Sunday, January 26, 2020

Stock Market Overview -- Global Markets Liquidity Crisis

Stock Market Liquidity Crisis....

September 16th 2019 marked the beginning of the liquidity crisis, within the re-purchasing agreement market, which is short-term borrowing for banks/dealers in government securities -- commonly referred to as the "repo market." This is the way the Federal Reserve injects liquidity into the banking system by purchasing Treasury Bills (non-QE), instead of Treasury Bonds, so that it cannot be referred to as Quantitative Easing or QE4.

The Fed has been in emergency mode, effectively "bailing out" the overnight cash repo markets, continuously. These efforts were supposed to allow banks some breathing room to build up their cash reserves, and resume normal overnight lending, once again, but, unfortunately, this has not happened.

The Fed has intervened almost every night in the repo market, since the rates first spiked out-of-control on September 16, 2019  -- with the fed funds rate jumping, from 1.75% to nearly 10%, due to lack of liquidity -- but nothing has changed since that initial event.

The daily interventions with cash injections have usually been around $75 billion, but despite all of the liquidity the Fed has been providing, it has only served as a Band-Aid, since the problem which caused the spike in the first place has not been resolved.

The rates would spike immediately, if the Fed were to withdraw the overnight cash injections.

There are a few underlying issues causing the liquidity crunch. The main one is the lack of cash reserves at banks. The major players, who usually provide the overnight lending do not have the cash to lend, and the ones that do have the cash are not willing to lend it. Banks' balance sheets are filled with collateral, which are mostly US Treasuries, instead of cash to lend.

The banks have not been able to turn their excess US treasuries into usable cash, despite the Fed increasing its own balance sheet, by essentially providing Quantitative Easing (non-QE). 

This is non-QE, because the Fed is only buying Treasury Bills in an attempt to avoid admitting they are doing QE, which would be the case, if they were buying US Treasury Bonds. 

This has put the biggest banks in a bind, because these big banks are required to buy US treasuries at auction, and now they have no one to sell them to, when they require liquidity.

There is pressure building under the surface, even though it seems the Fed has been able to keep a lid on the repo liquidity issue. Cash and the liquidity needs will increase dramatically, going into the end-of-the-year.

Most people are not aware, but last December 2018, there was a spike in repo rates as well as the year came to a close. 

The difference was that last year banks had much more in excess reserves than they do this year, and didn't have to contend with the restraints that exist this year through the Globally Systemically Important Banks (G-SIB), which is a fancy term for too-big-to-fail banks.

This designation was given to large banks, after the financial crisis, and with the designation comes certain liquidity/reserve requirements, and what banks can do with that money.

One restriction is the order in which banks can deploy any excess reserves that they have on hand. First, banks can lend in repo markets, then, they can use reserves to buy US treasuries. Finally, they can lend through FX swaps (foreign currency markets).

Banks are currently limited to operating in the repo market with only their excess cash, due to their current high G-SIB scores, elevated because of the stock market performance and the flat interest rate yield curve.

It may seem acceptable that the banks are forced to prioritize their repo lending, but the real problem is within the FX swap market, because this will force the FX swap market to be virtually dry of lending. 

The vacuum in the FX swap market will be magnified, with the repo market tapped out. Additionally, just because banks are required to prioritize excess liquidity in the repo market, to begin with, doesn't mean the banks have any liquidity.

In other words, the Fed has placed a lid firmly down on rates in the repo market, and the pressure building is going to burst into the FX swap market.

There will only be one thing that banks and institutions can do, with a massive surge in demand for cash, which would be to sell their assets - US treasuries and equities.

There is a stock market drop, when equities sell- off. The extent of the drop may be insignificant, but it all depends on when the Fed steps in to "rescue" the system, again. It is possible this triggers a larger correction in the stock market in a very short period of time. These things tend to trigger more and more selling like a self-propelling machine, with fast-moving drops.

There is a spike in yields, when US treasuries sell-off, which is disastrous for an economy standing on a foundation of debt. This is because debt service becomes more expensive, and if an economy or country can barely afford the debt as-is, it will collapse, if the debt gets more expensive.

The Fed will attempt to buy US treasuries again through QE4, and turn bank reserves in the cash, which will allow banks to operate as lenders, again. This will also put a floor underneath the sell-off that could get triggered in the year-end liquidity crunch.

The Fed will not start buying US treasuries now, since they have made it very clear that that they don't intend to change their current course until the "incoming data" demands a different course of action.

A looming cash crunch, evidenced by current reserve levels and year-end cash needs, does not count as demanding a different course of action for the Federal Reserve. They have chosen to be reactionary, not proactive, which means that it will likely take a big stock market correction or US treasury sell-off to prompt a change in course.

The big issue here is that the whole system is horribly fragile, and it is incredibly reliant on continuous, increasing debt monetization by the Fed. Every attempt by the Fed to stop, reversed, or slow down this balance sheet expansion has exposed the enormous cracks in the foundation.

The true economic realities will come to the surface, even with ever-increasing intervention/stimulus/accommodation. Printing money solves no fundamental problems, but only delay the consequences. 

The problems grow worse under the surface, with longer delayed consequences. It's simply a matter of time before this deceptive outward appearance breaks.

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The stock market information discuss has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The stock market overview was issued for informational purposes, and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This overview is based on information obtained from sources believed to be reliable, but are not guaranteed to be accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in this stock market overview. Recipients should not regard this overview as a substitute for the exercise of their own judgment. Any options or opinions expressed in this stock market overview is subject to change without any notice and Wavetech Enterprises, LLC is 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 stock market overview accept no liability for any loss or damage of any kind arising out of the use of any or all parts of this information.

Sunday, October 13, 2019

Stock Market Overview -- Top 21 Signs of an Economic Collapse

Top 21 Signs of an Upcoming Economic Collapse....

The outlook for the economy has never been as dire as it is right now, since the end of the last economic collapse. Economic red flags are popping up everywhere you look, and the mainstream media is suddenly full of stories about the coming stock market crash.
Things appear to be changing dramatically for the US and global economies, after several years of relative economic stability. We are seeing things happen that have not been witnessed, since the last economic collapse, and many analysts expect our troubles to accelerate as we head into the final months of 2019.

There are hopes that things will turn around, but at this point that does not appear to be likely. Below are the top 21 signs of a global economic collapse at this key and pivotal point:
1.) The US and China trade war has just escalated to an entirely new level, with the commencement of 15% US tariffs on Chinese goods worth an estimated $110 billion, and the retaliatory action of China imposing tariffs on about $75 billion worth of US goods. 

The world has already lived through two rounds of US tariffs and subsequent retaliation, but these recent tariffs, along with the ones being delayed until mid-December 2019, are different than the ones that came before, since they will broadly affect global economic growth.

2.) US tariffs on China have already caused American households $600 per year, which will now rise to over $1,000 annually, after the September and December 2019 tariffs go into effect.

3.) Interest rate yield curve inversions have preceded every economic recession since the 1950s -- a major reason for the enhanced stock market volatility, globally.

4.) The US consumer sentiment index just posted a monthly decline in August 2019 of -8.6 points, the largest drops since December 2012 of -9.8 points. The overall consumer buying attitude towards appliances and other household durable goods fell to their lowest level in five years, with "net price" references more negative than anytime since 2008.

5.) The mortgage default rate is rising for the first time since the last financial crisis, with the national default rate increasing 3% in the second quarter of 2019, when compared to the same quarter in the prior year -- the first such rise in over a decade.

6.) Luxury real estate is having its worst year since the financial crisis, with pricey markets like New York City seeing six straight quarters of sales declines. Sales of homes priced at $1.5 million or more fell 5% in the US for the second quarter of 2019. Unsold mansions and penthouses are piling up across the United States, especially in ritzy resort towns where there is a three-year supply, like in Aspen, Colorado as well as the Hamptons in New York.

7.) The US manufacturing sector has contracted for the first time since 2009 as manufacturing companies continue to feel the slowing economic conditions, with global ramifications. The US manufacturing purchasing managers index (PMI) was 49.9 in August 2019, down from 50.4 in July 2019, and below the neutral 50.0 threshold for the first time since September 2009.

8.) The Cass Freight Index has been contracting for the past eight months, falling 6% in May, then 5.3% in June, and 5.9% in July 2019. It is subsequently predicting negative Gross Domestic Product (GDP) growth by the third or fourth quarter of 2019.

9.) Gross Private Domestic Investment tumbled 5.5%, the worst since the fourth quarter 2015, as spending on structures slumped 10.6%. This decline reduced the US second quarter 2019 GDP growth by one full percentage points, being revised downward to 2.0%. The falling inventories also caused a 0.86% drag on the economy.

10.) Crude oil processing at US refiners has fallen by the most since the financial crisis, due to slack fuel demand. US refineries slashed an average of 247,000 barrels per day, since January 2019, compared with the same period in 2018. Crude oil processing has fallen for the first time since 2011, and by the most since the 2008 and 2009 financial crisis.

11.) Retailers Sears and Kmart will be closing an additional 100 stores by the end of 2019, further confirming the reduced consumer spending abilities, which represents 70% of the US economy.

12.) Sales of US recreational vehicles (RVs) are down 20% so far in 2019, partly due to some of the imposed tariffs. Recreational vehicle shipments to domestic dealers have subsequently plummeted 20%, compared to the same period last year, after already dropping 4% in 2018. The RV industry is a great bellwether of the US economy, and right now it is screaming that a financial crisis is coming.

13.) There are actually 102 million working age Americans that do not have a job right now, but according to the Bureau of Labor Statistics (BLS), there were 6.1 million unemployed working age Americans in August 2019, which would be incredible if it was an honest number. but it does not include all working age Americans that are not currently employed. The BLS is not considering them officially unemployed, because they're not part of the labor force. 

The Federal Reserve indicated in August 2019 that there were 95.9 million not in the labor force, an all-time record high. The BLS unemployed number keeps going down, and the "not in the labor force" number keeps going up. Hence, you come up with a grand total of 102 million working age Americans that do not have a job right now, when you add 6.1 million and 95.9 million together.

14.) The S&P 500 earnings per share estimates have been declining, since the beginning of 2019 -- a clear and established trend.

15.) Global trade fell 1.4% compared to a year earlier. World trade volume, a measure of imports and exports around the globe, declined in June 2019 to the lowest level since October 2017, representing the biggest year-over-year decline, since the financial crisis -- a major reversal from the strong growth in 2017 and 2018 that topped at 6.7%.

16.) Germany stands on the edge of a recession precipice. Their government's statistics agency reported that their economy shrink by 0.1% in the second quarter 2019. Furthermore, Germany's central bank is predicting that they will post declining third-quarter growth as well, confirming the definition of a recession -- two consecutive quarters of economic contraction.

17.) The correlation between present day sentiment and that of the 2008 financial crisis is quite similar. Even the recent risk-on phase (rally) after the initial shock of the yield curve inversion, and the risk-off mood (sell-off) that struck later, neatly track patterns recorded in 2008.

18.) Corporate insiders have been selling an average of $600 million per day in August 2019, as they prepare for a financial apocalypse. This confirms the level of fear that presently exist within corporate insiders -- such selling would only exist if a stock market crash was possible.

19.) Investors are liquidating emerging funds at a never seen before pace, representing nearly $12 billion in just the past 11 weeks.

20.) The economic policy uncertainty index reached its highest level ever in June 2019, exceeding all prior peaks, since the index was established in January 1997.

21.) Americans are searching on Google the term "recession" more times today than what was realized during the financial crisis in 2008. 

The signs are clear, but, unfortunately, we live at a time when "normalcy bias" is rampant in our society. This is also referred to as "normality bias," which is defined as the belief that people hold, when considering the possibility of a disaster. It causes people to underestimate both the likelihood of a disaster and the possible effects, because people believe that things will always function the way things have normally functioned. 

This may result is situations where people fail to adequately prepare themselves for disasters, and, on a larger scale, the failure of governments to include the populace in its disaster preparations. About 70% of people reportedly display "normalcy bias" in disasters.

In summary, the financial crisis of 2008 and 2009 is a distant memory for most Americans and global investors. The vast majority of the population feel confident that brighter days are ahead, even if we must first whether an economic recession. As a result, most people are not preparing for a major economic crisis, and that makes them extremely vulnerable. 

Most Americans were completely surprised by the horrible financial crisis of 2008 and 2009 as well as the recession that followed -- it will be the same, this time around, even though the warning signs are there for everyone to see. 

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The stock market information discuss has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The stock market overview was issued for informational purposes, and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This overview is based on information obtained from sources believed to be reliable, but are not guaranteed to be accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in this stock market overview. Recipients should not regard this overview as a substitute for the exercise of their own judgment. Any options or opinions expressed in this stock market overview is subject to change without any notice and Wavetech Enterprises, LLC is 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 stock market overview accept no liability for any loss or damage of any kind arising out of the use of any or all parts of this information.

Tuesday, September 10, 2019

Stock Market Overview -- Financial Crisis Consequence(s)

Possible Financial Crisis Consequence(s)....

Trade Imbalance: It starts with people living beyond their means, and taking on debt. Wages become distorted, production costs escalate, and industries move offshore, resulting in trade deficits, and an unsustainable national debt.


Financial Instability: The financial system suddenly and dramatically destabilizes, when debt levels reach the tipping point. Companies and individuals can no longer borrow money, leading to bankruptcies and soaring unemployment.

Currency War: Politicians seek to cheat economic laws. Governments print money to pay debts and devalue their currency, which temporarily promotes exports and discourages imports -- those who devalue first, gain the most.

Trade War: Governments enact tariffs, taxes, and subsidies as they work to steal trade from each other. Global trade plunges, exacerbating the financial crisis, and unemployment rises. Politicians, again, devalue currencies, and enact more radical populist measures.

Hot War: First mover advantage goes to those who unexpectedly strike first, just like currency wars.

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The stock market information discuss has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The stock market overview was issued for informational purposes, and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This overview is based on information obtained from sources believed to be reliable, but are not guaranteed to be accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in this stock market overview. Recipients should not regard this overview as a substitute for the exercise of their own judgment. Any options or opinions expressed in this stock market overview is subject to change without any notice and Wavetech Enterprises, LLC is 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 stock market overview accept no liability for any loss or damage of any kind arising out of the use of any or all parts of this information.

Tuesday, July 2, 2019

Stock Market Overview -- Consumer Debt Crisis

Statistics Proving the US Consumer is facing Debt Apocalypse...

Consumers have never been in so much debt, during the entire history of the United States, and there would not be an economic collapse as long as the vast majority of consumers are regularly making their debt payments, but as you will see below, the delinquencies are starting to rise to extremely disturbing levels.


In fact, some of the numbers that are coming in are even worse than what we witnessed, at any point, during the last economic crisis. Just imagine what things are going to look like, once the economy really begins to deteriorate, especially when there are already alarming areas of concern.

It appears we are heading into a new economic collapse, even though, according to the Federal Reserve, it has not officially begun quite yet -- meaning, the worst is yet to come.

Millions of Americans will likely lose their jobs, just like in previous economic recessions as well as depressions, and without an income, most of those that suddenly find themselves unemployed will not be able to pay their bills.
The stage is set for the largest tsunami of consumer debt defaults that the United States has ever seen, which will absolutely devastate major financial institutions across America as well as have global repercussions.

Please carefully review the below list, which is proof that we are not exaggerating things even a little bit. The following 12 statistics prove that the US is facing a consumer debt apocalypse:

1.) Total consumer debt in the US just surpass the $4 trillion level, which has never happened before in all of US history -- most of it comprised of auto loans, student loans, personal loans and credit cards.

2.) US consumers are now in debt for a total of $13.5 trillion, when you throw in mortgages and all other kinds of individual debt. There was a 22% increase in debt, during the first quarter of 2019, when including mortgages.

3.) There are 480 million credit cards currently in circulation within the United States, which is an 13% increase since 2015. Credit card balances are now exceeding the previous 2008 peak level, just as the prior economic recession was underway.

4.) US consumers are carrying $870 billion worth of balances on their credit cards right now, with 35% of them being over the age of 60.

5.) Over 55% of Americans, with credit card balances, have been carrying them for more than a year.

6.) There are 37 million credit card accounts in the US that are classified as "seriously delinquent" -- 90 days or more past due.

7.) Americans now owe a total of $1.3 trillion on their auto loans, up $584 billion, since 2010.

8.) At the moment, 7 million consumers are delinquent on their monthly auto loan payments by 90 days or more -- surpassing the previous peak, during the last economic collapse, by 1 million Americans.

9.) The total amount of student loan debt in the United States has reached $1.5 trillion, consisting of 44 million borrowers, with an average loan balance of $28,000. This total outstanding loan amount has doubled over the last 10 years, while still representing all demographics and age groups.

10.) There is $166 billion in student loans debt that is considered to be "seriously delinquent" -- 90 days or more past due.

11.) Millennials are now more than $1 trillion in debt, with no generation of Americans having ever been deeper in debt at this stage in life -- drowning in debt.

12.) One recent survey found that 78% of Americans are "living paycheck to paycheck." Suffocating debt levels are a big reason why that percentage is so incredibly high -- very little room for error.

We have not seen anything like this, since the last economic crisis. At this point, even main street economist, are openly admitting what is coming, and when the next economic collapse strikes, things are going to get very difficult for US consumers. A debt apocalypse is coming, and is going to be incredibly painful, especially for US consumers. 

Job cuts are starting to rise, and a recent Fed surveys expects second quarter 2019 Gross Domestic Product (GDP) growth to be only 1%, as the economy begins to rapidly slow -- a concerning trend, when 70% of the US economy is depended upon US consumer spending. 

Businesses are already nervous, so a major US downturn would happen swiftly, with the worldwide ripple-effect, ushering in a global slowdown.

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The stock market information discuss has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The stock market overview was issued for informational purposes, and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This overview is based on information obtained from sources believed to be reliable, but are not guaranteed to be accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in this stock market overview. Recipients should not regard this overview as a substitute for the exercise of their own judgment. Any options or opinions expressed in this stock market overview is subject to change without any notice and Wavetech Enterprises, LLC is 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 stock market overview accept no liability for any loss or damage of any kind arising out of the use of any or all parts of this information.

Sunday, March 24, 2019

Stock Market Overview -- Financial Crisis Catalyst

Deteriorating Corporate Debt could be the Financial Crisis Catalyst...


Financial crises tend to involve one or more of these three key ingredients: excessive borrowing, concentrated bets, and a mismatch between assets and liabilities. The crisis of 2008 was so serious because it involved all three -- big bets on structured products linked to the housing market, and bank-balance sheets that were both overstretched and dependent on short-term funding. The Asian crisis of the 1990s was a result of companies borrowing too much in US dollars, where their revenues were in local currencies. The dot com bubble had less serious consequences in either of these, because the concentrated bets were in equities, where debt did not play a significant role.
It may seem surprising to assert that the catalyst of the next financial crisis is probably lurking in corporate debt.

A few companies may be rolling in cash, but plenty are not. Companies, in recent decades, have sought to make their balance sheets more "efficient" by raising debt, and taken advantage of the ability to deduct interest payments, for additional tax savings. Businesses, with spare cash, have tended to use it to buy-back shares, either under pressure from activist investors or because doing so will boost the share price, and thus the value of executives' stock options.

A prolonged period of low rates has made it very tempting to take on more debt, with 37% of global companies being highly indebted -- five percentage points higher than they were 11 years ago, just before the previous financial crisis hit. Also, more private-equity deals are loading up on debt, amounts much higher than at any time.

One sign of a upcoming financial crisis is that the credit quality of the bond market has been deteriorating globally, with the median bond ratings having dropped steadily since the 1980s, from A to BBB-. The bond market is divided into investment-grade debt with a high credit rating, and speculative, commonly referred to as "junk" bonds, which are below that level. The dividing line is at the border between BBB- and BB+, with the medium bond rating being now just one notch above "junk."

Even the quality of investment-grade bond debt has gone down, with 48% of such American bonds now being rated at BBB, up from 25% in the late 1990s. Issuers of such bonds are also more heavily indebted than before, with a net leverage ratio for BBB issuers of 2.9, compared to 1.7 in 2000.

Investors are not demanding higher yields to compensate for the deteriorating quality of corporate debt, but just the reverse. In some European countries, investors are demanding no excess return on corporate bonds, to reflect the issuers credit risk. In America, the spread between government and corporate bond yields is at the lowest level in 20 years. Investors have been tempted to buy the bonds, because of the poor returns available on cash, just as low rates have encouraged companies to issue more debt.

In addition, the cost of insuring against a bond issuer failing to repay, as measured by the credit-default-swap market, has fallen by 40% over the last two years -- meaning, investors are less worried about corporate default. However, a model looking at the way banks assess the probability of default, suggest that the risks have barely changed over this period.

Hence, investors are getting less reward for the same amount of risk. Combining this with the declining liquidity of the bond market, because banks have withdrawn from the market-making business, and you have the recipe for the next financial crisis, with already-present ominous signs.

Foreign purchases of American corporate debt has dried up in recent months, and the return on investment-grade debt, so far this year, has been -3.5%. 

The withdrawal of Central banks monetary stimulus will eventually lead to liquidity concerns, and further downgrades of corporate bond debt, from investment-grade to the junk rated status, will force companies to liquidate the undesirably rated bond debt, with virtually little demand -- trying to improve their balance sheets and stabilize their companies declining share prices.

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The stock market information discuss has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The stock market overview was issued for informational purposes, and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This overview is based on information obtained from sources believed to be reliable, but are not guaranteed to be accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in this stock market overview. Recipients should not regard this overview as a substitute for the exercise of their own judgment. Any options or opinions expressed in this stock market overview is subject to change without any notice and Wavetech Enterprises, LLC is 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 stock market overview accept no liability for any loss or damage of any kind arising out of the use of any or all parts of this information.

Tuesday, December 4, 2018

Stock Market Overview -- Alarming Stock Market Concerns

Alarming Similarities to the Dot com Bubble of 2000, and Present Day Stock Market Conditions...

There are a number of alarming similarities to the bursting of the dot com bubble in the year 2000, and the high risks with popular stocks of today, like with Amazon and Apple -- one important reason to be concerned about rich valuations. Trouble also exist with respect to rising interest rates and the growing mountain of debt around the world.
The Internet bubble peaked and proceeded to brake in March 2000, with the NASDAQ at 5132, and all those crazily valued dot com stocks crashed. The other stock markets followed suit, all within three weeks, even as investors rotated into what they perceived to be safer big Tech names like: Intel, Cisco, Microsoft, Nortel, EMC, and Sun Microsystems. Unfortunately, that is what we are seeing today, in a similar way, but with stocks like: Amazon, Apple, and, once again, Microsoft.

Investors were chasing momentum, just like what they are doing again today. In 2000, Intel dropped 45% in just one month, which, at that time, was the second largest company in the world. It was the equivalent of Amazon today, which means Amazon's market cap would go from around $1 trillion to $550 billion in just one month. This is a shockingly large move, but the difference is that Intel's price-to-earnings (PE) ratio was 55 back then, whereas Amazon's PE is a whopping 155 today.

Those bullish on the stock market will argue that interest rates are very low; therefore, they think the coast is clear, but here's the real problem: central banks have encouraged the whole world to take on an enormous amount of debt, by dropping rates to zero percent or even lower. Global debt amounts to $245 trillion, and it's up 40% since the credit crisis of 2008.

Central banks have tried to correct a debt crisis with much more debt. The US, for instance, has more than doubled its debt, up to $21.2 trillion, and has added $1.4 trillion of debt in just the last 12 months.

Therefore, the US is heading into severe problems, even with interest rates for US treasuries still at historically very low levels. The interest expense for the US government is going to skyrocketing in the coming years, even if rates stay where they are today.

Reason being, huge amounts of debt is causing all kinds of other problems. We're probably looking at another emerging market crisis, with rates now rising around the world. There are some twenty countries whose currencies have fallen by double digits against the US dollar.

In the US, it's not just the government that has borrowed heavily, but consumers and corporations have borrowed records amount of debt. This means that higher interest-rate expenses will more than offset or at least equalize the positive affects from Trump's tax cuts, and these tax cuts -- supposedly economic incentives -- are going to increase the deficit even more. 

Yet, the countries that have funded the US deficit are reducing or completely eliminating their US treasury holdings, with Japan, China, Russia, and Mexico all selling a lot of US treasuries. The only countries remaining that are now funding the US, in a big way, are the Europeans, because they still have negative interest rates; however, that support could go away as well, as rates in Europe eventually rise. Investors, who are piling into these big-name tech stocks, are not thinking about this eventuality.

The most elusive objects of speculation, the crypto-currencies, have broken, the situation in the emerging markets are getting worse, interest rates are rising, the Federal Reserve is scaling down its balance sheet, and consumers are in financial trouble. We are already seeing indications of weakness in the housing market as well as in auto sales.

It's just a matter time, unfortunately, since each time the fed raises rates further, it's an added strain to the overall global economies. The Fed knows that this is in an extremely difficult situation, even though they will never admit it. Recessions and overall bear markets have been led by interest-rate hiking campaigns, almost every time. It is uncertain if history will repeat itself exactly, but we are in a similar situation today as we were in 2000.

The overall PE ratio's may not be as high as they were in 2000, but other indicators confirm major concerns. For instance, the median price-to-sales ratio for the S&P 500 is two times higher than it was in 2000, and the medium price-to-book value is just as high as it was back then -- showing that this bubble is much broader than it was in 2000.

In addition, think about all the measures that corporations have taken in order to pump up their earnings, which includes a record number of corporate stock buybacks, and non-GAAP earnings numbers -- doing everything they can to make earnings look better than reality.

The PE ratio's would probably be just as insane as 2000, if you removed all of these "gimmicks", confirming the dangers of this stock market bubble. Unfortunately, there is no rationalization in the stock market today, just like there wasn't in 2000 of the dangers that were lying ahead.

Investors have always counted on the Fed the step in, when economic conditions deteriorate; however, there is going to be a lot of pain, unless the Fed comes in and prints a lot more money. They are not going to be able to lower rates much more, with interest rates still at very low levels. In fact, when they tried to lower rates in 2007 and 2008, it didn't have any impact -- the markets just kept plunging, so they had to launch quantitative easing programs (QE).

This time, it's going to be another round of QE, which will hopefully indicate to investors that the central banks have lost control, and are never going to be able to get us out of this problem -- money printing never works. Everybody, over the past thousands of years, would've used some form of money printing, if it actually worked over the long-term.

A lot of governments have tried it, in their own way, and every time it has failed, ending up with malicious investments, over-capacities, asset bubbles, and other unexpected as well as undesirable consequences.

The Fed and other central banks around the world are essentially out of control. Investors probably would have never imagined that there would be trillions of dollars around the globe yielding negative rates or printing $15 trillion to support global economies, because it had never happened before in human history.

Visit our website at www.wavetechenterprises.com, view the cover page video PowerPoint presentation, click on the "Sign Up" link, and fill out the mentioned inquiry form with your own personalized password as well as answer a few questions, to gain entrance to the over 150 internal pages within the website.


Disclaimer: The information contained in this message may be privileged and confidential and thus protected from disclosure. You are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited, if the reader of this message is not the intended recipient, or an employee or agent responsible for delivering this message to the intended recipient. Please notify us immediately by replying to the message and deleting it from your computer, if you have received this communication in error. 

The stock market information discuss has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The stock market overview was issued for informational purposes, and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This overview is based on information obtained from sources believed to be reliable, but are not guaranteed to be accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in this stock market overview. Recipients should not regard this overview as a substitute for the exercise of their own judgment. Any options or opinions expressed in this stock market overview is subject to change without any notice and Wavetech Enterprises, LLC is 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 stock market overview accept no liability for any loss or damage of any kind arising out of the use of any or all parts of this information.

Monday, October 15, 2018

Stock Market Overview -- Warning Signals for Markets


Three Early Warning Signs of Declining Liquidity, and the Possible Consequences...

Investors are being lulled into complacency by the illusion of liquidity in good times. Bulls can become Bears, when investors want to reduce their holdings or moved to the sidelines.


Investors mistake is believing that a willing buyer or bank lender will be there for them the moment they want to sell or finance a position. Liquidity may be available, if an investor unwinds a position slowly and early enough, but most investors will stay too long and discovered that when they want to make a move to reduce their position size, everyone else will be doing the same thing, indicating the crash has already started. 

That's one of the hardest parts of investing -- deciding to liquidate positions, when markets are still rising, and the party is still going strong. Investors are overcome with the fear of "missing out" -- they don't want to reduce stock positions and obtain only cash, to find their neighbor is still fully invested and enjoying big gains.

The obvious question for investors is whether it's possible to get a "early warning" or predictive analytical signal that a liquidity crunch is on the way. It would, then, make it possible for investors to stay a little longer with a Bull market, and pick up additional market gains, but still get out in time before the party is over, if such a perfect signal were available.

Right now, indications are that liquidity is growing scarce, and maybe time to sell stocks as well as bonds, and increase cash allocations.

The first indication of liquidity concerns is the narrowing demand in the US treasury auctions. The most important participants are the dealers and brokers, consisting mainly of primary dealers who are obliged by the Fed to bid at auctions and make two-way markets in US government securities.

Overall participation has declined sharply since 2017 in all categories, and dealer participation has steadily eroded since 2012. The primary underwriters of that debt are backing away from the market, as are other market participants, just as the US treasury has to sell record volumes of debt, because of the Trump tax cuts and budget sequester repeal. The result is a sharply falling liquidity in the world's most important securities market.

The second indication that liquidity is drying up is the spread between the London interbank offered rate (LIBOR), and the overnight indexed swap rate (OIS).

An (OIS) transaction is an unsecured contract that involves two banks (or a bank and a customer) in which one party makes a fixed-rate payment and the other party makes a floating-rate payment (the overnight rate).

An OIS transaction mimics the interest rate cash flows on a secured funding, where an investor buys a fixed rate security and finances it in the overnight repo market. The difference in the OIS deals is that there is no actual security involved -- it is just an exchange or "swap" of interest-rate payments, one fixed and the other floating.

The OIS rate is typically tied to the Fed funds, another central bank target rate in Europe or the UK. LIBOR is the rate at which banks lend excess funds to each other for short terms on an unsecured basis.

In principle, LIBOR and the OIS should be almost the same, both are unsecured short-term rates for lending between banks. The difference is that LIBOR is tied to a rate that banks set between themselves, and the OIS rate is tied to a rate central banks control such as Fed funds -- with a typical spread between LIBOR and OIS of 0.10% or 10 basis points (bp).

There is a sign of stress or lack of liquidity in the banking system, when the LIBOR-OIS spread widens beyond about 10 bp. The OIS stays anchored, because it is linked to a central bank target rate, but LIBOR increases because the banks either don't have funds to lend or begin to question the credit worthiness of the counterpart banks.

The LIBOR-OIS spread reached an all-time high of 364 bp (3.64%) at the height of the financial crisis in October 2008. The spread is nowhere near that today, but it has spiked sharply, from 10 bp in late 2017 to almost 60 bp today -- the highest level in over two years. This abrupt change presents a major liquidity concern, going forward.

The third indication is because of the recent Fed announcements that they will be replacing LIBOR with Secure Overnight Financing Rate (SOFR) as a benchmark rate for US dollar-denominated loans and derivatives.

SOFR is essentially the same as the repo rate, which is the rate at which bank dealers finance inventories of government securities on an overnight basis.

LIBOR is being replaced with SOFR, because of the recent scandals in the LIBOR market, involving manipulation as well as price fixing by banks. It is also true that LIBOR is being used less frequently than in the past, because banks have been parking excess reserves at the Fed, so there's less interbank lending on which to price LIBOR.

What the Fed left out of their announcement is the obvious fact that SOFR is a secured rate, while LIBOR is an unsecured rate. SOFR transactions involve pledges of government securities to secure the overnight loans, while LIBOR transactions are totally unsecured loans between banks. SOFR rates will almost always be lower than LIBOR rates, because of the security feature.

The Fed is using a unequal rate comparison to disguise the fact that liquidity is drying up in the unsecured bank lending market. In the future, LIBOR-OIS type spread or LIBOR-repo spread might disappear, because LIBOR itself has disappeared.

This is more than a technical change in benchmark rates, but indications of the coming absence of liquidity in the unsecured bank lending market.

In summary, there are three early warning signals of declining liquidity: Dealers are backing away from the market, private rate-to-Central Bank rate spreads are widening, and the Fed is attempting an unequal switch, to hide lost liquidity in interbank markets.

This may be investors last opportunity to liquidate risky assets, and placed them into more liquid cash positions or setting up a single as well as secure Online brokerage account for global diversity, flexibility, and liquidity, offered through our Private Account Wealth Management Services. There will be a mad dash for liquidity for those investors that wait too long, but won't find it, when they need it the most.

Visit our website at www.wavetechenterprises.com, view the cover page video PowerPoint presentation, click on the "Sign Up" link, and fill out the mentioned inquiry form with your own personalized password as well as answer a few questions, to gain entrance to the over 150 internal pages within the website.


Disclaimer: The information contained in this message may be privileged and confidential and thus protected from disclosure. You are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited, if the reader of this message is not the intended recipient, or an employee or agent responsible for delivering this message to the intended recipient. Please notify us immediately by replying to the message and deleting it from your computer, if you have received this communication in error. 

The stock market information discuss has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The stock market overview was issued for informational purposes, and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This overview is based on information obtained from sources believed to be reliable, but are not guaranteed to be accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in this stock market overview. Recipients should not regard this overview as a substitute for the exercise of their own judgment. Any options or opinions expressed in this stock market overview is subject to change without any notice and Wavetech Enterprises, LLC is 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 stock market overview accept no liability for any loss or damage of any kind arising out of the use of any or all parts of this information.