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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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April 8, 2010 – Missed Messaged from Fed Officials Pause Market Rally

Bernanke Agrees with me. Investors reflect concerns with strong demand for the first two US
Treasury auctions. Federal Reserve official Hoenig agrees with me with regard to inflation.
Dallas Fed President Richard Fisher needs to learn how to read charts and economic data.
Greenspan denies blame for Housing Bubble. Consumer spending takes a hit after the holidays.
Tracking the weekly chart for the Dow
Yesterday I stated that housing and jobs are the biggest economic issues. In a speech on
Wednesday, Bernanke stated, "We are far from being out of the woods. Many Americans are still
grappling with unemployment or foreclosure or both." Bernanke also said that he did not see significant
evidence of a "sustained recovery" in the housing market, as foreclosures keep rising, and as
commercial real estate remains a problem. Haven’t I been saying this?
With regard to the labor market Bernanke and I agree that even with slowing layoffs hiring is very weak.
Where I disagree is the need to keep the funds rate at near zero for an extended period. I repeat that it
was never prudent to push the funds rate below 3%, which the Fed has done twice since 2001.
Investors reflect concerns with strong demand for the 3-Year note on Tuesday and the 10-Year
note on Wednesday. Today the US Treasury auctions $13 billion in new 30-Year bonds.
Semiannual and weekly supports are 4.823 and 4.828, which held earlier in the week.
After a strong 3-Year note on Tuesday there was an even stronger 10-Year note auction on
Wednesday. The 10-Year tested 4.01% on Monday and was sitting richer than my weekly pivot at
auction time on Wednesday. The new issue of $21 billion came at 3.90% with a huge 3.72 bid to cover.
The Indirect Bid was 43%, above my 30% to 40% neutral zone for that metric. For the 10-Year my
annual pivot is 3.675. Strong bidding for US Treasuries is a sign that investors want the safety of US
Treasuries at these higher yield levels.
Federal Reserve Official Hoenig agrees with me with regard to inflation. He wants to raise the
federal funds rate to 1%, but I say take it to 3% and admit the mistake of having 1% and lower rates.
The risk is for re-inflated bubbles in Comex gold and Nymex crude oil, which have moved
higher primarily on leveraged speculation in the futures markets. This is similar to 2008, when
gasoline tested $4.25 per gallon as drivers kept cars barked at home. The $2.50 level appears as
today’s supply versus demand threshold.
Dallas Fed President Richard Fisher needs to learn how to read commodity price charts and the
Prices Paid components of the ISM. Wasn’t Fisher the Fed genius who said the credit crisis was in the
ninth inning two years ago? Now he says, "Because of the enormous slack in the system, and as you
know I tend to be very vigilant about inflation, we're just not seeing price pressures right now," "If
anything, the tail risks are on the deflationary side." Look at the charts for gold and crude oil:
Comex Gold – Quarterly and annual supports are $1052.8 and $938.7 with annual and semiannual
pivots at $1115.2 and $1139.7, and daily, weekly, semiannual and monthly resistances at $1159.0,
$1162.6, $1186.5 and $1202.5.

Courtesy of Thomson / Reuters

Nymex Crude Oil – Annual and quarterly supports are $77.05 and $58.41 with my monthly pivot at
$84.54, and daily and weekly resistances at $88.13 and $89.90. Annual and semiannual resistances
are $97.29 and $97.50.

Courtesy of Thomson / Reuters


Greenspan says don’t blame me for the Housing Bubble – He says that trying to make it easy for
poorer Americans to get mortgages did not push the country into crisis, but it was Wall Street’s
exuberance to package loans into mortgage securities that were nearly impossible to explain that
helped cause the crisis. Greenspan said, “The house price bubble, the most prominent global bubble in
generations, was caused by lower interest rates but...it was long-term mortgage rates that galvanized
prices, not the overnight rates of central banks, as has become the seeming conventional wisdom." As
you know I almost always disagree with Greenspan, and it was that 1% funds rate between June
2003 and June 2004, that was the primary cause of “The Great Credit Crunch.”
Consumer borrowing declines $11.5 billion in February when a rise was expected. On Monday,
my theme was that The Credit Squeeze is intensifying on Main Street. With new higher credit card
rates, comes the desire by consumers not to use them.
Consumer borrowing has now declined in 12 of the past 13 months with the one up month in January
on 2009 holiday spending. The February decline in credit card debt was 13.6%. Total borrowing is now
$2.45 trillion, down 4% year over year. Investors will likely continue to use that so called “money on the
sidelines” to pay down debt. This is a sign of economic weakness as consumer spending accounts for
70% of total economic activity.
The Dow is now overbought on its daily, weekly and monthly charts. The “Wall of Resistances” stretch
from 10,976 for today, 11,202 for this week, 11,228 for April, 11,235 for 2010 and 11,442 until the end of
June. A weekly close below my annual pivot at 10,379 indicates risk to quarterly support at 7,490. Dow
8,500 before 11,500 remains my call.

Courtesy of Thomson / Reuters


That’s today’s Four in Four. Have a great day.
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
have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as
well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the
ValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sample
issues of my research.

“I Hold No Positions in the Stocks I Cover.”

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