Private Account Management Services
Newsletter Issued 03-10-01:
By: John T. Moir
Chief Editor: John Allen
Associate Editor: Barbara Crenshaw

Position overview . . .

In the February 8th newsletter, we stated that the recent DOW rally to 11,035 would now represent stiff resistance and offered investors an opportunity to further reduce their stock holdings. Also, we indicated that the DOW would be range-bound for the month between 11,000 and 10,350. To underscore the importance of this top a market alert was issued by email on February 6th, one hour after the market peak of 11,035. Over the next two weeks, the DOW proceeded to decline to a low of 10,294, slightly lower than our objective. Our DOW short trade was covered just above 10,350 (the expected lower end of the range) with a 600 DOW point profit. Also, as expected, the treasuries remained bullish, which provided a reasonable profit in the one-year treasury bill futures market.

As a result of the entrance accuracy of both trades, the profits for the month were substantially above industry averages. Depending on which of the five different trading models used within our private account management services, the net returns on investment (including fees) for the month of February 2001 ranged from a low of 9.7% to a high of 23.4%. The range for the cumulative year-to-date net returns is now 16.9 to 27.9 percent! Considering that the majority of mutual funds are still negative for the year, clients at all profile levels should be quite pleased. Additionally, new clients utilizing the recently introduced conservative trading model, (restricted to trading treasuries only) were up 3.1% for the month and 9.5% for the year 2001.

Looking forward . . .

The month of March 2001 may offer us a desirable level to further reduce US stock holdings at either DOW 10,880 or DOW 11,035. Also, the bear market rally within the stock indices may coincide with the bear rally in the US dollar with a resumption of the primary trend lower around March 19th or 20th. Even with the FOMC’s attempt to stimulate the economy by reducing the Fed Funds rate by either 25 or 50 basis points, we expect the different indices to retest their lows in the near-term. Also, there will remain two-sided trading opportunities in the various treasuries as expectations change in regard to the future level of interest rates with there primary trend still remaining bullish for the next few months.

The impending US recession should basically be seen as a repeat of the 1990-91 “post-bubble” recession. Underlying financial imbalances strangling today’s economy are, however, far worse. The impending recession will run much deeper and last far longer then the consensus expects. Excess of confidence is the last and final excess. Once people begin to realize the extraordinary severity of the unfolding recession, the false confidence will collapse — with dramatic effects, particularly on the stock market and the US dollar.

American policymakers, like most economists, expect no more than a gentle depreciation of the US dollar, reflecting a mild recession. Seeing the worst postwar recession unfolding, we expect the US dollar to fall to a new postwar low against the European currencies (see article in February 2001 Newsletter for further details). A serious US dollar crisis, cutting off capital inflows, would badly hit US stocks and bonds alike, putting long-term US bonds at risk. The US dollar-based investor who allocates a portion of their portfolio towards the futures/derivatives market where the foreign currencies are traded, and able to take advantage of this downturn, should look forward to a sizable currency gain.


On a historic basis, the S&P still sells at 33 times the average ten years of trailing earnings, adjusted for inflation. While that number has come down mightily from the 46 times reading it hit last March, it’s still a far cry from the P/E of 14 the Index averaged through the booms and busts up to 1990. This is further evidence that stocks have a long ways to go on the downside. It is possible that we could be faced with a decade or two of desultory price action in the stock market within a circumscribed trading range such as the Nikkei has suffered since its collapse in late 1989. This has strong historic precedence after past US stock market bubbles in 1901, 1929 and 1966. We could be at the leading edge of twenty years of grinding prices and substandard returns.

Obviously, there are plenty of stocks around these days selling at cheap valuations like REITs, however, in a secular bear market even bargain basement holdings can suffer.

Is this a New Technological Era rich with the promise of unparalleled gains in productivity and corporate profitability? Hardly. Truly transforming technologies like electrification at the turn of the last century, radio broadcasting and the automobile in the twenties, the television and space ages of the fifties and sixties did not protect the stock market from subsequent 20-year periods of disappointing stock market results.

Availability of capital is the one factor of production that is reproducible and therefore tends to increase in supply in areas promising high returns. In this environment, over-investment, withering competition and falling profitability typically result. In fact, there is no empirical evidence of a correlation between trends in productivity, profitability and the price of stocks.

The National Highway System, which was begun in 1956 by the Eisenhower Administration, probably had a more far reaching impact on our long term economy and stock prices than the Internet will have. The Interstate, as opposed to the Internet, spurred suburban development, efficient greenfield office and production facilities, just-in-time production and that wonder of retailing efficiency, the mall. The mall affords the consumer much greater convenience in finding most anything a person wants in one place, an ability to try on and easily return goods and a social experience as well. The Internet’s only advantages are providing a wider selection and research flexibility. S&P earnings during the twenty-year buildout of the Interstate System grew at a substandard rate. Conclusion — so much for a new era.

Editorial by Chief Editor: John Allen

What is the most frequently asked question in today’s market oriented society? It must be – “Are we at the bottom yet?!” You’ve heard it asked many times by the most unlikely of characters, unless you live where homes are mobile and the cars aren’t. So – What’s the answer? While it is about as easy to predict an accurate bottom as it is to forecast your teenager’s next spending impulse, one thing you can be assured of is that if you hear the question asked – we aren’t there yet! The phenomenon is actually quite similar to bungee jumping with your eyes closed. As you approach the bottom you feel the backward tension but cannot quite plan the exact turning point until it happens. By the time you are sure you have reversed direction you have already moved back 5 to 10 percent.

So what is my best guess and why? Let me start by saying I have completely discarded any fundamental news events or valuation ratios as they seem to be a rapidly moving target and completely unreliable for short or medium term projections. Long term projections are useless except as a crutch analysts and brokerage houses lean on to excuse the lack of accuracy of their short-term calls. How many times have you heard analysts defend their last three stock picks dropping 30% by invoking the “long term defense”? These people must take us for mentally impaired if they expect us to sit still for a large short term thrashing (which we CAN hold them accountable for), in order to realize some nebulous long-term gain that may or may not come by the end of the decade. (By which time they have lavishly retired) These past two weeks have seen some of the most flagrant examples of gross manipulation on the part of the investment community to date. Here are a few choice examples.

1) Three prominent analysts that had recorded BUY recommendations on Yahoo at prices over $120 and held that position over $200 now downgrade the stock at $19! A loss of over 90% of market value and investors money was required to prompt them to act. We should demand to see THEIR sell tickets and current positions.
2) Hoards of analysts touted Cisco as the impervious, “must have” tech stock even though its PE ratio was close to 200 and its price had soared from $30 to over $80. These same guru’s now find it difficult to justify a price of $23 and warn it might fall into the low or mid teens as the PE is still a “bit” high at 55! That would be HALF of the price the stock STARTED its meteoric rise from.
3) Two of the analyst referred to in the Cisco example are now recommending Coke as a safe haven even though as a mature company with many growth challenges ahead it still carries a PE over 50. Seems we fail to learn lessons on the first pass.
4) CEO’s everywhere are lowering “guidance” and now complain of a lack of “visibility”. This is serving to crush their stockholders equity position even more than they already have been. It would appear that their view from the top of the mountain was just as foggy. At that time most, save Steve Ballmer of Microsoft, were enthusiastically touting their company’s future and embracing the analyst’s acceptance of outrageous valuations as bold and farsighted.

What has happened to ACCOUNTABILITY?! We must accept that there really is none. We should also look for kernels of direction by using common sense instead of trust. Enter the contrarian. Why would a CEO damage his own stockholders so late in the game by being so negative? Irrespective of what they say, CEO’s universally hold the company and a few of their closest stockholders close. The company because it satisfies their egos, the few powerful stockholders because their capital is needed. When they accept that current conditions will make an increase in stock prices difficult or impossible, what is the safest and most effective way to generate cash? Simple, depress the prices further than they should be by creating an unrealistically negative short-term outlook and buy when it gets really cheap. Its similar to throwing a weight on a trampoline. Stockholders and officers in the know benefit by selling out at higher prices then buying back in lower. The absolute price is irrelevant. Only the difference between the buy and sell prices count. More dollars are made pressing the price to $11 then selling out at $22 (100%) on the bounce as opposed to doing all the thing required to drive a $50 stock to $80. (60%) It’s also MUCH easier to engineer a drop rather than a gain in share prices. Remember that officers and board members are restricted on how much stock they can sell each quarter if they were received as payment from the company or represent an initial investors position. No such restriction exists on shares purchase after coming aboard.


As the various stock indices, US dollar and eventually the long-term US bonds decline, it will become even more important to have a properly balanced portfolio where a portion is allocated towards the futures/derivatives markets as offered in our private account management services. This will allow the investor to either maintain their current portfolio value through hedging or generate outright profits as the bear market takes hold over the next 5 to 8 years.

In addition to our standard management services where we trade the futures/deriviatives markets in the treasuries, stock indices, and foreign currencies, we recently introduced a more conservative trading model where the various treasuries are only traded. The projected rate of return is less, however, the risk and initial investment level of capital is also less. If there are any questions regarding the information discussed within this months newsletter or regarding the different trading models used within our private account management services, please either call or e-mail and we will be glad to provide further clarification.


John T. Moir
Worldwide Investment Manager
Wavetech Enterprises, LLC
Phone: (775) 841-9400

Market Alert 03-26-01 – The Bear Market Rally is on

As stated in the March 10th 2001 newsletter DOW 10,880 proved to be a desirable level to reduce stock holdings. The result was the DOW rallied to as high as 10,859 and proceeded to selloff to 9,106 on Friday, March 22nd. This projection turned out to be accurate to within 20 DOW points!

Currently, we are projecting a bear market rally in all three major indices with the DOW rallying to between 10,175 to 10,300 on April 2nd or 3rd. For those who chose to remain vested in individual stocks and equity mutual funds, we would suggest that you use this rally to reduce or eliminate any stock holdings with price/earnings ratios (P/Es) of over 10. The levels reached for the DOW, S&P 500 and NASDAQ on either of the specified days could represent the highest levels for these indices for the remainder of this year and possibly much longer.

If there are tax consequences involved in this liquidation, consider that a loss taken early in the year has the advantage of redirecting funds into profitable forms of investments that offset the losses taken. Also from a tax perspective the gain can be offset against the earlier loss, possibly washing the tax liability.

As we proceed through this bear market over the next 5 to 8 years, it will become very important to have a properly balanced portfolio and we would suggest that 50 percent be placed in the various US treasuries, CD’s with only 10 percent in equities with a PE ratio of 10 or less. In addition to a suggested 20 percent cash reserve, we would suggest that the remaining 20 percent be placed in the futures/derivatives markets where profits can be generated in either a bull or bear market.

In addition to our standard trading model where trades are executed in the various treasuries, stock indices and foreign currencies within the futures/derivatives markets, we now also offer a more conservative trading model which is restricted to treasuries investments trades. The standard trading models are up between 16.9% to 27.9% through February. The new conservative model is up 9.5% in the same period. March 2001 results appear to be quite strong so far.

Even if you have a long-term investment philosophy for this stock market and your various investments, it is important to make adjustments when major market cycles change in order to preserve your portfolio value and continue with long-term growth. We have completed a 18 year bull market and could go through a 5 to 8 year bear market. We would be glad to assist you with our private account management services to either hedge or profit from this change in major market cycles.

We suggest that you take decisive action by April 3rd and contact us if you would like assistance on the selection process or have further questions regarding our private account management services.


John T. Moir
Worldwide Investment Manager
Wavetech Enterprises, LLC
Phone: (775) 841-9400

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