocate funds out of bonds and back into stocks, treasuries will experience further pressure. Furthermore, the continued deterioration of Japan’s banking and financial system and the approach of their fiscal year-end on March 31st, Japanese investors may repatriate funds by liquidating US treasury holdings to bolster their financial positions. However, continued Japanese crisis and the result of their government’s plan to phase out insurance on deposits exceeding 10 million yen (about $75,000) over the next 15 months will eventually result in funds moving back into US treasuries as deflationary fears and Japan’s creditworthiness as a borrower remain in question.

Continuing uncertainties in various parts of the world and the current state of the US economy, may lead to changes in our US treasury and stock market positions as explained below.


Past recessions have been triggered by the Fed tightening credit and raising short-term interest rates to cool an overheated economy and to stifle inflation. The first casualties were often housing and other interest-sensitive industries such as autos and capital goods. Rising inventories would lead to reduced production employment. Recovery would come only after inventory excesses were dissipated.

The current recession was preceded by Fed tightening credit beginning in June 1999. The ensuing contraction was initially confined to the New Economy, with its gross overcapacity from years of insensate capital spending. Capacity utilization imploded in areas as diverse as fiberoptic telecommunications and semiconductor manufacturing. Venture-capital money and bank credit dried up for new technology projects. Capital spending, normally a late-recession casualty, plummeted early.

The New Economy problems fed back into the consumer economy when technology stock prices crashed after March 2000. Many affluent investors throttled back their spending when tech stock losses began to impact their comfortable lifestyles and retirements.

Yet, consumer spending continued to grow unabated until October and housing activity still continues at a healthy clip. The 3-month rally back into stocks, ending on January 7th, confirmed in investors’ minds the lesson of the past 20 years: Buy on weakness as stocks always recover to hit new heights.

A lethal recessionary phase maybe impending, as the malaise spreads to the Old Economy for the following reasons:

1.) Job losses in the manufacturing and service sectors caused consumer confidence to crumple. Consumers largely used their tax-rebate checks to pay off debt rather then buy new items. Spending has slid dramatically. Housing prices showed signs of leveling off, a likely prelude to actual declines.

2.) Old Economy weakness will tend to feed back in the tech area. Sales for many tech consumer products are slowing. If auto sales fall next year as predicted, the demand for the semiconductor chips that abound inside new cars will decline.

3.) Secular trends are likely to extend the recession and blight the vigor of any recovery. For one thing, consumer spending patterns weakened because of the trauma of September 11, elevating personal-debt levels. Growing joblessness and shoppers’ propensity to demand price discounts and to curtail the purchase of nonessential items resulted. Income growth may suffer from cuts in hours worked (December’s rise in this regard maybe an aberration) and from lower year-end bonuses for everyone from Wall Street investment bankers to auto workers.

4.) Management requests for wage concessions are cropping up with greater frequency than at any time since the Great Depression. And consumer spending maybe curtailed by the need of Baby Boomers to save for retirement.

5.) The possibility of a simultaneous worldwide recession also exists. As a result, export growth may not provide a cushion for the US. The last global downturn the US faced was during the 1973-1975 recession.

6.) Most bulls are counting on monetary and fiscal stimulus to rescue the economy. However, the impact of a Fed easing maybe overrated. It is true that the Fed eases at about the peak of most business cycles and recoveries always follow, but with all due respect, the Fed maybe just along for the ride in any business cycle. If banks raise credit standards, corporate and personal bankruptcies will spiral upward. Hence, today’s credit crunch will increase in severity despite the ministrations of the Fed.

7.) Fiscal stimulus usually arrives too late to have much impact on recoveries. Forty billion dollars in federal relief spending was authorized three days after September 11th attacks. Only half of the funds have been appropriated and a tiny fraction actually spent. And the supplemental stimulus package continues to be mired in partisan bickering in Congress and likely will see its demise in a Senate filibuster. Finally, much of the federal stimulus will be offset by spending cuts and tax increases forced on state and local governments to balance budgets.


Stock-market valuations remain at nosebleed levels from the selloff that began in March 2000. Many of the factors, including questionable accounting practices, that spurred corporate profits and drove stock prices higher may not exist in the future. The capital-spending boom of the late “Nineties will inflate “depreciation” charges. Low interest rates and a less ebullient stock market will boost required corporate contributions to defined-benefit plans.


These allocations will change in the next few months as the US economy enters the lethal recessionary phase for the reason mentioned above. Investors should pay close attention to forthcoming newsletters and take appropriate action in adjusting their investments and/or considering our private account management services.

1) A 50%-60% allocation into US Inflation-protection index bonds was suggested for clients on January 15th. As investors sell their treasury positions, these index bonds will appreciate in value and will provide a rate of return of 3.5% to 4%. If a higher rate of return is preferred or an investor would prefer to hedge their existing bonds positions for tax reasons due to their liquidation, we can further assist with our private account management services;
2) 10%-15% in individual growth stocks due to the limited upside potential, low level of dividend yield and higher level of risk;
3) 25% in cash, T-Bills, CDs or money market funds with short maturities which will allow investors to rollover these instruments and obtain a higher level of return as interest rates move higher;
4) 10%-20% in the futures/derivatives markets (this will help provide investors with a properly weighted investment and stability for either a bull or bear market as offered in our private account management services).

The primary objective of our management services will always be to offer our clients a means to reduce their portfolio volatility risk, while greatly enhancing their returns in difficult economic environments that offer limited opportunities for those using conventional investment vehicles.

If there are any questions regarding the information discussed within this newsletter or our private account management services, please call the number provided below or e-mail us and we will be happy to provide further clarification.


John T. Moir
Worldwide Investment Manager
Wavetech Enterprises, LLC
Phone: (775) 841-9400
E-mail: JOHNTMOIR@aol.com

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