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ATTENTION Advanced Investors and Finance Professionals: If You Are Reading

ATTENTION Advanced Investors and Finance Professionals: If You Are Reading

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Published by ValuEngine.com
Highlights from our new FDIC Banking Report, the latest results from our VE Forecast 22 MNS Newsletter Portfolio, some ideas about "de-coupling" and how to profit from emerging megatrends with ETFs, and a discussion of the latest market news from Chief Market Strategist Richard Suttmeier  Market and sector overview data are also provided.
Highlights from our new FDIC Banking Report, the latest results from our VE Forecast 22 MNS Newsletter Portfolio, some ideas about "de-coupling" and how to profit from emerging megatrends with ETFs, and a discussion of the latest market news from Chief Market Strategist Richard Suttmeier  Market and sector overview data are also provided.

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ATTENTION Advanced Investors and Finance Professionals: If you are reading this you should download how VE's powerful

quantitative tools can increase your productivity and effectiveness.

ValuEngine Institutional Software to see

September 18, 2009

MARKET OVERVIEW
Index
DJIA NASDAQ RUSSELL 2000 S&P 500

started week
9598.08 2066.15 591.35 1040.15

Thursday close
9783.92 2126.75 615.47 1065.49

4 day change
185.84 60.6 24.12 25.34

4 day change %
1.94% 2.93% 4.08% 2.38%

ytd
11.53% 34.70% 23.21% 18.00%

Summary of VE Stock Universe
Stocks Undervalued Stocks Overvalued Stocks Undervalued by 20% Stocks Overvalued by 20% 49.35% 50.65% 24.66% 28.27%

SECTOR OVERVIEW
Sector
Basic Industries Capital Goods Consumer Durables Consumer Non-Durables Consumer Services Energy Finance Health Care Public Utilities Technology Transportation

Change
-0.70% 0.07% -0.39% -0.07% 0.22% -1.31% -0.09% 0.22% -0.20% 0.05% 0.35%

MTD
11.89% 10.11% 7.73% 6.78% 9.82% 15.98% 6.02% 8.55% 6.56% 11.03% 10.68%

YTD
63.44% 35.66% 61.42% 45.18% 59.97% 40.31% 26.30% 60.04% 19.12% 66.28% 28.33%

Valuation
21.68% overvalued 23.22% overvalued 12.48% overvalued 9.07% overvalued 5.88% overvalued 17.00% overvalued 10.37% overvalued 5.37% undervalued 2.31% undervalued 1.75% overvalued 12.18% overvalued

Last 12MReturn
5.41% -8.03% -11.48% 2.38% -1.50% -15.32% -6.60% 9.96% 1.05% 4.35% -13.50%

P/E Ratio
24.27 20.33 24.12 20.79 21.98 17.63 19.14 18.9 16.78 25.44 16.44

Sector Talk--Banking
Our Chief Market Strategist Richard Suttmeier is an expert on the banking system, and he has been closely following the banking and credit crisis for several years now. In fact, he predicted the current difficulties YEARS before they began. Every quarter he takes the FDIC's own Quarterly Banking profile, combines it with VE's powerful quant tools, adds additional proprietary data from the FDIC on loan exposures, and collates the info into an exhaustive report on the state of the US banking system. Highlights from the latest report include the following: Suttmeier now predicts that several hundred more US banks will fail in the next few years due to a variety of factors--in fact, many banks highlighted in past FDIC reports have already failed. There are currently 763 institutions overexposed to Construction & Development Loans or Nonfarm NonResidential Real Estate (CRE) loans as per the FDIC's own guidelines. This figure represents a decline over last quarter's total—which was 804. However, the decline is largely a result of bank failures rather than a reduction in exposures to the problematic loan categories. As of September 10, 2009, there were 212 banks overexposed to C&D and/or CRE loans in the ValuEngine database with full data coverage. Of these overexposed banks, 66 were rated “1-Engine” Strong Sells, 65 were rated “2-Engine” Sells, 79 were rated “3-Engine” Holds, 1 was rated a “4-Engine” Buy, and one was rated a “5-Engine” Strong Buy. This means that there are currently 131 banks rated Sell or Strong Sell that are also overexposed to C&D and/or CRE loans. Below, we provide a list of some of the most-overexposed institutions on our VE List of Problem Banks:
C&D Risk Ratio
4318.10% 1621.70% 1021.70% 624.30% 567.80% 549.60% 490.60% 379.30% 334.90% 306.60% 302.30%

Ticker
CBON PCBI TMCV HRZB APAB CSNT FTBK HABC FSNM FRBK AWBC

Company Name
Community Bancorp Peoples Community Bancorp Temecula Valley Bancorp Inc. Horizon Financial Corp. Appalachian Bancshares, Inc. Crescent Banking Company Frontier Financial Corp Habersham Bancorp First State Bancorporation Republic First Bancorp, Inc. Americanwest Bancorp

CRE Risk Ratio
6930.90% 3724.10% 2752.30% 1178.70% 806.50% 1022.20% 883.80% 602.70% 685.40% 717.10% 962.00%

Market Price
0.14 0.02 0.02 0.78 0.67 1.61 0.79 2.7 1.16 5.67 0.46

Valuatio n (%)
-87.5 -87.5 -87.5 -87.5 -58.73 -75 95.85 -15.22 -75 36.26 -87.5

Last 12M Retrn (%)
-97.22 -98.82 -99.63 -90.25 -89.71 -76.9 -92.55 -56.8 -82.07 -42.61 -67.14

1-M 1-Yr Forecast Forecast Retn (%) Retn (%)
-5.39 -7.12 -10.62 -7.38 -3.96 -2.67 -5.22 -10.85 -3.2 -2.28 -3.44 -60.91 -69.14 -76.67 -59.42 -44.96 -31.06 -46.39 -58.82 -35.87 -16.44 -25.47

Ticker

Company Name

C&D Risk Ratio
290.20% 284.80% 275.70% 266.00% 236.60% 236.10% 233.30% 233.00% 232.90%

CRE Risk Ratio
1007.50% 686.80% 480.50% 465.70% 508.20% 401.80% 513.60% 473.20% 613.70%

Market Price
0.27 1.23 3.5 5 4.84 4.83 3.57 7.02 4.13

Valuatio n (%)
-87.5 -75 13.59 46.73 300 -65.46 13.12 120.85 49.59

Last 12M Retrn (%)
-86.89 -84.39 -53.02 -47.97 -29.03 -73.33 -63.87 -39.01 -35.27

1-M 1-Yr Forecast Forecast Retn (%) Retn (%)
-4.46 -4.3 -2.62 -3.17 -5.23 -2.01 -3.82 -4.11 -3.62 -41.19 -43.17 -18.95 -22.53 -13.59 -29.44 -25.49 -20.76 -18

SAMB CACB WBNK CBKN TSBK GRNB PFBC UCBI RVSB

Sun American Bancorp Cascade Bancorp Waccamaw Bankshares, Inc Capital Bank Corporation Timberland Bancorp, Inc. Green Bankshares, Inc. Preferred Bank LA United Community Banks Riverview Bancorp Inc.

This quarter's report is now available for purchase via our website. In addition to the valuable VE and FDIC data, the report also contains critical ValuEngine data points on the home building industry, technical levels for a variety of banking and housing indices, policy prescriptions, and other analysis. To find out more or subscribe to the ValuEngine Quarterly FDIC Report, click the cover below.

What's HOT--Checking in with TK Ng
"De-Coupling" and Megatrend Investing with ETFs
Former VE Analyst and Quant Guru T.K. Ng published the following on his Blog "Random Thoughts" recently. It has been edited and re-published for our Weekly Newsletter. The original version can be found HERE.

In recent articles, I discussed using Exchange Traded Funds [ETFs] to ride on world megatrends using easily-traded vehicles such as ETFs. One of my main interests is the longterm decline of the US economy vs. the long-term growth prospects for the Asian economies. In short, I believe that we will see more and more "de-coupling" between the US and Asia, and that it will no longer be the case that "when the US sneezes, the rest of the world catches a cold." I believe that we can put theory into praxis for this megatrend via the iShares MSCI All-Asia Ex Japan ETF(AAXJ) and an ETF of the DJIA such as DIA--or its inverse DOG. Below, we have a chart illustrating my thinking vis-a-vis the US vs Asia megatrend. Here we see clearly the de-coupling of AAXJ from the DIA, as well as the gradual decline of the US Dollar-- as represented by the Powershares US Dollar Futures Index ETF (UUP.)*

*The chart shows percentage %, [not absolute price] and is semi-log scaled to have a more accurate visual representation

From this 1-year chart, you can see that when world markets hit a low in March 09, All Asia Ex-Japan and the US were at the same level. As the months went by, through all the ups and downs, Asia pulled ahead. This is represented by the Yellow area growing in size. To put it succinctly, yes the US-- the world's largest economy-- has bounced back from near-death. But Asia has staged an even more miraculous recovery. In the meantime, the US Dollar is slowly but surely beginning what I believe will be a long-term decline-- as the US share of world GDP falls and the Dollar loses its pre-eminent currency status in the years ahead.

Below, I present the results from a trade I have on to capture my sentiments. I started this @ 30 days ago. It shows the profits from AAXJ and WIP, and a loss from betting that the DJIA would go down--via DOG the popular inverse ETF of the DJIA.
Ticker
AAXJ DOG WIP

ETF
iShares MSCI All Country Asia ex Japan ProShares Short Dow 30 SPDR DB Intnl Govt Inflation Protected Bond

Open Price Current Price % Change
47.3 59.82 52.8 52.05 57.65 55.55 10.04 -3.63 5.21

The other ETF in my portfolio is the SPDR DB International Government Inflation-Protected Bond ETF (WIP). WIP is an interesting ETF. Its underlying assets comprise inflationprotected sovereign bonds of developed countries-- excluding Japan and the US. Thus, holdings include bonds of countries like France, Australia, U.K. Sweden, and Turkey-- all yielding somewhere between 2.5 to 3.5 %. This ETF is one of my plays on another megatrend--the return of inflation worldwide. We would expect that WIP would rise in price when investors expect an inflationary situation. This is a likely scenario in the months ahead as Asian economies rebound strongly and the rush for raw materials resumes. And, with most of world commodities as well as shipping rates being priced in US$, a declining US$ would add fuel to the fire as producer countries raise prices to protect their bottom line.

--The VE Forecast 22 MNS Portfolio Newsletter
Yesterday was another re-balancing day for our ValuEngine Forecast 22 Market Neutral Strategy Newsletter. Our portfolio continues to beat the S&P 500 benchmark handily on its long side, but the continued market rally has been wreaking havoc with our shorts. For the latest re-balance period, our long side returned more than 9% vs the S&P's 5.5%, but our short side losses of 12.6% resulted in an overall loss of 3.5%. Nevertheless, for a market neutral strategy with significant volatility-reducing benefits, our newsletter continues to perform remarkably well. In fact, this product has been so successful it was recently selected by Forbes.com for inclusion into its stable of newsletter products. Forbes.com believes that the VE Forecast 22 MNS Portfolio offers a sophisticated newsletter for investors seeking access to hedge fund-type strategies without hefty performance fees and onerous qualified investor requirements.

Over the past month, 17 of our 22 long selections made money and 10 of them provided double-digit returns. Our biggest winners were IP, SWM, ANN, BEXP, BCRX, TER, and NVLS. Our largest gain came via ANN (Ann Taylor Stores) at almost 36%. The Energy, Consumer Services, Basic Industries, and Technology Sectors provided our largest average gains. Capital Goods, Public Utilities, and Transportation were the real performance laggards this month. Since inception in December 2008, our portfolio is up 18.31%. Below, you can see our long-side results:
Ticker
IP AAUKY AMSC SSD TRW TEN SWM CQB ANN SMRT BEXP SM WTFC WRE BCRX CMED CSIQ ENI TER NVLS HTZ CNW

Company Name
INTERNATIONAL PAPER CO ANGLO AMERICAN PLC AMERICAN SUPERCONDUCTOR CORP SIMPSON MANUFACTURING CO TRW AUTOMOTIVE HOLDINGS CORP TENNECO INC SCHWEITZER-MAUDUIT INTL CHIQUITA BRANDS INT'L ANNTAYLOR STORES CORP STEIN MART INC BRIGHAM EXPLORATION COMPANY ST MARY LAND & EXPLORATION CO WINTRUST FINL CP WASHINGTON REAL EST INV TR BIOCRYST PHARMACEUTICALS, INC. CHINA MEDICAL TECHNOLOGIES INC CANADIAN SOLAR INC ENERSIS TERADYNE INC NOVELLUS SYSTEMS HERTZ GLOBAL HOLDINGS INC CON-WAY INC LONG PORTFOLIO

Entry Price
$20.81 $15.95 $33.26 $28.63 $18.23 $15.95 $46.93 $15.86 $12.70 $11.94 $7.54 $28.75 $27.35 $26.61 $9.66 $16.03 $16.93 $18.56 $8.08 $17.95 $11.02 $47.37

Exit Price
$25.12 $17.60 $35.20 $27.28 $19.37 $15.90 $56.24 $16.28 $17.24 $13.24 $9.94 $33.30 $29.00 $28.95 $10.84 $15.25 $17.35 $18.17 $9.18 $20.53 $11.30 $44.25

Change
4.31 1.65 1.94 -1.35 1.14 -0.05 9.31 0.42 4.54 1.3 2.4 4.55 1.65 2.34 1.18 -0.78 0.42 -0.39 1.1 2.58 0.28 -3.12

%Change
20.71 10.34 5.83 -4.72 6.25 -0.31 19.84 2.65 35.75 10.89 31.83 15.83 6.03 8.79 12.22 -4.87 2.48 -2.10 13.61 14.37 2.54 -6.59

Sector
BASIC INDUSTRIES BASIC INDUSTRIES CAPITAL GOODS CAPITAL GOODS CONSUMER DURABLES CONSUMER DURABLES CONSUMER NON_DURABLES CONSUMER NON_DURABLES CONSUMER SERVICES CONSUMER SERVICES ENERGY ENERGY FINANCE FINANCE HEALTH CARE HEALTH CARE PUBLIC UTILITIES PUBLIC UTILITIES TECHNOLOGY TECHNOLOGY TRANSPORT TRANSPORT

9.15
1012.73 1068.76

GSPC

S&P500

56.03

5.53

For more on the VE Forecast 22 Market Neutral Strategy Newsletter Portfolio, Click the Logo Below

Suttmeier Says
--Commentary and Analysis from Chief Market Strategist Richard Suttmeier
If you have any comments or questions, send them to Rsuttmeier@Gmail.com

FDIC Sells Toxic Mortgages to a Private Investor The FDIC recently announced that it has made a deal to sell $1.3 billion in toxic mortgages from the former Franklin Bank of Houston, Texas--Franklin failed last November. In this deal a private investor gets to speculate on toxic mortgages on the back of tax payer money. This deal is a 50 / 50 risk-sharing arrangement between the FDIC and Residential Credit Solutions of Fort Worth, Texas-- who will put up $64 million to manage the $1.3 billion mortgages from Franklin Bank. In round numbers, the deal prices these toxic loans at 70 cents on the dollar. This price is more than private equity and hedge funds have been willing to pay for similar assets, yet below what solvent banks are willing to accept for their toxic mortgage loans. Had tax payer money not been put on the line the clearing bid for the Franklin portfolio would be 20 cents on the dollar. Once more we see that the US Government is privatizing profits and socializing losses. Whatever happened to "moral hazard?" How does this help struggling homeowners on Main Street? On the other hand, this asset sale should help establish a market for toxic assets since we will have some "mark-to-market" activity here applicable to bank balance sheets when markto-market accounting becomes the FASB rule again in 2010. The FDIC hopes the program will spur the purchases of whole mortgages for both residential and commercial real estate, which is a key to the smooth closure of my estimated 500 to 800 bank failures that will occur through 2011.

Statistics on New Home Sales and Housing Starts Housing Starts for single-family homes declined in August to an annual rate of 479,000 units, ending a five-month winning streak. A third of all new sales in the past few months were done to take advantage of the first time home buyer tax credit of $8,000. This was the cause for the slight up-tick in home builder confidence. Housing starts and confidence are still quite low by historic standards so the expiration of the $8,000 credit will have the same negative effect on the housing market as ending the cashfor- clunkers plan for autos. Mortgage rates at just above 5% have helped the housing market, but a 4.25% to 4.5% rate would help the housing market back to recovery. My “Mortgage Mulligan” rate would be 100 basis points over the 10-year yield-- which is just below 3.4%. We need to eliminate Fannie and Freddie as the housing middlemen. The Federal Reserve will stop buying GSE debt and mortgage securities at the end of the year, and this will likely widen spreads and cause mortgage rates to rise. Comments by Paul Volcker Paul Volcker has become President Obama’s key financial expert, and he is not that upbeat on economic growth. He says that there’s a “long way to go” before the economy returns to pre-recession levels. He indicated that an economic recovery will be a long slog-- a matter of years with risks of relapses along the way. Volcker indicated that it is way too soon to resume business as usual. I concur.

Suttmeier Live on Fox Business Channel Today @4:45pm
VE Chief Market Strategist will appear on FOx Business Channels' "Bulls and Bears" Program Today at 4:45pm--in case you didn't know, he will be a "bear."

--Canadian Stock Reports Now Live on Scotia iTRADE
ValuEngine has added the Canadian stock market to its coverage universe and entered into a partnership with Canada’s Scotia iTRADE. ValuEngine will provide Scotia iTRADE’s online stock-trading service with access to individual stock reports for more than 500 Canadian equities and 4,000 US equities. The addition of Canadian equities coverage further expands ValuEngine's stock universe to @ 4,500 individual stocks trading on US and Canadian markets and is part of ValuEngine's effort to be the world leader in total market coverage. Scotia iTRADE is owned by Scotiabank, one of North America's premier financial institutions and Canada's most international bank. In March of 2009, Scotiabank completed a rebranding to Scotia iTRADE from E*TRADE Canada, which the Bank purchased in 2008. With close to 69,000 employees, Scotiabank Group and its affiliates serve approximately 12.8 million customers in some 50 countries around the world. Scotiabank offers a diverse range of products and services including personal, commercial, corporate and investment banking.

ValuEngine welcomes our new Canadian clients! Bienvenue a ValuEngine!

--VE Now Available on Bloomberg Terminal
ValuEngine has long been a provider of independent research to both retail and institutional clients. In addition to our retail website and software package, we have contracts with major banks and investment advisors such as UBS, Deutsche Bank, Wachovia Securities, and others. In an effort to further our reach into the professional finance space, we have now partnered with Bloomberg LP and have made our proprietary model data, stock reports, and premium newsletter content available for download via the Bloomberg terminal. This effort will bring our rating, valuation, and forecast data on over over 5000 US, Canadian, and Japanese stocks to an even larger audience of investment professionals. To access ValuEngine on any Bloomberg terminal, just hit VLUE <GO> or contact ValuEngine at Support@ValuEngine.com or (800) 381-5576

Steve Hach Senior Analyst ValuEngine.com

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