WAVETECH ENTERPRISES, LLC
Private Account Wealth Management Services
Newsletter Issued 09- 10- 08:
By: John T. Moir
Chief Editor: Clare Mc Kendrick
Position overview . . .
Our previous newsletter, dated August 9th, stated that businesses are going to be forced to step up their layoffs to protect profit margins, with this placing additional pressure on the stock market going forward. We forecasted that the DOW would remain within a period of consolidation, before resuming the primary downward trend, and anticipated a trading range for the month between 10,850 and 11,775. The actual result saw the DOW continue to consolidate as anticipated, but with a narrower trading range than expected, between 11,221 and 11,867.
We stated that the US dollar’s recent strength could be contributed to the unwinding of various currency spreads, resulting in a sharp short-term rally. We further stated that it could have run its course, and expected the it to resume the primary downward trend, with a forecasted euro fx equivalent trading range for the month between $1.50 and $1.56. The actual result saw the US dollar continue its rally and produced a wider-than-expected trading range for the month, between euro fx equivalent of $1.4580 and $1.5551.
The US treasures were expected to be price-supported, since spreads on mortgage bonds were near where they were before the Bear Stearns collapse, corporate-bond yields have followed to a significant degree, and bank borrowing from the Federal Reserve discount window remained quite high. We anticipated the US Treasury 10-year Note would have a peak-yield for the month of 4.05%. Our concerns and expectations were accurate, with the US 10-year Note being price-supported as anticipated, producing a yield trading range for the month between 3.75% and 4.04%.
Looking forward . . .
The US Government’s preliminary estimate for Gross Domestic Product (GDP) claimed that the second quarter grew at a much more robust rate of 3.3%, and was hailed by Wall Street.
The true evidence of economic strength, in a more detailed review, can be derived from the GDP deflator, which purports to adjust GDP for the impact of inflation, but it seems designed to do the exact opposite of actually deflating GDP.
Their accommodating number shows that inflation grew at an improbably restrained 1.33% in the April through June period, and maybe it did, but seem very unlikely. They have draw the conclusion that the lower the deflator, the greater the growth of GDP. The indicated 1.33% increase in the second quarter GDP deflator represents the lowest inflation rate in five years.
It appears that an alternative measure of the second quarter year-to-year contraction of 2.9% would have been more in line with underlying fundamentals, given the ongoing recession. This alternative to the GDP number projects a much clearer picture on the state of the economy, which is the Gross Domestic Income (GDI). It is a rough equivalent of GDP, but measures the nation’s income instead of production.
The GDI, after adjusting for inflation, was only 0.5% for the second quarter, with negative growth in the preceding two quarters — a clear confirmation that the US economy is in a recession.
The recent release that personal income in July suffered its biggest decline in three years, confirming the continued slowing of the US economy in the third quarter. Moreover, the GDP report also treats the decline in corporate profits in a very interesting way, with corporate profits declining by 9.2% in the second quarter, and domestic industries’ profits down on a year-over-year basis by 14.4%.
The GDP report claimed that domestic non-financial profits fell at a much sharper 22% annual rate. They further state that the reason that corporate earnings decline was limited to 9.2% was that profits in the financial sector surged at a 27% annual rate — an improbable claim, and we sincerely hope the US Government will start to report more realistic numbers in the near future.
MORTGAGE FRAUD IS STILL RISING
Investors would think that the kind of unscrupulous activity that helped plunge the mortgage industry into crisis would be a thing of the past, especially with the housing market in turmoil and lending standards tougher than ever.
Mortgage fraud, however, is still rising, and the number of fraudulent loans issued during the first three months of 2008 skyrocketed 42%, compared with the same period in 2007. This further illustrates that people in the industry are becoming desperate.
Loan applications are at an eight-year low and deals are harder than ever to come by for real estate professionals. Loan originators, real estate agents and property appraisers are all scrambling for clients.
Mortgage lenders, making things more difficult, have tightened underwriting standards after getting clobbered with soaring delinquencies and foreclosures.
The credit histories of many applicants are now not good enough to get approved for mortgages, except through some creativity — or trickery — by brokers and loan officers.
The most common type of fraud discovered pertained to employment history and income, with many applications exaggerated how much borrowers earned and misrepresented their job descriptions.
The biggest increase came from a jump in the number of undisclosed or incorrectly reported debts, liens and judgements.
Most fraud involves average home buyers whose lending officers feel compelled to tweak their applications, but some involves criminal enterprises. Cases of identity theft accounted for 6% of all mortgage fraud in Illinois, for example. In many of these deals, crime rings use phony identities to obtain mortgages on properties they do not own, then take the cash and vanish.
The reality is that the industry’s structure has not changed, with mortgage brokers being paid on commission and loan officers rewarded based on their volume — the same pressures to get things done.
The regulatory agencies are overwhelmed, but the FBI did step up its efforts to combat mortgage fraud recently. In June, its Mortgage Fraud Task Force arrested more than 400 mortgage brokers, lenders, appraisers and other industry insiders responsible for more than $1 billion in losses.
We do not expect things to change any time soon, despite these efforts. Loan application misrepresentation continues to plague the industry, and mortgage fraud will not disappear — in fact, it is expected to significantly grow, evolve and penetrate new areas within the industry.
Florida had the largest volume of mortgage fraud in the first three months of 2008, accounting for about 24% of the national total. Second was California, which was followed by Illinois, Maryland and Michigan, all of which had about the same number of incidents. The Miami metro area was ground zero for mortgage fraud during the period, and accounted for nearly half of all of Florida’s incidents, while the Los Angeles area produced 52% of California’s fraud claims.
The dishonest participants will continue to find places in the lending industry and mortgage fraud will go on as before, until systems are implemented to foster the development of ethical, responsible mortgage originators.
Long-term conclusions and current month expectations . . .
The jump in the August unemployment rate to a new five-year high of 6.1% from 5.7% leaves little doubt that the US dollar rally remains largely a manifestation of broadening economic weakness outside of the US, rather than strength at home. This US dollar’s rally could continue, as a currency of renewed safe-heaven choice, as global economies begin to slow, and we are projecting a euro fx equivalent trading range for the month between $1.38 and $1.46.
Weakening global demand appears to be the key factor pulling down crude oil prices, although the surge in the US dollar also helped. The Baltic Dry Shipping Index, a proxy for global growth, has fallen more than 45% since May 2008, further confirming our conclusions. The US treasuries could remain a global safe-heaven during the course of the month, with the US 10-year Note having a peak yield of 3.90%.
The US dollar strength is also helping to take commodity prices off the high boiling point seen recently, reducing inflationary expectations, but it would an error to assume that the falling commodity prices as well as crude oil prices will rescue the US consumer.
Energy expenditures account for just over 4% of total US consumer expenditures, whereas labor compensation accounts for 80% — meaning the labor market is 20 times more important to the outlook for spending than expenditures for energy.
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. As a result, the DOW could remain under pressure during the course of the month, with a projected trading range of between 10,600 and 11,800.
The recovery process for the US economy could take considerably longer, so investors may want to consider the unique and flexible Private Account Wealth Management Services outlined below, which can generate above normal rates of return on investment in either a rising or declining stock, bond or real estate market.
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, Mortgage Asset Research Institute (MAR), a division of ChoicePoint, Michael Darda with MKM Partners, Mortgage Bankers Association, Bill Garber, Director of Government Affairs for the Appraisal Institute Trade Group, John Williams of Shadow Government Statistics, David Rosenberg, Economist with Merrill Lynch Ashraf Laidi with CMC Markets.
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.