2010 has the look and feel of 2007

8/9/2019 2010 Has the Look And Feel of 2007

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Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

covers over 5,000 stocks every day.

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks,and commentary can be found HERE.

Apri l 9 , 2010 2010 Has the Look And Feel of 2007

Back in March 2007 I predicted Recession in 2008 / 2009, with GDP at the end of 2009 below thatof 2008 for the first time since 1948 / 1949. Today I am in the Double-Dip camp. The HousingMarket remains weak, Bad Consumer and Real Estate Loans are still rising, and the too big tofail banks have gotten bigger. The housing and banking stocks have been out-performing sofar in 2010, but this MOJO is for short-term traders only.

Back in March 2007 I predicted Recession in 2008 / 2009 , with GDP at the end of 2009 below that of2008 for the first time since 1948 / 1949. This proved correct as current dollar GDP declined 1.3% in2009. I also predicted that the stock market would enter a bear market in 2007 and from its October2007 high of 14,198 declined 54.4% to 6,470 at the beginning of March 2009, when I predicted a 40%to 50% rally. The Dow is up 4.8% year to date and up 69.8% from the year ago low, so the rally hasbeen larger than I expected. Even so, the Dow is still 23% below 14,198.

I based my predictions on ValuEngine metrics and data from the FDIC Quarterly Banking Profile, whichto me is the single most important leading indicator for the US economy. In March 2007, I saw that data from the FDIC was clearly starting to deteriorate. This was after

the peak in home builders in July 2005, Community Banks in December 2006, and RegionalBanks in February 2007. This weakness continues to surface quarter after quarter.

In October 2007, all eleven sectors were overvalued according to ValuEngine. Today, all elevensectors are overvalued.

The Housing Market remains weak After some improvement in the second half of 2009, homeprices will decline again in the second half of 2010, as tax incentives sunset, and foreclosures rise ondifficulty with mortgage mitigations from the numerous government-sponsored programs.

Bad Consumer and Real Estate Loans are still rising Subprime loans were viewed as isolated in2007, but obviously the problems spread to the broader mortgage market and dragged down theeconomy. Defaults and foreclosures continue to rise in 2010 with four million possible by years end, upfrom 2.8 million in 2009. Many bad loans were pushed off balance sheet, and FASB rules now statethat mark-to-market account has returned. The FDIC is allowing insured institutions until the end of2012 to accomplish this. Our regulators are playing Kick the Can.

The too big to fail banks have gotten bigger and will likely get hit by the Wall Street greed tax,which is supported by regulators in Great Britain and in Euroland.

The smaller community and regional banks still have some suffering to do as they wind downexposures to C&D and CRE loans, with tougher guidelines looming around the corner.


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In sum, housing and banking stocks have been out-performing so far in 2010, but this MOJO isfor short-term traders only. Investors should be paring back positions on strength.

Housing Sector Index (HGX) is up 9.6% year to date, but down 61.7% since its July 2005 high. Theshort term uptrend continues given weekly closes above my monthly pivot at $109.85. The upside is tothe 200-week simple moving average at $144.64.

Chart Courtesy of Thomson / Reuters

The Americas Community Bankers Index (ABAQ) is up 16.4% year to date, but is down 45.3%

from their December 2006 highs. The short term uptrend continues given weekly closes above mymonthly pivot at $156.80. The upside is to my annual resistance at $197.07 and to the 200-week simplemoving average at $220.32.



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The Regional Bankers Index (BKX) is up 28.9% year to date, but is down 54.6% from their February2007 highs. The short term uptrend continues given weekly closes above my monthly pivot at $53.31.The upside is to my annual resistance at $73.12 and to the 200-week simple moving average at$76.30. My semiannual support is $40.76.


All of the smart testimonies recently from CEOs, Directors, Fed Speakers and others in theregulatory community are from those who did not see The Great Credit Crunch in the making. The

testimonies in Congress and various speeches have the theme that The Great Credit Crunch hasbeen resolved. I disagree! I am one of the few independent strategists that saw it coming, warnedabout recession and the bear market for stocks well in advance.

Next week the ValuEngine monthly FDIC report will compare key asset categories on an annualbasis since the end of 2001. Subscribe to this report and find out why The Great Credit Crunch willcontinue right through 2012 and into 2013 if not longer. It will be tough to unwind all of those bad loansand there are many unknown time bombs ticking in $213.6 trillion in unregulated notional amount ofderivative contracts. The can is being kicked down the road, and there appears to be a cliff at theend of the road.Subscribe to this report atwww.ValuEngine.com.

Thats todays Four in Four. Have a great day.

Richard SuttmeierChief Market Strategistwww.ValuEngine.com(800) 381-5576

As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. Ihave daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters aswell as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as theValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sampleissues of my research.

I Hold No Positions in the Stocks I Cover.

2010 has the look and feel of 2007

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