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February 2, 2010 – Alleviating Oversold Conditions

A short-term oversold rally as stocks and commodities trend lower longer term! More evidence
of stress in real estate loans! Fannie and Freddie debt and mortgages remain off budget. Where
are those “shovel ready” projects? The bailout bucks pile higher.
The Dow, gold and crude oil are alleviating oversold conditions on their daily charts.
The daily chart for the Dow is oversold as traders protect Dow 10,000. Weekly and annual resistances
are 10,341 and 10,379. The 21-day and 50-day simple moving averages are set for a negative cross-
over at 10,455 and 10,435 as the new market ceiling.

Chart Courtesy of Thomson / Reuters

Comex gold may have slipped below my quarterly pivot at $1084.9, but my new monthly pivot at
$1093.5 will be a magnet in February with my annual pivot at $1115.2.

Chart Courtesy of Thomson / Reuters

Nymex crude oil remains above its 200-day simple moving average at $70.11 with weekly and annual
pivots at $75.87 and $77.05.

Chart Courtesy of Thomson / Reuters

Option ARM Mortgage Problems Projected to be Worse than Subprime
The housing market and banking issues will face the challenge of an industry estimate of $134 billion of
Option ARM mortgage resets over the next two years. Homeowners with these types of mortgages face
resets of both a higher mortgage rate and a higher principal on their mortgage. With home values down
homeowners with Alt-A mortgages are highly likely to simply walk away from their homes.
According to the Case-Shiller Housing Market Index home prices are still 50% higher than they were at
the beginning of the 21st century. To me this indicates additional downside risk. Builders and developers
owe banks $492 billion in Construction & Development Loans for planned but not finished homes and
land developed for communities around the country.
Commercial Real Estate Woes - There is another $1.09 trillion in loans collateralized by nonfarm
nonresidential real estate, which are declining in value with defaults on the rise. This is on top of $1.28
billion in commercial real estate loans backed by apartment rents, store rents and mall properties.
Defaults and write-offs in this category are on the rise as well. All of these real estate issues will
continue to cascade through the banking system right through 2012.
Sources say that $770 billion in commercial real estate loans will be underwater between 2010 and
2014, which further extends “The Great Credit Crunch”. Not surprising based upon my observations of
the recent FDIC Quarterly Banking Profiles.
The Congressional Oversight Panel (COP) estimates that the price-per-square-foot of office space has
declined by 50% through 2009. The decline in commercial real estate values exceeds that for home
prices, which has be buoyed by the $8,000 and $6,500 tax credit programs.
Fannie Mae and Freddie Mac Still Off US Balance Sheet - The President’s budget keeps the
estimated $6.3 trillion in mortgages and debt of Fannie and Freddie out of the budget. This is significant
as the US Debt Ceiling has just been increased by $1.9 trillion to $14.3 trillion. To include Fannie and
Freddie the debt ceiling would have to be $20.6 trillion.
As I have reported US taxpayers are on the hook for all losses of Fannie and Freddie through 2012 on
top of the $111 billion cost though the third quarter of 2009. The US Treasury projects this extra cost to
be $54.4 billion in the current fiscal year ending September 30, 2010 and another $23 billion in 2011. I
predict that the US Treasury is too optimistic.
For now Fannie and Freddie are considered as “non-budgetary” items not counted as federal liabilities
because “they are privately owned and controlled”. That’s not what Conservatorship is all about.
Where are the “Shovel Ready” Projects? Construction Spending dropped sharply in December by
1.2% and down 12.4% in 2009. No sign of jobs created or saved in this statistic. The labor market is not
as strong as economists are telling us. The 4-week moving average of Initial Jobless Claims is on the
rise again with last week’s reading of 470,000. In addition, 43 states say that unemployment rose in
December.
Bailout’s such as TARP total $485 billion of taxpayer money according to ProPublica.org. This money
has been allocated of promised to 770 companies and 11 programs.
Send me your comments and questions to Rsuttmeier@Gmail.com. For more information on our
products and services visit www.ValuEngine.com
That’s today’s Four in Four. Have a great day.

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Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I
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“I Hold No Positions in the Stocks I Cover.”