WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 02- 14- 09:
By: John T. Moir
Position overview . . .
Our recent newsletter, dated January 21st, stated that the US stock market remained within an oversold condition, and is continuing within its period of consolidation before resuming the decline in the long-term bear market. We projected a DOW trading range for the month between 7,900 and 9,600. The actual result saw the DOW continue to consolidate, but in a slightly narrower trading range than anticipated, between 7,909 and 9,088 — a fairly accurate forecast.
We stated that developing economies have allowed themselves to become dangerously export-dependent, while tying their currencies to the US dollar and building mountains of excess savings. We further stated that this type of growth model is crumbling fast as global demand is plummeting. We anticipated that these issues, along with others, could support the US dollar, at least for the near-term, and we projected a euro fx equivalent trading range for the month between $1.25 and $1.37. The actual result did see the US dollar supported, during the course of the month, with a euro fx equivalent trading range between $1.2780 and $1.3707 — a very accurate forecast.
We stated that the world does not lack capital, which is simply sitting on the sidelines, including $6 trillion in global money-market funds. Some of these funds are invested in US treasuries and have price-supported them recently, but that could change, as funds are reallocated to different investment vehicles. We projected that this could cause the US 10-year Note to have a base-yield for the month of 2.58%, since as US treasury prices decline, yields inversely rise. The actual result did see the US treasuries decline in price and yields inversely rise, producing a US 10-year Note yield range for the month between 2.58% and 3.28% — a very accurate forecast.
Looking forward . . .
There have been a unrelenting parade of downbeat reports on the housing market, durable goods orders, consumer confidence and the labor market. We recently saw some 75,000 sacking’s announced by US and European corporations, while New York’s Mayor, Michael Bloomberg, held out the prospect of 23,000 employees being pared from the city payrolls.
A record 4,776,000 Americans, even before the above mentioned pending layoffs, are drawing unemployment insurance. Moreover, 13.5% of the labor force is “underutilized,” a term that takes into consideration people working part-time because they can not find full-time jobs, and “discouraged” workers who have stopped looking for jobs — those not officially “unemployed” under the definition of government computations standards.
A total of 598,000 payroll jobs vanished last month — the most in nearly 35 years — and the unemployment rate leaped again, to 7.6%, a 16-year high, from 7.2%.
The so-called household survey, an alternative method of tallying, lost a whopping 1.24 million jobs — the biggest loss since the Bureau of Labor Statistic first began to keep track in 1950.
Our favorite out-of-work measure is U-6, which takes in the entire group of folks who can not find jobs worthy of the name, shot up to still another record peak of 13.9%, and the jobless rate among full-time workers weighed in at 8%.
Manufacturing lost 207,000 jobs in January, the biggest decline since October 1982, when the economy still showed the effects of vicious recession. Construction was another badly beat-up sector, losing 111,000 slots — bringing the loss to an even million over the past two years.
The picture was dismal in virtually every crack and crevice of the economy, with only health care and government adding jobs, and even there, the improvement was restrained. The diffusion index, which takes the pulse of various sectors across the economy, sank to a worst-ever 25.3%.
This simply means that for every company adding to payrolls, three are handing out pink slips. The ratio in manufacturing is 14 firings for every one hiring. Payrolls, since the onset of the recession in December 2007, have shrunk by 3.6 million, with roughly half of those losses coming in the past three months.
Furthermore, the Challenger, Gray & Christmas count of January-layoff announcements soared 45% from December, to 241,749, and new claims for unemployment insurance rose to a formidable 626,000 in early February — decidedly evil omens for the chilly months ahead.
The governments first attempt at estimating the fourth quarter Gross Domestic Product (GDP), shown to have contracted at a 3.8% annual rate, after the usual adjustment for inflation and seasonal factors. It was less severe than the 5% to 6% drop forecasted by economists, though much worse than the 0.5% decline in the third quarter.
The GDP decline was tempered by an unexpected rise in inventories, which added some 1.3 percentage points to the headline figure. The real final GDP number, excluding inventories, shrank at a sharp 5.1% annual pace, about as expected and much more severe than the 1.3% contraction in the preceding quarter. That points to de-stocking in this quarter and the quarters ahead as production is cut to bring it in line with demand.
Falling prices, however, also made the real decline appear less severe than reality, as nominal GDP collapsed at a 4.1% annual rate in the latest quarter — the sharpest drop in more than 50 years. It would have been worse were it not for Uncle Sam’s spending, since private final GDP sales plunged by 6.5%, while government spending expanded at a 1.9% pace, despite contracting state and local expenditures.
Real GDP growth, once again, appears to be a poor meter of the recession. Consumer spending plunged at a 3.5% annual rate in the current quarter, residential investment collapsed at a 23.6% rate and real business spending plummeted 19.1%. There was no demand from the private sector in the fourth quarter, which was also the case globally — exports fell at a 20% annual rate as the recession spread abroad.
Nominal GDP was the worst since 1958, while real GDP was the weakest since 1982. The difference is falling prices, which makes the real measure seem less dire. The unemployment rate is a better indicator of the economy than GDP, as the tally of the layoffs rises, that paints a still drearier picture looking forward.
Long-term conclusions and current month expectations . . .
We remain fundamentally bearish through the 2009-recession prism, as Main Street has taken to hunkering down and saving rather quickly — a determent to consumer spending and debt expansion. What we have to remember is that in past cycles, monetary policy worked by causing increases in borrowing; but that is not the case this time around, as systemic de-leveraging is the order of the day and will take years to evolve. The stock market has discounted a normal recession, but we think this is anything but normal — expect long-term lower prices. The DOW, at least for the near-term, remains within a period of consolidation, which we anticipate to continue, and are projecting a trading range for the month between 7,700 and 9,000.
The major erosion in consumer net worth should limit the demand for new consumer debt. Excess capacity, in the corporate sector, should tend to restrain capital spending. There is a lake of liquidity that is being backed up behind a dam of risk-aversion, creating a drought of credit availability. We expect that this liquidity will be slowly released over the risk aversion dam as various government actions lower the fear of an intensified systemic financial crisis. This added liquidity, however, will come at a price, creating an excess supply of US treasuries, more than offsetting the regular quarterly refunding auction demand, resulting in lower prices and subsequently higher yields.
We are anticipating that the US 10-year Note could decline further in price, inversely causing its yield to rise, and are projecting a base-yield for the month of 3.05%. This excess supply of US treasuries, at least for the near-term, could cause the US dollar to decline in value as well, as foreign central banks may choose to hold less of these instruments and instead protect their own currency. Therefore, we are anticipating that the US dollar could decline in value, and are projecting a euro fx equivalent trading range, during the course of the month, between $1.27 and $1.33.
The financial crisis problem, simply stated, is that assets on the books of the commercial-banking system are being carried at inflated prices, and if the problem assets are disposed at market prices or marked-to-market, the losses would overwhelm the capital of the US banking system.
Our straightforward solution is that US regulators need to move in and close down insolvent banks, regardless of size. The banks are seized, the deposits are sold along with any good assets, and bad assets are transferred over to a Resolution Trust Corporation (RTC II), which liquidates the troubled assets. This solution is the tough approach, but would be the most effective. An announcement of a bailout will start to build the foundation for the banking system’s recovery, but investors must remember it is a bailout and would not stop the next down leg of the credit cycle, which is in full force.
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, Steven Wieting, Economists with Citigroup, Liscio Report by Doug Henwood and Philippa Dunne, John Ryding and Conrad DeQuadros, Economists at RDQ Economics, Rhodes Report by Richard Rhodes, David Rosenberg, Economists with Merrill Lynch, Richard Hoey with Bank of New York Mellon, Jon Arfstrom, Jason Arnold, Gerard Cassidy, Jake Civiello and Joe Morford with RBC Capital Markets.
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.