WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 01-22-10:
By: John T. Moir
Position overview . . .
Our previous newsletter, dated December 21st, stated that earnings have produced the continued “elevated period of consolidation” for the entire stock market. We further stated that the DOW could remain elevated, at least for the near-term, with an projected trading range for the month between 10,200 and 11,000. The actual result saw the DOW continue the gradual ascent, with narrower trading range for the month than anticipated, between 10,235 and 10,580.
We stated that the 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 was projected to decline in price during the course of the month, and have a base-yield of 3.20% or higher. The US treasuries actual result did see them decline during the period, with the US 10-year Note having a yield-range for the month between 3.22% and 3.92%.
The US dollar was anticipated to resume its primary trend lower, and we projected a euro fx equivalent trading range for the month between $1.42 and $1.52. The actual result did see the US dollar continue its decline in value, with a euro fx equivalent trading range for the month between $1.4235 and $1.5135.
Looking forward . . .
Economists and strategists keep insisting that we have turned the corner, and they point to the latest rise in housing starts as fresh proof. Yet the eagerly awaited turn has eluded the home builders, usually a pretty upbeat group — as witness within the latest measure of their sentiment revealing an unexpected decline.
Furthermore, the number of homes in the pipeline for sale, because of foreclosure and delinquency, shot up 55%, to 1.7 million by the end of September 2009. This suggest to us that the widely predicted revival in housing , by Wall Street and Washington, is still some years away.
The National Association of Homebuilders’ Housing Market Index declined to 16 in December, from 17 in November. The December outcome, compared to a median forecast that called for a one-point increase to 18, due to the extension of the first-time home buyers tax-credit program, would cheer builders up a bit. This, evidently, was not the case in the month of December.
Also, looking forward, the Treasury Department agreed on Christmas Eve to back all losses from Fannie Mae and Freddie Mac from now through 2012. The previous arrangement was to back “only” $200 billion from each of the Government-Sponsored Enterprises (GSE).
This represents a major conflict of interest, since the Fed is expected to exit the Mortgage-Backed Securities (MBS) market and also raise rates in 2010. Such action will place extreme pressure on the real-estate market, which in turn will put pressure on the GSE’s. This will, in turn, cause the Treasury Department to issue more debt to keep solvent.
The US fiscal-stimulus program was possibly structured too heavily in favor of large increases in government spending and too limited in favoring tax incentives and/or tax cuts. It was betting on a consumer comeback, even though over-consumption was part of the disastrous boom. It failed to produce more positive results, because it raised the level of uncertainty for tax increases and other penalizing measures as well as failed to appreciate the need for fostering an investment-led expansion.
Monetary policy was too timid in admitting its complicity to the housing fiasco, and it was totally insensitive to the financial shenanigans that brought about the financial crisis. Federal Reserve Chairman, Ben Bernanke, pushed all the panic buttons, however — brought short-term interest rates down to zero and engaged in all kinds of novel quantitative approaches of buying all kinds of junk bonds and mortgages to save some of the financial institutions that were in fact mainly responsible for the crisis.
In this respect, both fiscal and monetary policies are backfiring by raising the level of uncertainty, while encouraging an explosion in commodity prices, a 65% upward movement in stock prices and a 15% decline of the US dollar.
A fourth-quarter real Gross Domestic Product (GDP) gain of as much as 4% may become a short-term victory that fails to break the backbone of uncertainty. It could keep unemployment high, as consumers, businesses, and state as well as local governments continue to retrench, bringing about an anti-Obama coalition in the next Congress, after the November elections.
Long-term conclusions and current month expectations . . .
The Gross Domestic Product (GDP) yardstick shows an economy returning to growth; however, this measure has deep flaws that render it almost useless for judging the soundness of an economy. Currently, the figures are merely reporting increasing indebtedness as growth — using GDP as the main financial indicator as being equivalent to judging a man’s success by the cost of his house and car. The figures merely indicate a level of spending and have nothing to do with earnings power.
The only independent voice of the Obama Administration, Paul Volcker, has not been deceived by his colleagues’ sunny claims. He recently noted that the US economy still shows evidence of “too much consumption, too much spending relative to capacity to invest and export,”: and that the problem is “involved with the financial crisis but in a way more difficult than the financial crisis because it reflects the basic structure of the economy.”
This current improvement in the economy is only a pause in a broad deleveraging story. The game is far from over, as the likes of exotic mortgages recast, small business failures, and state as well as local tax hikes come into effect.
The realization will dawn that none of the fundamental problems — most notably excess leverage — have been solved. The agent of the great awakening will be gathering pressures on the credit market, as banks are forced to re-provision, and resurgent delinquencies find Fannie and Freddie putting ill-made mortgages back to lenders. Credit will grow dear and do so precisely as the demand for it from borrowers looking to roll over maturing obligations swells.
Uncle Sam must roll over $2.5 trillion in debt during the next two years, banks worldwide have some $7 trillion due in the same stretch, and commercial real estate will weigh in with another $750 billion. This all conjures up for a looming new credit-bust blitz in the future.
The economy, looking long-term, will be called “the new abnormal,” and what follows are some of the reasons why we are inclined to a less-than-exuberant outlook.
Consumer price inflation will fade away, punctuated by periods of deflation. Unemployment will remain chronically high, averaging at least 8% of the labor force, and workers can expect dwindling pay raises, if any at all.
The pressure on paychecks and lack of jobs will worsen household debt service woes. Mortgage default will inexorably increase. Private credit extensions will stay stunted.
The price of real estate, corporate equities, risky debt instruments, tangible business assets, trademarks, patents, art, antiquities and the like will bounce around, but wind up a good cut lower than they are today.
We are in for greater swings in the economy, as expansions will tend to be shorter, and recessions more disruptive.
We also foresee more deterioration in international relations, as politicians around the world struggle to stay in power in the face of severe public dissatisfaction with the economy. That inevitably means populist protectionist sentiment. Such sentiment is destined to be further inflamed by the powers-that-be, who are burdened by huge deficits and having already slashed interest rates to the bone, are at a loss for solutions, and will place the blame for their sinking economies on that always handy target — foreign governments and foreign companies.
The US can anticipate trillion-dollar deficits as far as the eye can see, and while the Fed may craft a comprehensive exit strategy from its easy monetary policy, such a blueprint is likely to stay on the shelf, collecting dust for a very long time.
We are plainly skeptical on the hopes placed in emerging economies — the very prospect that have ignited the sizzling advance in their stock markets. At best, those economies will remain overly dependent on exports to the US, Europe, and Japan, which will all stumble.
This summons up the possibility of a sweeping global financial crisis, and economic instability that might well include Russia and China, sending the world spinning into a major decline. Investors should take these warnings seriously, as there could be more “100-year storms” to come.
We would not refer to ourselves as neither a perennial bears nor cranky gloom-and-doomers, but rather we have a down-to-earth, common-sense approach to sizing up the economy and the prospects. We are investor-oriented, with short and long-term profits as the cornerstone of our analysis, provided through our Private Account Wealth Management Services.
We remain bearish, as Main Street readjusts its consumption/saving patterns to the new normal. The stock market sugar high remains in place for the time being, but several technical indicators suggest prices are within the throes of a topping process. The DOW could continue within this “elevated topping process period of consolidation” during the course of the month, with a projected trading range between 10,150 and 10,950
This new year of 2010, could see the commercial real-estate market collapse, but the Fed will bail out the lenders. Unemployment could fall to 8%, because only 50% of Americans will even be in the work pool. Bond yields could rise even further, and home sales will increase with higher rates, because the government will choose to say that is the prevailing situation occurring. The US treasuries, at least near-term, could remain within a supported price range, with a peak-yield for the US 10-year Note of 3.85% or lower, during the course of the month. China and Japan will continue to feed our debt addiction, eventually equaling our Gross Domestic Product (GDP), producing undesirable long-term consequences.
The US dollar could remain within a broad trading range, between euro fx equivalent of $1.40 and $1.46, during the course of the month, as investors continue to decide if this is their global currency-of-choice for the short and long-term future.
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, First American CoreLogic Research, Joshua Shapiro with Maria Fiorini Ramirez, Inc, Peter Schiff with Euro Pacific Capital, MacroMavens by Stephanie Pomboy, Levy Forecast by Jay and David Levy (father and son), The Rhodes Report by Richard Rhodes, Michael Pento with Delta Advisors, Barry Ferguson with BMF Investments, Nicocles Michas with Alexandros Partners.
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.