Financial Overhaul is Unnecessary

8/9/2019 Financial Overhaul is Unnecessary

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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.

Suttmeier's ForexTV Main Street vs Wall Street can be watched on the web HERE.

Marc h 24, 2010 Financia l Overhaul is Unnecessar y

The Senate Banking Committee passes Financial Overhaul. The future of Fannie Mae andFreddie Mac is under discussion, again. The yield on the 10-Year moves above the key 3.675 ona so-so 2-Year auction; the 5-Year is bid today. Commodities are range-bound as the euro dipsbelow 1.34. The major equity averages press longer term resistances on stressed Valuations.

Unnecessary Financial Overhaul Approved by the Senate Banking Committee. The Dodd bill is adud, as it just sets up additional layers of regulators that will only be ignored or bent just as the currentguidelines have been. Reshaping rules governing the financial sector is a waste of time and money,considering that our existing regulators and regulations were ignored. Establishing a new bureau withinthe Federal Reserve is a joke when Fed Policy was a major cause of The Great Credit Crunch.

The Federal Reserve will write and enforce rules to protect consumers. A council of regulators willsurvey threats to the financial system. If implemented and controlled, the Dodd Dud Bill will bring

complex derivatives under government oversight. There will also be a mechanism to unwind and shutdown big financial firms if they face collapse. The control of derivatives is necessary, and the BigFour Banks should be whittled down to under 10% of total assets in the banking system.

If Fed Chief Bernanke cannot tell the public what the $29 billion Bear Stearns collateral is worth howcan you have oversight for derivatives, which have expanded 29.6% or $48.8 trillion to $213.6 trillionsince the Great Credit Crunch began at the end of 2007. One would have thought that our bankingregulators would have required the big banks to reduce the notional amount of derivative contractsoutstanding rather that increase them by such a staggering amount. Tic Toc on the Clock!

Treasury Secretary Geithner is threatening the big banks that he will impose stricter rules on thebanking industry such as higher capital requirements. Why not just accelerate the FASB market-to-

market accounting rules, rather than allowing banks to stretch them out through 2012?

Why is it that when regulators fail to abide by their own guidelines, they blame it on the need fortougher and additional regulation? I guess its called covering ones buttocks.

Meanwhile Fannie Mae & Freddie Mac, who should have begun liquidation two years ago, arebeing kept on life support at a growing cost to taxpayers. So far the cost to taxpayers $126 billion andwill be rising by an unlimited amount each quarter through 2012.

Under Conservatorship Fannie and Freddie are government backed but off balance sheet. Even theFederal Housing Administration (FHA) a direct Government entity is also running out of cash. Instead ofrelying less on Fannie and Freddie, 70% of all home mortgages are backed by these GSEs. The bigger


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they get the tougher it will be to unwind them. The Government has had a program to back themortgage market called Ginnie Mae, which is backed by the full faith and credit of Uncle Sam. Back inMay 2008 I suggested the unwinding of Fannie and Freddie and expanding Ginnie Mae as the

primary mortgage generator.

There also remains the confusion as to the current backing of Fannie and Freddie. This is a thin line ofinterpretation that should be clarified. Under Conservatorship the debt and mortgages of Fannie &Freddie are backed by the US government, thats what the law states. Yet today, some say that thisbacking does not have the same level of government backing as US Treasuries. On Christmas Eve,Geithner put the time stamp on US backing to the end of 2012 and beyond.

Todays 5-Year Auction comes in the aftermath of a mediocre 2-Year auction and with the 10-Year onthe supply concern side of its semiannual pivot at 3.675. The 5-Year set a trading range of 1.95 to2.76 between Thanksgiving and the end of 2009. My semiannual support is 2.529 with a weekly pivot at2.396.

Chart Courtesy of Thomson / Reuters

Comex Gold is above my quarterly support at $1084.9 just days before the first quarter comes to anend. The 200-day simple moving average becomes key support at $1047.1. The last time goldapproached its 200-day was last April when that level was around $900. My annual support is $938.7with my annual pivot at $1115.2.


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Nymex Crude Oil has met resistance in the $82 to $84 range since last October. If this tendencycontinues, look for another test of its 200-day simple moving average at $73.85. Meanwhile maymonthly pivot at $80.05 and $81.84 have been magnets since last Friday.



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The Major Equi t y Averages

23-Mar YTD 31-Dec Cycle Cycle Date of % High % Off % OfMarket Price Gains Price Lows Highs Highs To Lows Lows Highs

The Dow 10,889.00 4.4% 10,428.00 6,469.95 14,198.10 Oct-07 -54.4% 68.3% 23.3%

S&P 500 1,174.20 5.3% 1,115.10 666.92 1,576.06 Oct-07 -57.7% 76.1% 25.5%

Nasdaq 2,415.00 6.4% 2,269.00 1,265.52 2,861.51 Oct-07 -55.8% 90.8% 15.6%

Utilities 380.97 -4.3% 398.01 288.66 555.71 Jan-08 -48.1% 32.0% 31.4%

Transports 4,410.00 7.6% 4,100.00 2,134.21 5,536.57 May-08 -61.5% 106.6% 20.3%

Russell 2000 690.30 10.4% 625.39 342.59 862.00 Jul-07 -60.3% 101.5% 19.9%

Semis (SOX) 372.47 3.5% 359.91 167.55 549.39 Jul-07 -69.5% 122.3% 32.2%

Dow Annual support is 10,379 with annual and semiannual resistances are 11,235 and 11,442.

S&P 500 Weekly support is 1138.8 with annual and semiannual resistances at 1179.0 and 1194.69.

NASDAQ Semiannual and annual supports are 2258, 2250 with a semiannual pivot at 2392.

Dow Transports My annual pivot is 4324 with semiannual resistance at 4488.

Russell 2000 My semiannual pivot is 673.50 with semiannual and annual resistances at 717.69,723.54 and 748.99.

Sec t or Overv iew

Sector Change MTD YTD ValuationLast 12-MReturn

P/ERatio

Basic Industries 0.90% 7.44% 10.55% 14.90% overvalued 100.71% 26.49

Capital Goods 1.24% 7.97% 10.85% 11.65% overvalued 75.78% 23.96

Consumer Durables 0.60% 4.84% 7.65% 14.68% overvalued 96.32% 24.16

Consumer Non-Durables 1.07% 6.25% 7.26% 5.86% overvalued 94.52% 19.18

Consumer Services 0.67% 8.25% 11.03% 7.91% overvalued 87.08% 23.40

Energy 1.49% 3.22% 1.46% 8.71% overvalued 79.34% 21.56

Finance 0.49% 5.88% 9.31% 4.04% overvalued 49.35% 20.06

Health Care 1.07% 7.81% 9.90% 0.99% undervalued 75.27% 21.47

Public Utilities 0.70% 4.35% 0.75% 1.66% overvalued 45.69% 16.21

Technology 0.88% 4.83% 7.41% 0.50% undervalued 84.86% 29.05

Transportation 0.32% 4.77% 6.90% 5.66% overvalued 75.90% 20.04


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The ValuEngine Universe consists of over 4500 US, foreign, and ADR tickers traded on USmarkets. Normal ranges for universe over and undervaluation typically run between 35-65%. Ofcourse, readings in excess of this range are no guarantee that a correction is imminent and extreme

conditions may persist for a very long time.

Thats todays Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at1:30 PM. The next broadcast is Monday, March 8, 2010.

http://www.forextv.com/Forex/custom/LiveVideo/Player.jsp

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.

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Financial Overhaul is Unnecessary