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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

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July 9, 2010 This w eeks s tock ra l ly ra ises quar t er ly ear n ings bar

Stocks were cheap as the week began and I projected market stability. It seems like the Julypattern will be similar to April, anticipate solid earnings then sell the event on April 26th. Theyield on the 10-Year failed between 2.999 and 2.813 as expected. Comex gold is consolidatingoff the June record high at $1266.5 as expected. Nymex crude oil held $71.71 as expected withmy annual pivot at $77.05. The euro stabilized as the catalyst in the Capital Markets mix. TheDow ratcheted higher, first above my weekly pivot at 9,856 and ended Thursday above its 21-day simple moving average at 10,124. Commercial real estate remains the Achilles Heel for thebanking system and hence the economy.

10-Year Note Semiannual and quarterly supports are 3.479 and 3.486 with my annual and weeklypivots at 2.999 and 2.941, and daily, annual, quarterly and semiannual resistances at 2.842, 2.813,2.495 and 2.249. The low yield for the move was 2.879 set on July 1st, and was a failed test of my2.999 and 2.813 annual risky levels.

Courtesy of Thomson / Reuters

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Comex Gold Daily and quarterly supports are $1172.3 and $1140.9 with annual support at $1115.2.The 50-day simple moving average and semiannual pivot are $1216.5 and $1218.7 with weekly,semiannual and monthly resistances at $1238.4, $1260.8 and $1279.3. The all time high of $1266.5set on June 21stwas a test of Junes monthly resistance, as a significant top for gold.

Courtesy of Thomson / Reuters

Nymex Crude Oil Weekly, daily and quarterly supports are $71.71, $70.29 and $56.63 with my

annual pivot at $77.05, and monthly and semiannual resistances at $79.36 and $83.94, which shouldlimit the upside as the global economy slows down. The 200-day simple moving average provides aresistance at $77.27.

Courtesy of Thomson / Reuters

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The Euro Daily support is 1.2589 with a monthly pivot at 1.2670 and the 200-day simple movingaverage at !.3740. Monthly, weekly and quarterly supports are 1.2035, 1.1957 and 1.1424.

Courtesy of Thomson / Reuters

Daily Dow: Weekly and daily supports are 9,856 and 9,688 with the 21-day, 50-day and 200-daysimple moving averages at 10,124, 10,321 and 10,363, and my annual pivot at 10,379. MOJO is risingso the daily chart is positive with closes above the 21-day. Semiannual and monthly resistances are10,558 and 10,891 after my annual resistance at 11,235 was tested at the April 26th high at 11,258,which marked the end of the bear market rally that began in March 2009. We are in the second leg ofthe multi-year bear market that began in October 2007 targeting 8,500 before 11,500.

Courtesy of Thomson / Reuters

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Commercial Real Estate Loans Extend and Pretend

Community banks have commercial real estate loans where the borrower cannot make scheduledinterest and principle payments. More than 50% of all FDIC-insured institutions have loan pipelines thatare 80% to 100% funded. This is a measure of how banks are stuck with noncurrent assets, but theyare not classified that way. Instead, community banks are giving borrowers more time to make theirpayments on the theory that its better to collect zero on some loans rather than owning the real estatethat collateralizes those loans. This concept is dubbed extend and pretend hoping that the borrowerwill eventual pay the loan back. Banks in this practice are known as Zombie Banks as they cant lend,cant lure in new investors, and wait for the FDIC to knock on their doors on Friday afternoon.

This strategy includes stretching out loan maturities and allowing below-market interest rates to slowthe number of defaults and preserving the capital of banks that would be expended if property had to

become Other Real Estate Owned. As a result Loans 30 to 89 Days in Arrears and Noncurrentloans are not growing as fast as they should be. The net result of these practices masks the truetoxicity of the Commercial Real Estate market.

Its not just the small banks that are employing extend and pretend tactics. I read that the Bank ofAmerica (BAC) has extended a large real estate loan in Buckhead, Georgia the high-class area north ofAtlanta. The loan finances the development of a high-end shopping and residential project in 2007 andnow three years later the cranes are silent and the project is fenced in. The banking regulators arehelping the banks by allowing the lenders several ways to restructure loans. While doing so the banksare allowed to keep these loans as performing even with collateral values below the loan amounts.Extend and pretend is also known as kicking the can down the road.

It seems to me that we have wasted billions if not trillions in stimulus money and bank bailouts whenthis money could have been used to actually fund the completion of these projects. Such a plan wouldhave cost tax payers much less and would have kept Americans working on Main Street USA, asfinishing incompleted real estate projects are clearly shovel ready projects.

According to Foresight Analytics banks hold $176 billion of CRE loans that could be declared toxic. Thisis the tip of the iceberg as the FDIC Quarterly Banking Profile shows $1.09 trillion in nonfarmnonresidential real estate loans and $418 billion in Construction & Development loans on the books ofour nations banks. About two-thirds of the CRE loans are maturing between now and 2014, and areunderwater. Commercial real estate property values are down 42% from the October 2007 peak. At theend of the first quarter 9.1% are delinquent up from 7% a year earlier. Bankers justify extend andpretend saying that its better than calling the loan and dumping more property on a depressed market.

We need a stronger economy to entice new investors to resurrect projects and to find new demand forcompeted offices, hotels, condos etc which are the finished products of completed CRE projects.Without a strong economic recovery these loans will eventually have to be written off down the road.

The problem is that while these loans are on hold banks cant justify new loans, which would be theengine of economic growth. And the beat goes on!

Thats todays Four in Four. Have a great day.

Richard SuttmeierChief Market Strategist

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www.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.

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