WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 03-31-10:
By: John T. Moir
Position overview . . .
Our previous newsletter, dated February 27th, stated that the stock market remains within an elevated period of consolidation, as the various stimulus programs try to rejuvenate the US economy, at least for the near-term. We further projected that the DOW would remain price-supported, due to these various stimulus packages, and anticipated a trading range for the month between 9,800 and 10,600. The actual result was a slightly narrower trading range, during the course of the month, between 9,835 and 10,438.
We also stated that we could see interest rates go higher, as various states and countries find themselves in budget deficits, and have to pay more to borrow money, because of the slippage in their ratings. This could lead to higher interest rates all around, as people value risk more carefully, and cause US treasuries to decline in price, inversely producing higher yields. We, therefore, anticipated that the US 10-year Note could have a base-yield of 3.53% or higher, as prices decline and yields inversely rise, during the course of the month. The actual result saw the US treasuries decline in price, producing a US 10-year Note yield-range for the month between 3.54% and 3.83%.
The US dollar was projected to decline in value, at least for the near-term, during the course of the month, with a anticipated euro fx equivalent trading range between $1.34 and $1.40. This forecast proved to be fairly accurate, as the US dollar remained under near-term pressure, producing a euro fx equivalent trading range for the month between $1.3438 and $1.3947.
Looking forward . . .
States have never experienced anything like the plunge in revenue they are now dealing with, in the last 45 years. Prior to the recession in 2008-09, the 1982 recession was the deepest post World War II recession, which now looks like a walk in a park. The 2001 recession was amplified by a huge swing in capital gains from the dot-com bubble, which first boosted tax revenue and then evaporated. This exercise has been repeated during the housing bubble and subsequent bust.
The difference this time is that the economic damage is far more pervasive, which will make the recovery far more protracted. The Liberal Center of Budget and Policy Priorities estimates that states’ 2011 budget deficit will total $142 billion, and that is after receiving $38 billion in aid from the federal government.
State legislatures have no choice but to raise taxes and fees, cut services and jobs, and issue bonds so it appears they have balanced their budget as mandated by state, given the magnitude of the deficit problem. For California, Illinois, New York and New Jersey, issuing bonds will increase their interest expense for decades to come, as buyers will demand a higher rate to compensate for the poor management by prior elected leaders. Services account for 65% of consumer spending, yet they are not taxed by state and local governments. Taxing services look like a luscious green field they are ready to plow, to politicians desperate to raise tax revenue. As of 2007, only seven states taxed services provided by doctors and lawyers, according to the Federation of Tax Administrators. Hitting lawyers with a sales tax sounds like fun, until one realizes any new sales tax will be coming out of consumer’s disposable income — us!
Higher taxes and lower spending by state and local governments will shave 0.5% to 0.7% off annual gross domestic product over the next two years. More importantly, the cuts in services will truly hurt many needy citizens, and inconvenience the freeloaders. Most legislatures will finalize their 2011 budget in June, since their 2011 fiscal year begins July 1, 2010. There are going to be a lot of angry citizens, as the news of all the planned tax and fee increases become known and the scope of the services cut are highlighted by the media. This whole process will be an even larger spectacle, since 37 governors are up for re-election in November 2010. We simply do not feel that people understand just how ugly this is going to become in the coming years, which will likely include marches on state capitols.
Long-term conclusions and current month expectations . . .
Changes in capital flows matter enormously, and the adverse effects of high levels of government-bond issuance were capped in 2009 by quantitative easing. When the European Central Bank recently started to unwind its liquidity program, it placed extra pressure on European banking systems, especially those organizations that relied most on wholesale funding. The interaction between monetary policy and bank balance sheets requires careful analysis, and could keep the US dollar within a broad trading range, at least for the near-term, between the euro fx equivalent of $1.34 and $1.38.
Individual banks are less willing and able to warehouse or store government debt as part of their day-to-day client business, with the banking system still deleveraging. The effect of this is placing a risk premium on government bonds, forcing up yields — lower bond prices, equates to higher yields. This affect could cause the various US treasuries to remain under price-pressure, at least for the near-term, with the US 10-year Note having a base-yield for the month of 3.60% or higher.
The sorry state of housing, as depicted through the biggest share of residential mortgages these days offered by Fannie Mac and Freddie Mac, is still on thin ice. Fannie has updated its forecast for the total of such loans likely to be funded in 2010 to $1.32 trillion, which is still a large amount, even when compared with 2009’s figure of $1.9 trillion, let alone the projection a year ago of $2.8 trillion.
Investors and the media-at-large have simply not grasped the variety of consequences of such a steep drop in mortgage volume this year in lost jobs, income and mortgage-banking revenue. The prospective decline, moreover, is rearing its ugly head despite what may be called incredibly low rates of 4.875% to 5% on such credit. The only way for refinancing volume, a major driver of mortgage loans, to come to life would be for rates to drop to around 4%, so everybody who refinanced in 2009 can refinanced again — do not expect this to happen.
Housing remains mired in misery, despite all of the talk and even hard evidence of improvement –a fact that apparently has not sunk into investors, to judge by the 25% rise in the home-builder group. New home sales in February fell to an annual rate of 308,000, an all-time low. The number of mortgages at least 90 days past due shot up by 270,000, or by more than 20%. The US government is launching still another program to forestall foreclosures, even if the first, second and third attempts did not succeed.
A recent survey by the Employee Benefit Research Institute (EBRI) disclosed a number of changes, since the prior year’s release. First, although workers felt greater confidence in their ability to afford retirement, savings toward that worthy purpose in 2009 shrank to 60% of the total, from 65% the year before — the sharpest drop in the history of the survey. It appears, as commented by the EBRI, that workers are clueless about their retirement needs. Second, nearly 40% of workers may not be saving because they believe assets — their house or portfolio, for example — will once more increase in value.
The last time households saved so little, as stated by the EBRI, was when the stock market hit its peak in 2007, and, of course, housing had not yet crashed. The only time households saved less was in 2004, when stocks bounced back strongly from the dot-com collapse.
Consumers are making a big bet, and the additional spending could be good news, at least for the near-term; however, in order to bring savings into alignment with current net worth’s, a savings rate of 8%, for example, would require a savings increase — or a spending decrease — of $513 billion.
The consumer is in a real pickle, if the rebound in net worth proves illusory and the Federal Reserve can not reflate assets on the balance sheet. The price of delusion will be dear, with a staggering 27% of workers, according to the EBRI, have saved less than $1,000 toward retirement.
We can only hope that the 27% are young people right out of school, sharing apartments and still scraping to come up with the rent, but, unfortunately, the EBRI survey does not break down the numbers by age. The numbers are truly alarming, if, the panel is representative of the nation as a whole with 54% of the labor force over the age of 40 — doubly so, given the increasingly retractable nature of pension promises.
Banks affliction is no less acute, but they are under the notion that reserving for losses is no longer necessary. A $10 billion reduction in the banks’ loss provisioning last year was a major contributor to their gain in the fourth-quarter earnings. Furthermore, loan-loss reserves cover barely over half — 58%, to be exact — of loans past due.
To make matters worse, nearly 51% of commercial-bank assets were tied to real estate — obviously, not a very desirable exposure with housing back in the dumps. Furthermore, there is the possibility that banks could be forced to mark-to-market all the toxic securities they carry at cost. All of these banks would see a 50% haircut in valuations, if they were to follow the example of the FDIC, which in a recent sale marked down a batch of similar securities by this approximate percentage.
The DOW continues within its period of elevated consolidation, at least for the near-term, and we are projecting a trading range for the month between 10,400 and 11,100. This type of gradual ascent is commonplace within bear market or counter trend rallies, as various markets adjust to a point of neutrality or equilibrium, prior to resuming the primary bear market trend lower.
FOOTNOTE: The release of this month’s newsletter was postponed, to the financial benefit of investors utilizing our Private Account Wealth Management Services.
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, The Liberal Center of Budget and Policy Priorities, Federation of Tax Administrators, MacroMavens by Stephanie Pomboy, E. James Welsh with the Financial Commentator, Andrew Milligan with Standard Life Investments, Mark Hanson with Hanson Advisors, Employee Benefit Research Institute (EBRI).
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.