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Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

ValuEngine is a fundamentally-based quant research firm in Newtown, PA. ValuEngine

covers over 7,000 stocks every day.

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks,
and commentary can be found at http://www.valuengine.com/nl/mainnl

December 28, 2010 – Richard Suttmeier’s Eleven Themes for 2011 – 1 through 5
1. Home Prices will resume a decline that began in mid-2006. We had the home buyer tax
credits expire in mid-2010, and government sponsored mortgage modifications provided limited
help. In 2011 we face continued foreclosure issues including questionable documentation, and
banks have a record high Other Real Estate Owned (OREO). OREO is up to $53.2 billion at the
end of the third quarter, up 338.2% since the end of 2007. Depressed home sales are being
sold at a 30% to 35% discount, which reduces property appraisals at the county level. Home
builders will have to compete with these lower prices and we need a mortgage modification
program for all Americans, not just those at risk of losing their homes. QE2 is not working and
US Treasury yields are higher causing mortgage rates to rise. “The Great Credit Crunch”
began with housing, and that foundation needs repair before Main Street can recover
with sustainable job creation.
2. Community Banks still have $1.43 trillion in commercial real estate loans that require
resolution. The FDIC’s List of Problem Banks rose to 860 in the third quarter of 2010, which is
11.1% of all insured institutions. My analysis shows 2,485 or 32% of all banks overexposed to
Commercial Real Estate loans, and 3,938 or 50.7% of all banks with real estate loan pipelines
that are 80% to 100% funded. This stress needs to be addressed before jobs can be created on
Main Street USA as housing and construction drive local economies. “The Great Credit
Crunch” will not end without a program to remove toxic real estate loans from the books
of community banks around the country.
3. The Banking System is supposed to de-lever risk, but it has not. When I look at the
Notional Amount of Derivative Contracts I cringe at the fact that since the end of 2007 this risk
category has grown $71.6 trillion since the end of 2007, that’s an increase of 43.5% to $236.4
trillion at the end of the third quarter in an environment where banks should be de-leveraging
not adding to this risk where financial time bombs are ticking.
4. Fannie Mae and Freddie Mac will continue to drain taxpayer money as the Treasury provides
unlimited lines of credit through 2012. The cost currently is about $150 billion, by far the largest
of any government bailouts. We need to unwind the activities of these GSEs, and beef up
Ginnie Mae as the go to government agency that backs new mortgage issuance.
5. Because of the housing market depression and stress in the banking system the
Unemployment Rate will stay above 9% for all of 2011.
Tracking the US Capital Markets – US stocks are overvalued fundamentally and overbought
technically on both daily and weekly charts. The snow storm causes stocks to drift lower and
• The major equity averages are below this week’s risky levels as the year draws to a close at:
11,629 Dow, 1269.4 SPX, 2682 NASDAQ, 5215 Dow Transports and 808.57 Russell 2000.
• Fifteen of sixteen sectors are overvalued according to ValuEngine with only 37.9% of all stocks
undervalued. At 35% the stock market tends to find a top. Only 17.4% of all stocks are
undervalued by 20% or more.
The Yield on the 10-Year Note (3.345) – Tested this week’s value level at 3.494 with today’s risky
level at 3.306.
Comex Gold ($1384.2) – The 50-day at $1372.1 held at the low on Monday with this week’s risky
level at $1401.2.
Nymex Crude Oil ($90.79) – Reached a new high for the year at $91.88, shy of this week’s risky level
at $93.28. Support is the 21-day simple moving average at $88.24.
The Euro (1.3163) – My weekly value level is 1.2906 with 200-day simple moving average at 1.3087
and quarterly pivot at 1.3318, which goes away at the end of the year.
The Dow Industrial Average (11,555) – Remains extremely overbought on both daily and weekly
charts. The 21-day simple moving average is 11,384 with a daily pivot at 11,569 and this week’s risky
level at 11,629.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
ValuEngine.com, (800) 381-5576
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As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, and
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“I Hold No Positions in the Stocks I Cover.”