WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 10-19- 09:
By: John T. Moir
Position overview . . .
Our recent newsletter, dated September 18th, stated that we would expect lower stock prices once the sugar high, provided through the various stimulus programs, has run its course. We further stated that the sugar high is still persisting, allowing for the stock market to remain within an elevated period of consolidation, and anticipated a DOW trading range for the month between 9,200 and 10,300. The actual result saw the DOW trade within a narrower range than projected, between 9,252 and 9,917.
The US dollar was anticipated to decline in value even further during the course of the month, with a projected euro fx equivalent trading range between $1.42 and $1.50. This forecast proved to be fairly accurate, with the actual euro fx equivalent trading range for the month between $1.4194 and $1.4840.
The US treasuries were projected to have low yields for many years to come, but in the near-term, could remain under price pressure. This price pressure was anticipated to occur during the course of the month, inversely producing higher yields, with the US 10-year Note having a base-yield of 3.30% or higher. The actual result did see US treasuries decline in price, inversely causing yields to rise, with the US 10-year Note having a yield range for the month between 3.27% and 3.53%.
Looking forward . . .
The consumer’s newfound prudence to save is no passing fancy, but a behavioral sea change, and the repair of consumer balance sheets so badly thrown out of whack by a quarter of a century credit-overindulgence will continue for many years to come. The massive decline in consumer credit represents a daunting barrier as compared to consumer prices, even with the recent explosive run in equities and commodities.
We shake our head at the retail sector posting its strongest relative performance since March 2007, discounting an environment in which retail sales register 3%-style annual gains, despite mounting evidence of the frugality on the part of the consumer.
Retail sales, now declining at an annual rate of $331 billion, would have to make a major U-turn and rise $470 billion to show such an increase — an $800 billion swing, highly unlikely. There is simply no way professional investors are betting on such an outcome.
The broadest proxy of risk appetite, namely stock versus bonds, outlines what type of gain in overall consumer spending is implied in the marketplace. The divergence between the two is at extremes last seen when consumer spending was moving along at a 6% level. To reach that milestone today would require an incredible U-turn, if ever there was one, with the present $165 billion annualized decline in spending giving way to a $780 billion gain — even these days, that is a big number.
We can start to worry about inflation, in the traditional sense, when the demand for credit revives or employment and income begin to grow, neither of which seems to be happening anytime soon. The only serious inflation is in financial assets, because of all of the surplus liquidity that has been pumped into the economy and has nowhere else to go.
The market is banking on a $1 trillion spending swing over the next 12 months, which is far removed from economic reality and acceptable expectations.
The employment situation still remains in dire straits, as the payroll numbers continue to shrink, by 263,000 from the previous month, just a little more than the consensus of a loss of 175,000 jobs. This brings the official count of job losses since the recession began in December 2007 to 7.2 million, and lifts the overall total of people without work to 15.1 million, while the unemployment rate edged up to 9.8%, from 9.7% in the prior month.
The household survey, which seeks to determine whether or not people are working by asking individuals about their job status rather than contacting the companies who employ them, rose by a staggering 785,000 in September. This type of survey is more reliable, since the sampling is fairly well established and, significantly, the unadjusted raw data collected are not revised.
Our preferred measure of unemployment is the U-6, which reached a new peak of 17%, up from 16.8% the previous month — and 10.6% a year earlier. The U-6 includes part-timers who seek a full time position, but can not find one, along with the marginally attached workers.
There are about 2.2 million marginally attached workers, who would like to work but have not been able to land a job and are not receiving benefits. The jobless total swells to over 26 million, when the marginally attached workers, the 9.2 million involuntary part-timers and the aforementioned 15.1 million formally unemployed are added all together.
The conclusion is that consumer will not be spending and corporate revenues are destined to continue to drag, as they strain to realize those absurdly inflated Street expectations for 2010-11 earnings, leading them to focus on reducing costs, which translates into cutting jobs.
Hype from Wall Street and Washington about improving economic conditions is irrationally optimistic. The constraints on broad systemic liquidity are still tightening, which could lead to unhappy surprises in this area as well.
The so-called birth/death model, that is supposed to capture the employment additions of new firms and subtractions of those that go out of business, does not work during recessions, since it created 34,000 mythical jobs this past month.
The preliminary revision of the March 2009 benchmark, courtesy of the birth/death model, that month’s payrolls were overstated by a mere 824,000. The job losses in the first quarter were already reported at 2.1 million, adding nearly a million to that suggests a truly dismal employment situation in early 2009.
This September employment report was the 21st month in a row of shrinking employment, the longest losing streak since the monthly numbers started being published back in 1939. It is also the worst decline, even without the benchmark revision, since the post-World War II demobilization. The severe damage caused by this recession, combined with the weakness of the 2002-2007 expansion, are major reasons why private employment is now 2.6% below where it was at its December 2000 peak.
This type of long-term carnage has not remotely happened in any fashion before, when reviewing monthly statistics over the past 70 years. Some pundits claim that employment is a lagging indicator, which we believe is not that case this time around.
Long-term conclusions and current month expectations . . .
There are many investors wondering what is postponing the recovery, with all of the liquidity and stimulus. There are actually other reasons that could be prolonging any from of a major recovery, which are as follows: 1.) The individual states themselves, 2.) rising taxes, 3.) waste in the stimulus and all of the government spending, 4.) consumers’ increase in savings, 5.) concern about the costs of legislation, including health care, 6.) hidden inflation, 7.) underemployment, 8.) concern about multimillion-dollar deficits.
The states’ difficult financial conditions are offsetting some of the impact of the Federal package. Virtually all of the states are cutting back services, laying off workers and in some cases raising taxes. California’s $23 billion budget gap gets the most publicity, but most of the industrialized “blue states” have similar problems to a lesser degree.
This recession was caused by a colossal failure of common sense by the financial community, government, business and consumers. Many of the extraordinary features that propelled the DOW to over 14,000 are no longer in place, and that failure of common sense has brought up many unusual features that did not exist in previous recessions — this recovery, too, will be different. The present difference is that the DOW could remain, once again, within an “elevated period of consolidation” during the course of this month, with an anticipated trading range between 9,400 and 10,800.
A new merger and acquisition period has begun, and we question how it will all end, as companies buying other companies with their formerly stockpiled cash hoards may end up being the worst thing these buyers could do with their cash reserves.
The previous bull market in mid-to-late 2007 saw a record number of deals, and any, if not all, of the deals done then are looked upon as the worst moves at the most undesirable time. All of those full-of-debt deals have imploded and cost many hedge funds, investment banks, and private equity funds great losses, with continuing migraine headaches as well as, in some cases, their very own jobs. There are many reasons that companies buying companies have a long history of not working out.
The reasons for today’s mergers are probably pressure from Wall Street advising companies they have too much cash to let sit idle, and the powers that be are saying the economy is on the way back.
It all depends on the overall economic recovery, not just a seven-month rally, the slight improvement in recent jobless claims, all of the raising of new capital, and now the increased merger and acquisition activity.
The excess liquidity is not only inflating the stock market, but is debasing the US dollar — giving rise to the suspicion that Washington believes the US can export its way out of this recession.
At the same time, the sliding US dollar is encouraging producers of various commodities that trade in US dollars to raise prices as a hedge against the lower currency. This US dollar weakness could persist, at least for the near-term, and we are subsequently projecting a euro fx equivalent trading range for the month between $1.45 and $1.52. The US treasuries could also decline further in price, due to this US dollar weakness, inversely causing yields to rise. We are, therefore, anticipating the US 10-year Note to have a base-yield of 3.10% or higher during the course of the month.
There is no protection if the anticipated resumption of spending over time by the American consumer proves unfounded, other than utilizing the active and flexible Private Account Wealth Management Services outlined below, which is designed to generate a long-term desirable rate of return on investment, in either a rising or declining stock, bond or real estate market.
FOOTNOTE: The release of this month’s newsletter was postponed, to the financial benefit of investors utilizing our Private Account Wealth Management Services. 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.
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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, The DeVoe Report by Raymond DeVoe, Jr., MacroMavens by Stephanie Pomboy, John Williams with Shadow Government Statistics, Liscio Report by Philippa Dunne and Doug Henwood, Principles of the Stock Market by Richard Schwartz, Collopy Letter by John Collopy with Briggs-Ficks Securities.
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.