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September 23, 2009 – The Bull in a China Shop

Today’s FOMC Statement, the FDIC’s Witches Brew, the Bull in a China Shop, and
Geithner’s Little White Lie
The FOMC Statement will show that not much has changed since August 12th.
The Fed will still recognize that growth remains constrained by ongoing job losses, sluggish
income growth, and tight credit. Businesses are still cutting back as evidenced in the rise is
empty office space.
The Committee will still indicate that policy actions in place will gradually contribute to a
resumption of sustainable economic growth in a contest of price stability. The drags on this
scenario are found in the growing categories of bad loans in the FDIC Quarterly
Banking Profile, and with the lack of job growth with hours worked stuck at a record
low.
The FOMC will leave the federal funds rate at zero to 0.25%, which to me questions the Fed’s
confidence, and leads to the re-inflation of asset bubbles on the weak dollar carry trade.
The quantitative easing in place will be allowed to sunset as 2009 draws to a close. The Fed
will purchase up to $1.25 trillion of mortgage-backed securities and $200 billion of Fannie and
Freddie debt. So far the tally is $862 billion of MBS and $125 billion of agency debt.
The purchase of US Treasuries will total $300 billion when this program ends at the end of
October. If the Fed adds to or extends these programs it would be another sign that
they lack confidence that their policy is working.
The FDIC Witches Brew to Replenish the Deposit Insurance Fund
The Deposit Insurance Fund is in arrears by approximately $3.7 billion dollars on the closure
of 49 banks so far in the third quarter. With more than 3,000 banks overexposed to
Commercial Real Estate Loans, 37.5% of all banks are unhealthy. The FDIC won’t tell us the
names of their 416 Problem Banks.
With FDIC Chair Sheila Bair panning the “too big to fail” concept, would someone name the
healthy banks that could be asked to loan the FDIC money. All the bigger banks have toxic
loans off balance sheet. Banks know the underlying problems and for so-called healthy banks
to bail out risky banks, will only dilute the problems in the banking system. With 500 to 800
banks headed for failure, the FDIC should swallow its pride and borrow from the US Treasury,
which they will eventually have to do anyway.
Bankers are worried about two more assessments that the FDIC has authority to do and
these will total just $10 billion, which will not be enough to get through the tsunami of bank
failures to come anyway. Borrowing from the US Treasury is another bailout, but it’s a worthy
one that protects taxpayer deposits of up the $250,000 in each and every bank.
The Deposit Insurance Fund dipped below regulatory guidelines in June 2008, and it has five
years to get back to standards. It will take taxpayer money to allow this to happen. It’s the
nature of “The Great Credit Crunch” continuing through 2011.
The weekly Chart for the Dow reflects the Bull in the China Shop given overbought
readings.
The Bull in the weekly chart for the Dow has become extremely overbought with a MOJO
reading of 9.3 on a scale of zero to 100. My annual pivot is 9,750 with annual resistance at
10,012. The Bull has entered the China shop and we will soon find out what’s broken
including China.
Treasury Secretary Geithner said that it’s the first time the US economy has seen growth in
eighteen months. Let’s look – Was Q2 2008 eighteen months ago – I don’t think so. Wouldn’t
it be refreshing if our Banking Regulators told us the truth?

Send me your comments and questions to Rsuttmeier@Gmail.com. For more information on

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That’s today’s Four in Four. Have a great day.

Richard Suttmeier
Chief Market Strategist
ValuEngine.com
(800) 381-5576

As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website
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