WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 10- 15- 08:
By: John T. Moir
Chief Editor: Clare Mc Kendrick
Position overview . . .
Our recent newsletter, dated September 10th, stated that household spending is likely to be flat-to-down in the second half of 2008, with leading indicators like the labor market still pointing down, credit remaining tight, and household-debt loads maintaining at especially high levels. We forecasted that the DOW could remain under pressure during the course of the month, and projected a trading range of between 10,600 and 11,800. The actual result saw the DOW remain under pressure, with a trading range for the month between 10,365 and 11,790 — a very accurate forecast.
We stated that the US dollar recent rally remains a manifestation of broadening economic weakness outside of the US, rather than strength at home. We anticipated that the US dollar rally could continue, as a currency of renewed safe-heaven choice, with global economies slowing, and projected a euro fx equivalent trading range for the month between $1.38 and $1.46. The actual result saw the US dollar remain supported, with a euro fx equivalent trading range for the month between $1.3821 and $1.4780 — a very accurate forecast.
The US treasuries were anticipated to remain a global safe-heaven during the course of the month, and we projected a peak yield for the US 10-year Note at 3.90%. The actual result saw the US treasuries rally in price, as yield inversely declined, producing a yield range for the month between 3.57% and 4.07% — a fairly accurate forecast.
Looking forward . . .
Non-farm payrolls fell by 159,000 in September, which had a median forecast of 105,000. This very weak report, which not only saw a larger than expected drop in payrolls, also had a decline in the average workweek to 33.6 hours and, as a consequent, a sharp 0.5% month-over-month decline in total hours worked.
Over the past 12 months, the unemployed group have risen by 2.2 million, the unemployment rate by 1.4 percentage points. The most comprehensive measure of joblessness, which includes “marginally attached workers,” was 11% in September — up from 8% a year ago.
Our own feeling is that the prospect of a 7% unemployment rate in four or five months will prompt the Fed to make another cut in the prevailing Fed Funds rate sooner rather than later, with who knows what unintended consequences.
The Institute of Supply Management manufacturing composite plunged to 43.5 in September, from 49.9 in August — a hefty six points below the median forecast of 49.5, and this index level is consistent with a recession.
The new orders sub-index plummeted to 38.8, from 48.3 in August. The new export orders index — which is not a part of the overall composite nor a sub-component of the overall new orders index — declined to 52 from 57 in August. The combination of these two September outcomes indicates slower growth in exports and a particularly dismal performance from domestic orders. There is no silver lining to this cloud.
Robust export demand has been the main support for manufacturing; however, looking ahead, growth in export demand is likely to slow late this year and into 2009, with economic activity weakening in many of the US main export markets. Moreover, an increasingly constrained consumer, deepening woes for the housing sector, and a desire to pare inventories will all continue to weigh heavily on domestic demand. Overall US manufacturing output, which has been shrinking since late 2007 and losing momentum at a more rapid pace recently, is likely to continue to decline in the coming quarters.
The gathering economic storm clouds, the never-ending stream of bank write-offs, the dreadful state of Government-Sponsored Enterprise (GSE), such as Fannie Mae/Freddie Mac balance sheets and the potential exodus of our foreign creditors are all functions of deflation in residential real estate. The GSE have been the only mortgage game in town, since the subprime meltdown began, accounting for fully 98% of all mortgage securitization last quarter, up from 60% a year ago.
The efforts of US Treasury Secretary, Hank Paulson, may reduce GSE exposure by 10% per year until they have shed two-thirds of their $1.5 trillion retained mortgage portfolios, but will not increase total mortgage credit going forward.
The fact that the government is suddenly so aggressive in coming to grips with an epic credit collapse is further proof to how the Fed and the US Treasury have consistently underestimated the severity of this collapse from the very beginning.
The original Resolution Trust Corporation (RTC) was strictly about buying bad mortgages, so we wonder whether the new version will also undertake the purchase of Level 3 assets, whose value is extremely problematic and difficult to gauge — a sizable and not particularly desirable presence in many banks’ portfolios. Furthermore, another question still remains if the new RTC will also buy credit-card debt, commercial real estate, leveraged loans or the other mountains of existing bad debt. The entire credit collapse to date has reflected the unwinding of the largest bubble of all time — residential real estate.
Long-term conclusions and current month expectations . . .
The second quarter Gross Domestic Product (GDP) was revised down to 2.8% from 3.3%, on scaled-down personal consumption. This suggest the role of the stimulus package had already faded, and confirms a contraction in the third quarter GDP due to negative retail sales, industrial production, durables and housing figures. A US recession is a foregone conclusion, and interest rate cuts will likely continue, as the Federal Reserve tries support the US economy.
The unintended consequences of this bailout will be a much weaker US dollar and a sell-off in the US treasuries, which will leave the US with higher interest rates, and the subsequent higher mortgage rates will throw the intentions of the US Department of Treasury out the window. Who will bail out the aftermath of this bailout? At some point, we would suggest that the government let the economic cycle run its natural course, which would allow the US economy to be much better off in the long-term.
The US treasuries, as a result, could remain under price pressure during the course of the month, as the various US bail out programs increase the supply of the issued instruments to raise the needed cash for the various rescue plans, resulting in a low yield for the US 10-year Note at 3.75%. The US dollar may be close to a peak in price, due for a period of consolidation, and we are anticipating a euro fx equivalent trading range for the month between $1.32 and $1.41.
Unemployment was up heavily in the top 10 states in September 2008. The Bureau of Labor Statistics (BLS) data showed California (7.7%), Florida (6.5%), Pennsylvania (5.8%), Ohio (7.4%), Michigan (8.9%) and Georgia (6.3%) all posted 10-year highs in their unemployment rates. The data is very similar to an early 1990’s pattern, when the 10 largest states led the national unemployment rate by 50-plus basis points (0.50%). Michigan’s unemployment rate is the United State’s highest, and could be heading toward 9.9%.
Some of the US bailout funds of “free” government money could be used to fix this country’s bridges, tunnels and roads and employ our US citizens to do the work. These citizens would perhaps be able to pay down some of their looming debt.
It is painfully clear that despite the almost unimaginable amount of leverage used, GDP only averaged 2.5% for the cycle — one of the weakest average economic output levels on record. The answers to the tepid output goes a long ways to understanding the situation we find ourselves in today.
First, much of this leverage went to ventures with little to no economic value. People received loans who had no business getting them, and risk became grossly under-priced, with end-users of the leverage were not paid for the “real” risks they accepted.
Also, fees and bonuses were extracted at every step, as loans were originated, packaged together, sold to another party, repackaged and resold numerous times. The parties, back in the day, were only paid if transactions were done, but now we have seen the collapse within this type of game. What we are left with is not your father’s typical credit contraction, but the Fed’s worst nightmare — a negative loop has taken hold and psychology is becoming entrenched.
This did not have to happen. The blame begins with the hawkish wing of the Federal Open Market Committee (FOMC) simply not understanding the relationship between today’s financial system and the economy, way overreacting to the risks of inflation sneaking into the domestic economy.
We expect deleveraging of the financial system to continue for years. New policy measures, of course, will slowly unclog the credit markets a bit, but that only takes us to a consumer led economic slowdown and weak consumer spending, which appears to be taking hold this very quarter for the first time in 17 years, and every consumer recession in the past was followed by a negative credit cycle of its own. This will, as a result, keep the major stock indices under pressure for the long-term; however, in the near-term, we are due for a period of consolidation, to remove the oversold condition in the marketplace, resulting in a large forecasted trading range for the month between DOW 7,800 and 11,200.
Net export strength will fade as the global economy slows. We look for headline inflation to begin to move back toward the core rate by the end of this year, as the gravitational pull of deflation is slowly but surely becoming recognized by the markets.
FOOTNOTE: The release of this month’s newsletter was postponed by one week, to the financial benefit of investors utilizing our Private Account Wealth Management Services, through these “ideal economic cycle entrances.” 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 eight 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, Max Bublitz with SCM Advisors, MacroMavens by Stephanie Pomboy, Ashraf Laidi with CMC Markets, David Rosenberg, Economist, with Merrill Lynch, Peter Boockvar with Miller Tabak, Scott Mushkin and Bakley Smith with Jefferies & Co. Consumer Research, The Option Queen Letter by Jeanette Schwarz Young, Joshua Shapiro with Maria Fiorini Ramirez, Inc., The Liscio Report by Philippa Dunne and Doug Henwood .
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