Friday, June 19, 2020

Stock Market Overview -- Important Economic Indicators

Important Economic Indicators -- Forecasting a Further Collapse....

Lock-downs and shelter-in-place orders across the United States were supposed to be temporary measures -- put into practice long enough to slow the spread of the pandemic, without causing irreparable economic collapse. Now, however, it is becoming clear that there are much longer reaching consequences at play, as businesses shutter around the country and the globe.

More than 100,000 businesses have permanently closed in the US alone, with those closures causing millions of jobs for citizens desperately seeking an income, which have simply evaporated into thin air.

Below outlines the scale of the next great depression, and all of the important economic indicators:

A recent Gross Domestic Product (GDP) forecast, released by the Federal Reserve Bank of Atlanta estimates an unprecedented drop of 42.8% for the three months through June 2020.

US retail sales, factory output, and industrial production are all down -16.4%, -13.7%, and -11.2%, respectively. The prolong shut down has generated a sort of economic free-fall that is leaving few sectors unscathed.

Already, big names in retail that have been around for decades, like J. C. Penny, Victoria's Secret, and Pier 1 Imports, are breaking the news of their financial problems. J. C. Penney announced that it will soon be declaring bankruptcy, making it the largest retailer to do so thus far over the course of this pandemic. Meanwhile, Victoria's Secret announce the closure of 250 brick and mortar stores, across the US and Canada, and Pier 1 Imports is set to shut down entirely. Furthermore, Neiman Marcus and J. Crew have also filed for bankruptcy.

Major car rental corporation, Hertz, announced in April 2020 that the company was teetering on the edge of bankruptcy, confirming that the suffering is not limited to retailers.

These bankruptcies are just the beginning, proving that there is only so much that the Fed can do, as it attempt to support industries and minimize the destruction.

The restaurant industry is one sector suffering particularly striking losses, with one in every four American restaurants expected to close down for good, already resulting in losses of $30 billion during March and $50 billion in April 2020.

Large businesses will not be spared from this pandemic and economic contraction. For example, Ford, pushed two locations back into temporary shut down, only days after trying to reopen some of their factories, when a number employees tested positive for the coronavirus.

Shutdowns like these are clear examples on how difficult it will be for automakers and other industries to resume operations, while dealing with this pandemic. Of course, this is what they will have to do for the foreseeable future to stay afloat, as there is no vaccine or other easy solutions on the horizon.

There are three things that have to all come together, which include: healthy workforce, healthy supply chain, and healthy demand. It's not just flip-of-a-switch, and everything is as it was --  it's very complicated.

Few people are wanting to commit big sums to discretionary purchases like cars, so even if Ford is producing products, the buyers market is drying up, as Americans stay at home, and are spending on groceries, but little else.

Retail sales dropped 17.2% in April 2020, with clothing and accessory stores hurting the most, down 78.8% from March, and 89.3% year-over-year in April 2020.

Meanwhile, the commercial real estate industry is cause for serious concern. This sector will experience devastation on a scale that will make the 2008 financial crisis look like little more than a blip, with renters unable to pay, and property owners floundering from late checks. And, one striking example, the owner of the Empire State building, collected only 73% of its office rents, and 46% of its retail rents that were due in April 2020.

Evidently, the toll trickles down from businesses to individuals. The number of Americans who have filed for unemployment benefits has surpassed 40 million, making this the worst unemployment crisis since the 1929 Great Depression -- dwarfing it's catastrophe, when 15 million Americans were jobless at its worst point in 1933 -- when compared to today's economic collapse.

The Federal Reserve admits that the unemployment figure is much higher -- when factoring in those that were not actively looking for work, during the examined period, as well as those that are working at significantly reduced hours and pay -- is closer to 30.7%, even though the official numbers, produced by the Bureau of Labor Statistics (BLS), puts the unemployment rate at 13.3% for May 2020.

This economic collapse will not end, when a vaccine for the coronavirus is actually produced and administered, because 42% of the layoffs experienced by workers during this pandemic will result in permanent job losses.

It was estimated at April 2020 that 18 million of the 20.6 million people who lost work classified their situation as temporary, which will not be the case.

All States that have rushed to reopen early and get their economies back on track have experienced new cases of the virus, with over 20 states now experiencing spikes in the coronavirus cases as a result.

The World Health Organization just announced that the world only recently hit the largest number of newly confirmed cases on a single day. This means that the peak was not weeks ago, as some continue to believe, but rather that we are still in the thick of it.

Americans are paying the price, literally, with the government toeing the line, between public health and the economy.

Some experts say that the United States could see a 45% rise in its jobless population by the end of 2020. That means, when compared to last year, 250,000 additional people will find themselves on the streets.

Almost 40% of the people with household incomes lower than $40,000 suffered from a loss of employment in March 2020. Issues like homelessness as well as the tilt towards recession, existed before the pandemic rattled global economies, and don't show signs of letting up anytime soon, despite false promises from politicians that are part of the problem.

Americans are already beginning to see the effects, from foreclosure signs in their neighbors' yards to out-of-business signs posted in store windows.

There is much debate over whether or not the public health and safety measures are worth the devastating economic fallout that will un-doubtably follow.

It is estimated that the number of Americans that will die from the coronavirus will likely triple before the end of 2020, even in the case that current social distancing measures are upheld.

There are estimations that 60% to 70% of all Americans will eventually be infected. It must be noted that 1.3% of those who show symptoms die, an infection fatality rate that is 13 times higher than a bad influenza season.

The coronavirus could very well kill between 350,000 to 1.2 million Americans by the end of 2020, even when discounting the fact that most states will continue to open their economies, and relax social distancing restrictions.

A large part of the virus spread is due to sheer irresponsibility on the part of the US government -- aside from the uncontrollable factors like the high infection rate -- with foreigners traveling to the United States on non-US airlines, completely full of mask-free passengers, without so much as a health check upon arrival.

Apparently, the United States has no policies that require any sort of quarantine after entering the country.

Careless lack of policies like these are a strong indicator of the United States' handling of the pandemic, and representative of the government failure to put proper precautions in place.

The US will only plunge further into its economic and health-related woes, with a death spiral of carelessness and overcompensation.

In summary, the longer the restrictions remain on business, the further global economIes crumble, making a possible recovery more difficult. Health measures that are lifted prematurely will raise risk, resulting in otherwise preventable deaths -- a lose-lose situation for the United States and countries around the globe.

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.

Wednesday, April 29, 2020

Stock Market Overview -- Stock Buyback "Craze"


Stock Buyback "Craze," Abruptly Ending?....

The risks to the global economies all remain to the downside, with a further deflationary shock from the ongoing coronavirus.

The US Federal Reserves next move has always been planned as an interest rate cut, in either in June or September 2020, unless the economy was going to "magically" re-accelerate, and inflation return.

The Fed has made it very clear of their frustrations, unable to waive some magic wand, and get inflation back above their 2% target level.

The coronavirus is causing a deflationary shock, and could continue to affect global supply chains, forcing the Fed to make interest-rate cuts, sooner rather than later.

The US corporate earnings declined in all four quarters of 2019, defined as a technical recession, even though the stock market rallied.

What risks will investors start to price in, even with an epic decline in corporate earnings?

The statistical relationship today, between the equity markets and the economy has never been as low, with a correlation of only 7%.

Every post World War II economic cycle has had correlations of as low as 30%, to as high as 70%, but today we are at 7%.

This proves that economists have no understanding whatsoever, regarding the current economic cycle, with such a low correlation.

This current economic cycle has been completely driven by the most powerful source of demand for equities, especially within the US, which is "share buybacks."

The share count of the US S&P 500 stocks have been driven down to the lowest level in 20 years. 

Companies have taken on a massive amount of debt, to buy back their stock, giving the allure that we have a bull market in corporate earnings per share.

The stock buybacks craze will eventually come to an end, with simple mathematics, between earnings yield and corporate bond yields.

The US consumer prevented a recession in 2019, because it represents 70% of the economy; however, the business sector is already in a recession, which symbolizes the remaining 30%.

Capital expenditures for corporations were actually negative for the last three quarters of 2019, resulting in a "mini recession," even with the stock market rally.

We are currently in the weakest economic cycle of all time, without having even one year where US Gross Domestic Product (GDP) growth was 3% -- last seen in 2005.

We have not seen sustained GDP growth of at least 3% for a period of five years in a very long time -- actually, not since the 1930s.

There's an incredible disconnect, between what the economy is actually doing, and with the stock market.

As mentioned, it's all about buying back shares, in order to reduce the share count, to the lowest level in 20 years.

The stock market today is acting like a commodity, whereby reducing the supply-side, causes prices to rally, since it has nothing to do with the economy.

In summary, the corporate debt burden and supply-side train continues, as long as companies buy back their stock, until it all abruptly ends.

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.

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.

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.