WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 05- 15- 09:
By: John T. Moir
Position overview . . .
Our previous newsletter, dated April 13th, stated that too much damage from the massive stock market decline has been inflicted to consider an advance as anything but a bear-market rally. Bargain hunters should note that a bottom is not a place — it is a process that can take years and requires an active money manager to generate profits in either a rising or declining stock, bond or real estate market, as offered below. We projected that the DOW would continue a period of consolidation during the month, and anticipated a trading range between 7,400 and 9,600. The actual result was a narrower than forecasted trading range, between 7,483 and 8,307.
We anticipated that the US dollar would decline in value, based on our technical prospective, at least for the near term, and projected a euro fx equivalent trading range for the month between $1.31 and $1.41. The actual result saw the US dollar both decline and rally in value, with a euro fx equivalent trading range for the month between $1.2917 and $1.3555.
The US treasuries were forecasted to remain under price-pressure during the course of the month, and we projected a base-yield for the US 10-year Note of 2.85%. The actual result did see the US treasuries decline in price during the the month, inversely causing yields to rise, producing a US 10-year Note yield range between 2.86% and 3.31%.
Looking forward . . .
The finances of non-financial corporations look remarkably stable and appealing, compared with financial firms where balance sheets resemble World War I photos of no-man’s land. The economy’s weakness and asset price declines have had undesirable effects, but the finances of non-financial firms generally look strong enough to: 1.) free firms from any need to make extreme adjustments, even in the face of economic weakness; 2.) relieve investors of their worst default fears: and 3.) allow firms, in time, to renew earlier efforts at acquisitions and stock performance.
The most difficult time so far for corporate finances came in fourth-quarter 2008, as profits for non-financial firms nationwide fell by a seasonally adjusted 9.8%, and ended the year 18% below fourth-quarter 2007. The aggregate earnings of the non-financial companies in the S&P fell 27.8% between fourth-quarter 2007 and fourth-quarter 2008, which is closer to the marketplace where most investors reside. Earnings declines have continued in the first-quarter 2009, even though the data is incomplete, but the pace seems to have slowed.
Some deterioration in non-financial corporate balance sheets was inevitable of course, with crimped earnings and declining equity as well as property prices. Corporate assets, after peaking during fourth-quarter 2007, fell throughout the full-year 2008 — yet ended the year down only 2.9% from their highs. Such a modest drop is remarkable, especially given the headlines and the picture in financial firms. Even this slight setback in asset values, of course, has had its effect on net worth, which in 2008 ended down 7.1% from the high recorded in fourth-quarter 2007.
These set backs raised the debt-to-equity ratio in those corporations at year-end 2008, from a recent low of 41.5% in third-quarter 2007 to 74.4% in fourth-quarter 2008, and looks moderate by past standards. This resilience of corporate balance sheets rests in large part on how much non-financial companies have previously raised their liquid assets holdings, effectively cash. Non-financial firms, in 2005 and 2006 raised their liquid assets to levels not seen in years, but will these efforts be enough to sustain further economic weakness going forward.
Perhaps the most eloquent expression of how delusional Wall Street has become was its response to last Friday’s report on what happened to employment — or, more importantly, unemployment — in April 2009. Payrolls shriveled by 539,000, less than the 550,000 to 600,000 consensus as well as March’s initial tally of 633,000.
The unemployment rate extended its doleful rise, hitting 8.9%, the highest level since 1983. The jobless ranks have swollen by 5.7 million, since the recession got underway in December 2007, and there are now 13.7 million people out of work.
Moreover, our favorite measure of unemployment is the Bureau of Labor Statistics’ U-6, which includes the likes of workers laboring part-time because they cannot land full-time jobs, rose to a fresh peak of 15.8%. That means 24.7 million people are effectively unemployed, and is a figure that does not get too much notice — maybe it is just too depressing.
The employment report, bad as it is, was supported by the 72,000 federal census takers signed on by Uncle Sam, and for another, it includes 226,000 supposed jobs, or 60,000 properly adjusted, courtesy of the birth/death model. The headline lost of non-farm payroll jobs would have approached 670,000, if this pair of extraordinary items were excluded.
The private sector employment sank by 611,000 in April, and did so across a wide swath. The Federal data just does not square with the conventional wisdom across the investment landscape.
There are those with the notion that we are enjoying a commodities boom, but the natural resources sector shed 11,000 jobs last month. The leisure/hospitality sector was also affected, with 44,000 lay offs. Retailers gave 47,000 pink slips to workers — atop the 167,000 slots they let go in the first quarter.
We scoff at the idea that the jobs data are about to get better because the markets have enjoyed a nice two-month rally. Among the reasons are the still record-low workweek, at 33.2 hours; the 66,000 downward revision to the back data; the 63,000 slide in temp-agency employment; and the high levels of both initial and continuing job less claims.
All of which foreshadow a further 550,000 payroll plunge, when the May data is rolled out early next month. The current buoyant mood on the Street is obviously more the result of euphoric hopefulness, than a realiistic since of true reality.
UNFORSEEABLE CONSEQUENCES OF A STOCK MARKET DECLINE:
We can expect from the current crisis some predictable economic hardships, but there are also some trickle-down effects that are not so foreseeable, which are as follows:
1.) Governments will get smarter, since in a global recession they can recruit a better class of bureaucrats. The US government, just a few years ago, had serious recruitment problems in the Foreign Services because no world-savvy 25-year-old wants to do civil service when they could make serious cash on Wall Street. In a severe downturn, however, the stability and security of a government job looks far more appealing.
2.) Politicians’ palms are about to get greasier and the security of a government contract will look pretty sweet to any businessperson struggling to stay afloat. A January report from Transparency International warned that corruption is bound to increase worldwide during the current crisis.
3.) Gray skies are going to clear, since the longer the global economy stays in recession, the less greenhouse gases are emitted into the atmosphere.
4.) The Internet may become more annoying, as newspapers are looking to online advertising revenue to deliver them from bankruptcy or eradication. So, expect more Web advertising on your news sources: pop-up ads, welcome screens, and articles added into ever-shorter segment to maximize clicks — that can not be escaped easily.
5.) Bad times are boon times for evangelical churches, with congregation growth at such churches jumping 50% during each recession from 1968 to 2004.
6.) Kids and young adults will be savers, as macro-economic realities have a profound effect on financial choices later in like, regardless of how much money is saved. The generation that grew up during the Great Depression was more risk-averse than its parents and its children when it came to money. These kids and young adults may be so risk averse that they are stuffing allowances under their mattresses.
7.) The military just got bigger, and the 18-to-24 age group will be hit hardest by the current downturn, which is the prime recruiting age bracket for militaries. Indeed, the US Army exceeded its recruitment goals in the last three months of 2008 for the first time in 5 years. The few and the proud might grow into the many and the desperate.
8.) State schools will be cool again, whereas for the past decade, private schools far outpaced state schools in terms of resources and expenditures. Endowments in the US have declined by 10% to 30% during the past year, which will make need-blind admissions a thing of the past and financial-aid offers far less generous. The credit crunch will also make it more difficult to secure reasonable student loans
9.) Baby Boomers will refuse to leave the office building, as a whole tier of older employees who planned on retiring now or in a few years simply can not — their 401K retirement accounts look way too scary. In 2008 alone, US workers ages 55 to 64, who have had 401K’s for at least 20 years, saw their retirement balances drop an average of 20%. This means that those who expected promotions when the boomers cleared out are going to have to stew in their own juices; office politics just got a lot nastier.
10.) The world is no longer flat — and fewer people will care. Global downturns often breed protectionism and other barriers to foreigners. Cross-border tourism is likely to plummet, and news outlets are also likely to further scale back their foreign news bureaus to cut costs.
11.) One business will be big this year: conferences on the crisis of capitalism. Those pundits that were forecasting the bubble poised to burst prior to the actual event will be doling out advice in convention halls around the globe.
Long-term conclusions and current month expectations . . .
The complacent reaction among the investment pundits is that the credit markets are wildly oversold. More likely, it has something to do with the fact that an overwhelming portion of some $8 trillion in mortgage debt (or 80% of the total) is teetering on the edge of, or in some state of, “negative equity.”
The Federal Reserve claim that the equity of homeowners as a group stands at 43%, but the Fed neglects to tell investors is that roughly a third of them have their homes free and clear. Some arithmetic reveals that 67% of homeowners with mortgages have equity of less than 15%. This suggests that the destruction priced into the credit markets hardly seems out of whack with potential reality.
The scarred financial’s to some significant extent may be spared further pain, thanks to the transfer of toxic assets to taxpayers, but this can not be said for the non-financial sector. Little recognized is how much the extraordinary gains in domestic non-financial profits from the low in 2001 to the peak in 2006 — a stunning rise of 388% — is owed to the housing bubble.
Who in their right mind would believe that the explosion in profits during the housing-bubble stretch was a mere coincidence and, therefore, in no way subject to the same inexorable decline? We would reckon that roughly 95% of the folks who contend we are in a new bull market.
We still see a huge hit in the offing for non-financial corporate profits, absent the powerful stimulus provided by the unprecedented boom in housing. A worst-case analysis is that such profits would sink to the previous 2003 cycle low levels, a further decline of $450 billion, or 54%. They would return to their pre-bubble percentage of 3.5% using their relationship to Gross Domestic Product (GDP), under a less exacting and frightening estimate, which translates into a drop from here of $340 billion, or 41%.
Earnings, at the end of the day, are what makes the stock market go up — and down. The prospect that they are in for a fresh drubbing is all the more ominous because it is unexpected. Bear market rallies come and go, but what makes this one so noteworthy is just how far removed perception is from reality.
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 are, therefore, projecting a DOW trading range for the month between 8,100 and 9,250.
The US dollar, from a technical perspective, continues to trade in an expanded range, and could decline during the course of the month, with a projected euro fx equivalent between $1.32 and $1.40. This near-term US dollar weakness, could cause the US treasuries to be price-supported, and inversely drive yields downward. We are subsequently anticipating the US 10-year Note to have a peak-yield for the month of 3.45%.
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 Beckworth, Economist with Texas State University, University of California, Berkeley/Stanford University study on saving, Milton Ezrati with Lord Abbett, MacroMavens by Stephanie Pomboy, David Rosenberg, Economist with Merrill Lynch.
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.