WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 06- 19- 09:
By: John T. Moir
Position overview . . .
Our recent newsletter, dated May 15th, stated that the stock market remains within a period of consolidation, as it gradually removes the oversold condition that exist, before resuming the primary bear market decline. We anticipated a DOW trading range for the month between 8,100 and 9,250. The actual result saw the DOW continue to consolidate, within a slightly narrower trading range than forecasted, between 8,099 and 8,591.
We projected that the US treasuries could be price-supported, and anticipated a peak-yield for the US 10-year Note of 3.45%. The forecast proved to be fairly accurate, as the US 10-year Note had a yield range for the month, between 3.08% and 3.75%, as it both rallied and declined in price.
The US dollar was forecasted to decline in value, based on our technical perspective, and projected a euro fx equivalent trading range for the month between $1.32 and $1.40. The actual result did see the US dollar decline during the course of the month, and produced a euro fx equivalent trading range between $1.3247 and $1.4160.
Looking forward . . .
The overall mortgage-delinquency rate in the first quarter rose to a new high of 9.12%, from 7.88% in the previous quarter and 6.35% in the corresponding three months last year. Subprime delinquencies shot up to 24.95%, from 21.89% in the final quarter of 2008, while prime delinquencies rose to 6.06%, from 5.06% in last year’s fourth quarter (and 3.71% in the like year-earlier period.
A year ago, the markets and financial’s would have taken a big hit on data like the above, but when the government steps in to guarantee the longevity of the large commercial banks, investors simply shrugged off the bad news. Such dreary data are eloquent evidence of the deteriorating level of credit quality fully 18 months into the crisis.
Home prices have declined for 33 months in a row, down 40% from their peak, and could have at least another 5% to 10% more to go, with a risk of falling even further. This could be caused by homeowner frustration and despair as well as a continuing ample oversupply of shelter, because of the tidal wave of foreclosures, millions more of which are in the cards over the next few years. The housing market will remain conspicuous at best, because of it’s lack of vigor or signs of long-term recovery.
Mortgage credit’s current perilous conditions is further outlined, when reviewing how much each of the various types of loans is in the uncomfortable category of severely underwater, which is as follows: 73% of option ARMs, 50% of subprime, 45% of Alt-A and 25% of prime mortgages.
There are an expected total of five cycles of losses, two of which have crested, while the remaining three have yet to peak. In the first two cycles, the losses of which appear largely behind us, the chief causes of distress were rooted in fraud, feckless speculation and payment shock induced by mortgage resets.
The last three cycles, the big losses of which still to come, include prime loans (mostly owned or guaranteed by Fannie Mae and Freddie Mac); jumbo primes, second liens and home-equity lines of credit (most of these are on banks’ books), and loans outside housing, notably the tidy $3.5 trillion of commercial real estate.
All of these terrible modifications that leave borrowers in five-year teaser, ultra-high leverage, 150% loan-to-value balloon loans that when they start adjusting upward will turn millions of homeowners into over levered, underwater renters, and ensure housing is a dead asset class for years to come.
The mid-to-upper-end housing market is on the precipice of the exact cliff that the market fell off of in 2007, led by new loan defaults. What happens to the economy when the mid-to-upper-end earners are hit the same way the low-to-mid-end was hit with the subprime implosion? We will find out soon enough.
The Labor Department reported initial claims for unemployment benefits declined 24,000 to 601,000 and was hailed as a fresh omen of a turn in the jobs market. However, continuing claims — made by folks out of work more than a week — shot up by 59,000 to more than 6.8 million, the highest total since the number-crunchers began counting, back in 1967. It was also the 19th week in a row that they have hit a new peak.
It is hard to envision where the spark for strong economic upturn, which is what the big rally is presumably discounting, will come from, with an already stressed consumer beset by foreclosure, pay cuts and job worries now faced with the added pinch of sharply higher gasoline prices; with companies still heavily burdened by debt and leery of capital investment; with export markets withering, and the government spending itself into a deep, dark hole.
Long-term conclusions and current month expectations . . .
Improvements in bank-funding markets, some stabilization of credit conditions, and a better tone to stock-market trading are welcome indicators that knee-jerk risk aversion is running its course, but it should not be a surprise that, as soon as the mood turns a bit brighter, a bill is presented. That bill takes the form of a rise in US treasury yields, and a depreciation of the US dollar. The more a V-shaped recovery gains credence, the more disorderly the retreat of the US dollar and benchmark US interest rates is likely to be, until they reassert economic reality and exert a restraining force on intemperate animal spirits of greed and fear. The US dollar, for these reasons and others, could remain under pressure, and we are projecting a euro fx equivalent trading range, during the course of the month, between $1.37 and $1.44.
The pace of economic buying activity will be slower than expected, since it is financed out of current income. Policy action attempts to drive this economic activity faster — to facilitate the spending of current as well as of future income — is likely to encounter a creditor’s strike. Re-leveraging can not happen until de-leveraging has run its course. The debt positions of the household sector, federal government, and nation as a whole show that to be years away.
The Federal Reserve’s periodic reports on US regional economies, through their “Fed beige book,” recently contained little to surprise the markets. It acknowledged that the downturn may be slowing in about half of the 12 Fed districts, and noted that conditions remained weak or deteriorated from mid-April to May, but added that the downward trend was showing signs of moderating in some districts.
Labor-market conditions were thought to be weak across the US and the Fed noted that wages were generally flat or falling. Most districts reported overall lending activity as stable or weak, and the Fed noted that “credit conditions remained stringent or tightening further.” The Fed, with regard to inflation, noted that with few exceptions, the districts reported prices at all stages of production as either flat or falling.
All in all, this was a sober but realistic assessment of US economic conditions: tight credit, continued contraction in the real economy, and nothing seen in the way of wage or price pressures. These current conditions, from a technical perspective, may allow the stock market to remain within a period of consolidation — removing the oversold environment that exist, prior to resuming the long-term bear market decline. We are, therefore, anticipating a DOW trading range for the month between 8,450 and 9,400, as this period of consolidation continues even further.
The Federal Open Market Committee (FOMC) meets next week, on June 24th, and is expected to leave the prevailing Fed Funds rate unchanged at 0.25%, even though the market is speculating that the recent rise in long-term yields will lead the Fed to announce an increase in the US treasury and mortgage-backed securities purchases.
The US 10-year Note treasuries has nearly doubled from 2.06% in December 2008 to touch 4% just last week, amid concerns over epic government spending and inflation, and as investors unwound their “depression trade” by shifting capital from safer havens toward higher yielding assets. The true question now remains, will higher borrowing costs snuff out any form of economic recovery? This concern, along with the large $105 billion slated to be issued in US treasuries in the near future will likely keep the entire yield curve under price-pressure for the month, and we are, therefore, projecting a base-yield for the US 10-year Note at 3.60% as well as inversely higher anticipating yields.
Rising US treasury yield have already hampered the housing market, where 30-year mortgage rates have risen to about 5.50% from a recent five-decade low near 4.75%. That has quickly quelled the volume of refinancing’s by more than 40%. We estimate that home prices could potentially fall another 25% to 30%, if mortgage rates are sustained near 5.5%.
Today, the average American household with a mortgage has just 8% equity in its home, compared with levels between 20% and 25% in the past two decades. We estimate that every one percentage-point decline in home prices could tip roughly another million households into negative equity — tough news for bulls counting on a swift rebound in housing, banking and consumer spending.
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 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, David Rosenberg, Ronald Temple, Co-Director of Research form Lazard Asset Management, Chief Economist with Gluskin Sheff, Jim Griffin with ING, Mark Hanson of Field Check Group, Whitney Tilson and Glenn Tongue of T2 Partners, Win Thin at Brown Brothers Harriman.
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.