WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 05- 09- 08:
By: John T. Moir
Chief Editor: Clare Mc Kendrick
Position overview . . .
Our previous newsletter, dated April 11th, forecasted that the DOW, along with the other major stock indices had completed a three-month period of consolidation and were resuming the primary downtrend, with a projected DOW trading range for the month between 11,525 and 12,750. The actual result saw the DOW continue to remain within a consolidation mood, with an elevated trading range for the month between 12,270 and 13,010. The better-than-expected earnings reports, showing less losses than anticipated, supported the major stock indices during the month.
The US dollar, due to declining interest rates and less demand for the currency, was anticipated to resume its decline in value, with a trading range for the month between euro fx equivalent of $1.54 and $1.60. This projection proved to be very accurate, as the US dollar declined during the course of the month, producing an actual trading range between euro fx equivalent of $1.5478 and $1.5964.
We stated that the Federal Reserve’s response of cutting rates — the fed funds rate from 2.25% to 2.00% on April 30th — will simply help create the next asset bubble in commodities and precious metals. We further stated that “there appears to be the case, as the Federal Reserve may eventually be successful in re-igniting growth within the US economy, but at what price to overall long-term growth, the rate of inflation, and global economic stability.” The US treasuries reflected these concerns of inflations during the month, being pressured to decline in price and inversely causing yields to rise, producing an actual US 10-year Note yield range between 3.47% and 3.87%.
Looking forward . . .
The Bureau of Labor Statistics (BLS) published this past Friday, under a deceptive and bland title “The Employment Situation: April 2008.” This report is carefully designed to leave the public with a comfy feeling in these rather trying times.
The consensus was for a non-farm payroll loss of between 75,000 to 80,000 or even greater, and a higher unemployment rate. Payrolls, instead, last month were trimmed by a much more modest 20,000 and the unemployment rate dipped to 5%, from 5.1%. It appears, at least on the surface, to be such a pleasant contrast to those undesirable expectations and to the 81,000 jobs that vanished in March.
What makes the report all the more extraordinary is that it comes in the face of otherwise dismal numbers from the employment front lines. Layoffs last month, according to a placement firm, totaled over 90,000, a hefty 68% greater than in March. New claims for unemployment insurance in the last full week in April rose to 380,000, from 345,000 the week before, while continuing claims topped the three million mark. An online want-ad outfit reported a 6% drop in its April index compared with the same month a year ago, and the Conference Board’s help-wanted index dropped to a new low while its measure of employment opportunity showed jobs are ever harder to find.
The BLS report was like a burst of sunshine dispelling the gloom economic environment, but we would like to take this time to draw further insight into the job market out of some very unpromising raw material.
The praise really belongs to the unknown number-bender who crafted the so-called birth/death adjustment, supposedly created to capture the additional jobs of firms too new to be captured by the survey. It is much more a product of the imagination than of dull data, as it has demonstrated in the past.
We have, on occasion, pointed out the contribution the birth/death adjustment has made to the payroll total, but we have trouble remembering when the additional positions it conjured up were anywhere near as massive as they were in the April, when it supposedly “generated” 267,000 jobs. Last month’s job loss, to put it another way, excluding the adjustment, would have ballooned to 287,000 — what a big difference!
This is just one illustration of what the BLS adjustment has done to affect their monthly reported numbers. There were apparently 8,000 jobs added in April in the financial sector, according to the birth/death model, which should come as a surprise to how many souls who have been laid off by the banks, brokerage houses and the rest of the not-very-robust financial industry. There simply must be something really wrong with these figures, since new firms in that sector appear to be conspicuously absent.
The birth/death model, via its agency in the April report, showed strangely 45,000 additional jobs in construction, which is not exacting a booming sector. We also put in suspect the 83,000 new slots that were supposedly created in the leisure and hospitality field, with vacation plans at near-record lows and restaurants reporting reduced traffic. We feel many of these supposed job gains could simply disappear come the next benchmark revision.
It would be wrong to conclude, given all of the internal blemishes of last month’s employment report, that the economy and the job market is stabilizing. An economy providing lots of part-time jobs to the young and few full-time jobs to the prime-aged is one that could have a tough time sustaining any type of growth looking forward.
The rosy 0.4% increase in consumer spending in March, reported last week, came largely because Americans were paying more for food and gas. The increase in spending drops to a lousy 0.1%, when inflation is stripped out.
Real final sales to domestic purchasers — a good measure of economic health, since it is essentially real Gross Domestic Product (GDP) without inventories or foreign trade — shrank 0.4% in the first quarter from 1.3% in the fourth quarter and 2.5% in the third. This further confirms a prolonged recession lurking beneath the calming veneer surface.
Wall Street believes, because a systematic meltdown has been avoided, that the crisis is over, which is far from the truth. Excessive private-sector debt will severely constrain domestic demand for years, while pre-emptive rate cuts have sent oil and food prices sky-high — effectively lowering real income and overall consumer confidence.
Long-term conclusions and current month expectations . . .
The recession, which has been here for over four months, and no asset class or security is fully priced for a recession, especially should it turn out to be deeper and more enduring than the conventional wisdom assumes. We are likely to witness a long consumer deleveraging process going forward.
We see a major risk of another 20% drop in home prices, which would be strictly bad news for the American dream and the US economy. Also, we are not overly bullish, in contrast to most pundits, about the $120 billion tax rebate slated to begin this month and end in August, for two reasons.
The first is that a similar relief effort in 2001, also accompanied by aggressive Fed action, failed to prevent a recession that year or spark a recovery in 2002. We simply do not believe that the government is bigger than the business cycle.
Second, there are an unprecedented number of Americans behind on mortgage payments, auto leases, utility expenses and medical bills, which mean that only 20% of the rebates are apt to be spent in the real economy. This translates into barely a 0.5% annualized “boost” to GDP growth in the second and third quarters of this year, all of which might easily be “siphoned off” if gas prices at the pump rise another 15 cents a gallon.
Investors at the moment are in one of those see-no-evil, hear-no-evil, think-no-evil, buy-anything-that-moves moods. Sentiment may have shifted, but skepticism, let alone profound bearishness, never too root. Some investors may be bullish because of the tax rebates or the delusion that the credit crunch is history or that stocks are fundamentally cheap, but that makes us all the more certain that we have not seen the last nor the worst of this bear market. We are likely to resume this bear market decline this month, with a DOW projected trading range for the month between 11,950 and 13,150.
The recent round of rate cuts have taken the US fed funds rate back to 2%, a historically low and highly inflationary level. How can any one take the Federal Reserve seriously when the consumer and the economy have become even more leveraged since the Fed caved into saving the housing and stock market just last summer? Can we really have any confidence in an institution that took the fed funds rates from 1% to 5.25%, then back to 2% and now wants to move back up again, all in the space of a few years!
This is the type of roller-coaster action that occurs when letting a small group of individuals, the Federal Reserve, decide the cost of money, instead of the market. They are emotionally reacting to changing market conditions versus logically and patiently responding, which is effecting the overall US economy in an undesirable way.
The US treasuries are anticipated to be price-supported, at least for the near-term, with a 10-year Note projected peak-yield for the month of 3.90%. This rally in price, and subsequently declining yield, will indirectly put renewed pressure on the US dollar, resulting in a euro fx equivalent trading range for the month between $1.53 and $1.59.
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 their funds 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 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.
Call the number provided below or e-mail us today and we would be happy to provide further clarification, if there are any questions regarding the information discussed within this newsletter or our unique Private Account Wealth management Services.
John T. Moir
Worldwide Investment Manager
Wavetech Enterprises, LLC
Phone: (775) 841-9400
Acknowledgements: Federal Data, David Rosenberg, Economist with Merrill Lynch, Challenger Gray & Christmas, Monster, The Liscio Report by Philippa Dunne and Doug Henwood, Michael Pento with Delta Global Advisors.
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