WAVETECH ENTERPRISES, LLC
Private Account Management Services
Newsletter Issued 07-13-05:
By: John T. Moir
Chief Editor: Sara E. Collier
Position overview . . .
Our previous newsletter, dated June 8th, forecasted that the DOW, along with the other major stock indices, are in the process of peaking in price, in accordance with our technical wave pattern analysis. It further predicted a DOW trading range for the month between 10,000 and 10,590. The actual range proved to be more narrow than originally anticipated, settling between 10,253 and 10,656. The topping process continues for the overall stock market, as the various sectors — one-by-one — begin to rotate lower. The high levels of bullish complacent sentiment has lead to limited upside advancements, which allows us to conclude that we should breach the formidable DOW 10,000 support level in the next few months.
The US treasuries were forecasted to have a period of consolidation — due to its strong advance over the past two months — prior to resuming a rise in price and decline in yield. This proved to be timely, since the US treasuries topped on the day of this newsletter’s release, on June 8th 2005. The US treasuries, for the remainder of the month, were within a large declining trading range, as it proceeded to remove the overbought condition, preventing further near-term advancements. The 30-year Treasury bond peaked in price at 119-23 and declined to as low as 115-26 during June 2005, beginning its period of consolidation as well as a retracement.
The US dollar was forecasted to decline and retest a previous euro fx equivalent level of $1.27. However, we also indicated that if it continued below euro fx equivalent level of $1.22 (presently at $1.23), the greenback could resume its advance. The euro fx equivalent level of $1.22 was quickly broken just a few days later, as the US dollar resumed its advance, with euro fx equivalent producing an actual trading range for the month between $1.2052 and $1.2397.
Looking forward . . .
The June employment report interpretation, released last Friday, frankly mystified us, with pundits expressing such a bullish opinion. The June jobs report that we reviewed was far from bright.
All told, 146,000 new jobs were added last month, which was anywhere from 50,000 to 55,000 fewer than Street economists had been predicting, with a few of these economists foreseeing a 200,000 increase in employment, being openly worried about “upside risk” to their estimate.
May’s feeble gain of 78,000 new jobs was revised upward to 104,000 and April’s relatively strong showing was even stronger than first tallied by some 18,000. In addition, the unemployment rate dipped to 5%, from 5.1% — the lowest in nearly four years. That was pretty much the full extent of the good news, and even some of that, upon closer inspection, was not as good as it looked.
The dip in unemployment, for example, was actually less than 1%, but got the benefit of “rounding.” Even so, the gain was helped by the fact that the category entitled “not in labor force — want job now” increased by more than 500,000 to well over five million.
Moreover, the workweek came in at 33.7 hours, unchanged from May’s downwardly revised total and just 0.1 hour higher than the all-time low set in June 2004. The diffusion indexes, which depict how widespread the job gains are, were also unimpressive, and are now 12-16 points below their 1994-1999 averages. Further more, manufacturing continued on its decline, dropping 24,000 jobs, helped along by auto layoffs. In turn, jobs were added in health care, and employment services as well as bars and restaurants, which are not notoriously high-paying sectors.
We were truly surprised at the “enthusiastic tone” of some of the commentary from the talking heads on television. But hey, what are cheerleaders for if not to cheer? It is important to realize that employment gains have averaged 171,000 a month so far this year, but based on the 1949-2000 averages, we should be adding 232,000 jobs a month. This extended stretch, of course, includes recessions; using just expansions — and, remember, we are in a so-called “expansion” — the monthly job totals should be swelling by around 350,000, twice as much as they are now.
If the Fed continues to keep tightening (raising the prevailing fed funds rate), is it surely not as a result of the job market getting frothy. We continue in a so-called “jobless recovery” that will eventually cause the Fed to sustain from raising the prevailing fed funds rate in the next few months to reconsidering interest rate cuts, once again.
Long-term conclusions and current month expectations . . .
We are still anticipating a continuing of the retracement within the US treasuries in the near-term, as the entire interest rate curve declines in price and rises in yield. This retracement — based on our technical wave pattern analysis — is simply a means of removing the overbought condition prior to resuming the rise in price and decline in yield, from the one-year Treasury bill to the 30-year bond. The fundamental catalyst for such resumption in the advance will become readily apparent in the next few months as the US economy begins to slow significantly.
The US dollar is forecasted to remain within a large trading range between euro fx equivalent of $1.19 and $1.25, as it enters a period of consolidation. It remains possible that the US dollar could continue to advance, causing the foreign currencies to decline in value, but we are uncertain as to the level of such an advance. The growing trade and current-account deficits are creating major imbalances, which are strong fundamental reasons for a weaker US dollar; however, they may have already been factored into the marketplace — with central banks throughout the world making adjustments within their currency holdings in the expectations of further US dollar weakness. Therefore, we will patiently evaluate the technical wave patterns for the US dollar as well as the foreign currencies over the next few months, prior to determining the primary long-term direction for the US dollar.
The DOW, along with the other major stock indices, is still completing the major topping process in price. Hence, we are forecasting a trading range for the month between DOW 10,000 and 10,570, with the high being set in price today. The continued technical wave pattern divergences for all of the major stock indices give us strong conviction that the DOW should breach the formidable support level of 10,000 in the next few months. Current strong fundamental data — excluding the employment situation or lack thereof — should have propelled the DOW well above 11,000, but the confirming advance has never materialized — giving further confidence in our technical analysis for resumption in the stock market decline for all of the major stock indices.
SUGGESTED INVESTMENT ALLOCATIONS:
1. A 75% to 85% allocation of their taxable ordinary funds and/or tax-deferred funds into a conservative as well as flexible investment strategy using various no-load index mutual funds and exchange traded funds (ETF’s) offered through our Private Account Wealth Management Services. The minimum investment criteria are determined after reviewing the investor’s current assets and fund allocations. These services are ideal for individuals, trusts, foundations and privately held corporations who have liquidated large stock, bond and/or real estate holdings and are seeking an active management service to generate a positive rate of return between 12% to 35% per year (after fees) through either a rising or declining stock, bond or real estate market.
2. A 15% to 25% allocation toward cash, Treasury 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.
If there are any questions regarding the information discussed within this newsletter, the investment allocations mentioned above or our unique management service, please call the number provided below or e-mail us and we would be happy to provide further clarification.
John T. Moir
Worldwide Investment Manager
Wavetech Enterprises, LLC
Phone: (775) 841-9400
Acknowledgements: Federal Data, Liscio Report.
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.