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.

Tuesday, January 9, 2018

Stock Market Overview -- Key Economic Turning Point

Key Economic Turning Point...

Repeating Economic Cycles. Economic cycles commonly reoccur throughout history, but they more rhyme than duplicate themselves.
Each overinflated stock market move or bubble, tends to get more extreme than the last one, because there is more wealth to chase it, which is concentrated in the top 1% to 0.1%, and grows exponentially, which is not the case with income levels.
Stock Market Bubble History. The greatest bubble of our lifetimes was the tech bubble in the Nasdaq, from late 1994 into early 2000, which was built over a period of five years -- the typical time frame for most stock market escalated bubbles.

The current stock market bubble, from 2011 to present day, is an anomaly. The Federal Reserve and global Central Banks unprecedented quantitative easing and zero interest-rate policies, for nearly 9 years, has artificially driven this stock market advance, further explained within the below section titled, "Stock Market Stimulus Defined."

Their actions have now outstripped the tech bubble in time as well as total point and percentage gains -- making this the greatest stock market bubble in modern history, except, now, that dubious honor goes to that crpytocurrency, Bitcoin.

Internet Sector Similarities. Bitcoin and the other cryptocurrencies are following a similar path to the Internet sector of the last tech bubble, between late 1998 and early 2000.

The Internet index went up eight times in a little more than a year, and then collapsed 93%, compared to the 78% decline in the Nasdaq -- now that's an extreme bubble!

Most of damage occurred within one year, with the initial sharp decline in the first few months, where investors lost 50% in just a few months. Therefore, this is why it's better to make investment changes early, like the soon-to-be-Billionaire's Rothschild, Kennedy and Carnegie did in the late-1920's -- being contrarians, at peak levels of greed -- just prior to a significant change in economic conditions as well as a major stock market decline.

Investor Emotions Amplify Various Economic Indicators. Global markets have always moved through varying levels of "Greed and Fear." These emotions produce extreme moves to both overbought and oversold conditions, with similarities throughout history.

Currently, there are similar conditions to the stock market tops of March 2000 and October 2007, with a number of economic and investment indicators. 

For example, consumer confidence has increased to an extreme level of 132, eclipsing the previous peak of 128, just a few months after the stock market peak of 2000. This current level of exuberance easily exceeds the consumer confidence level of 110 during the 2007 stock market top, further illustrating the extreme level of exuberance and complacency.

Furthermore, US consumers continue to splurge at an accelerated rate, with personal spending rising 0.6%, as Americans decided to splurge on holiday products and services, even as personal income rose by a lower than expected rate of 0.3%. 

There has been historical changes in income, spending, and savings, because as Americans splurged in November and December of 2017, the personal savings rate continuing to decline, tumbling from 3.2% to 2.9%, the lowest since November 2007, which is when the stock market peaked and one month before the recession started.

Also, strangely, the collapse in savings took place even as US wage growth actually surprised to the upside, rising at 4.5%, more than the core consumer spending of 4.3%, for the first time since December 2015.

However, despite this favorable wage environment, Americans were not only unable to save, but saw collective savings declined by $41 billion in November 2017 to $426 billion.

The dramatic savings decline and spending surge, incidentally, coincides with the surge in credit card usage. The 13-week annualized balances of non-revolving credit ($2.791 trillion) and revolving credit ($1.011 trillion) in the US has gone completely vertical in the last few months of 2017, rising by 6.5% to around $3.8 trillion as of October 31, 2017 -- fast approaching the all-time bubble high of $1.02 trillion for revolving credit (credit cards), hit in the summer 2008.

This 6.5% level of debt increase is more than double the rate of increase for US Gross Domestic Product (GDP) or wage growth, making it clear just where Americans "purchasing power" comes from -- a troubling signed and yet another confirmation that US household savings are almost gone. 

So, what hot new Christmas gadget has Americans suddenly willing to max out their credit cards to purchase? Well, google search engines has offered some trends or clues that it might not be a gadget or anything tangible, but actually "how to purchase a cryptocurrency, like Bitcoin, with a credit card" -- a disturbing trend.

The Flattening US Treasury Yield Curve. An area of concern is that the US treasury yield curve continues to flatten, from the 2-year note all the way out to the 30-year bond. Meaning, the spread in yield received for a two-year note compared to the 30-year bond, is narrowing.

Currently, the spread in yield between the two-year and the 10-year note is at barely 1/2 of 1% or 53 basis points -- the flattest yield curve since the stock market top of 2007, just prior to a 50% decline in equities, and the beginning of a recession as well as financial crisis.

Stock Market Stimulus Defined. The past 9-years of economic stability and the rally in equities has been the result of $15 trillion of quantitative easing, provided by Central Banks worldwide, which all started in the fourth quarter of 2008, mostly ending in late-2015. Then, $6 trillion in company stock buybacks as well as corporate spin-offs, and various merger and acquisition's incentivized the rally to continue in global equities.

These actions, along with the artificially low interest rates, has allowed companies to borrow at very low rates, issue corporate bonds, and leverage their balance sheets for further corporate stock buy-backs as well as various mergers and acquisitions.

Private Equity Inflows. Further proof of concerned complacency is the $187 billion of funds now flowing into private equity for various mergers and acquisitions, the second highest level, since the third quarter of 2008, just prior to the major stock market decline and the economic recession. 

Ballooning Margin Debt. Margin debt -- the leverage that investors use to purchase additional shares of stock -- has ballooned to $620 billion, exceeding all prior levels reached through previous stock market tops. These leveraged positions could accelerate a stock market decline, since investors maybe forced to liquidate them to meet "margin calls" requirements.

Stimulus Changes. These incentives to elevate the stock market could be coming to an end, since the Federal Reserve has decided to start reducing its $4.5 trillion balance sheet, through the sale of US treasuries and mortgage back securities, and with plans to liquidate $50 billion monthly, representing $600 billion annually, going forward.

In addition, the European Central Bank plans to begin reducing their balance sheet as well, starting at the beginning of 2018, which will also put price pressure on US treasuries and global Government Bonds.

The lack of demand for such a large sale of US treasuries, US mortgage-backed securities and European Government Bonds, from countries like China, Japan, Germany and Italy, could cause Bond prices to fall and yields to rise, raising the current $20 trillion US deficit even further, due to the larger interest payments. 

Currently, China and Japan are selling some of their large US treasury and mortgage-backed security holdings to raise the necessary funds to support their own countries' economies and various stimulus programs. Italy is facing nearly an 18% delinquency rate for a variety of their Government obligations, and could eventually have similar financial problems like Greece, but the European Central Bank will discover that it is simply too big to bail out.

The Growing US Deficit. The US deficit is likely to grow, over the next ten years, from $20 to $30 trillion or more, because of the new tax reform measures, the lack of entitlement as well as government spending cuts, and the higher interest-rate payments for various US treasury and mortgage-backed security obligations. 

The ballooning Government debt will prevent any form of desired economic growth, even with the new individual and corporate tax cuts, offered through the tax reform plans, which will end up costing $2.5 trillion over the next 10 years.

Anticipated Economic Results from the New Tax Reform. US companies, on balance, are already paying below the new corporate tax rate, declining from 35% to 21%. In fact, the typical effective tax rate -- the amount paid minus depreciation -- could be as low as 13% over the past years, when looking at a refined number of how much the US government is actually collecting.

Over half of the Fortune 500 companies that were "consistently profitable," from 2008 to 2015, paid an effective tax rate of 21.3%, but these estimates may be overstating what the US government actually is getting from corporations.

The size of the tax decrease actually looks fairly small, since the new tax cuts will likely only contribute about 0.3% to GDP growth over the next two years, with the changes likely to result in a net tax reduction in corporate tax liabilities.

Equipment Automation for Retailers. The new tax rates will allow the effective cost of buying new equipment to drop, and the savings from reduced payroll costs could jump by at least 20%. In other words, firing employees may save more money by replacing them with cost-effective machinery, making over 8 million retail industry jobs vulnerable to automation within 10 years.

Retailers have for years considered advancements in technology to automate anything from warehouses to check out, in hopes of saving money, space and time. 
The investments required for automation, though, can be steep and the returns are not always offset by short-term labor savings, but could change under the new tax law.

Companies will now be able to write off the cost of new equipment immediately rather than over an extended period of time, thereby lowering their short-term taxes -- making money worth more now than in the future.

Meanwhile, as the corporate tax rate is reduced, companies may choose to keep a greater share of their income, which means they can pocket more savings, achieved through cost cutting, like laying off workers.

For example, a retailer will pocket $14 more of every $100 (14%), from laying off a worker in 2018 than in 2017, a jump of more than 20%, with the effective cut in the corporate tax rate.

Retailers are in a particularly distressing time, with rising minimum wages, changes in shopping behavior, and large Online retailers. They are desperately trying to stabilize their cost structure, including by making stores smaller and more profitable.

People's decisions about what they want to buy will change as prices for various products are adjusted -- simple economies of scale.

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.