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.

April 13, 2010 – Is the Recession Over? NBER is Reluctant to Say that Recession is over. Home Equity Losses Remain an Issue. The Government uses Fuzzy Math on the Bailouts. Are the Financial Media Coaxing Investors back into Stocks? Dow 11,000, as major resistances loom. NBER is Reluctant to Say that Recession is over - Most economists have stated that the Recession ended somewhere between last July and September. Now the National Bureau of Economic Research (NBER) says not so fast, the evidence is not easy to decipher. In my opinion this graph reflects the major reason that the Recession is not over – Unemployment. Unemployment was just 4.6% when the Recession was declared in December 2009, now it’s more than twice that at 9.7%.

The NBER seems to be concerned about a Double-Dip, but they think that scenario is unlikely. With this uncertainty the NBER cannot time stamp an end to this Recession given the severity of the contraction, which I have called, “The Great Credit Crunch”! GDP may have rebounded for three consecutive quarters in Q1 2010, but employment trends and consumer confidence indicate that this GDP gain may not be sustained. The NBER does not want to risk calling an end to Recession after the beginning of a second one, which would be called the Double-Dip. Home Equity Losses Remain an Issue at big banks including Bank of America, JP Morgan and Wells Fargo. A report by CreditSights indicates that the big banks face potential losses of $30 billion. Based upon my analysis of FDIC data Home Equity Loans are up 258.9% since the end of 2001, and 2009 was the first year over year decline, which was 18.3%. There was a Home Equity Loan balance of $661 billion at the end of 2009, and with 25% of homeowners underwater, the future writedowns could be much larger than $30 billion. The growth rates for home equity loans were mind-boggling in 2002 through 2004 with annual increases of 39.1%, 35.0% and 41.8% as homeowners tapped their equity in their homes as piggy banks. I say the losses in home equity loans could exceed $150 billion before “The Great Credit Crunch” ends in 2012 into 2013 at the earliest. The Government’s Fuzzy Math on the Bailouts - The US Treasury now suggests that the bank bailout will only cost taxpayers $89 billion. Don’t listen to the Fuzzy Math: The Status of the Bailout according to ProPublica.org: • Outflows - $514 billion including only $60 million for foreclosure relief – Banks $244.9 billion, Fannie & Freddie $125.9 billion, auto companies $79.9 billion, AIG $47.5 billion and Toxic Asset Purchases just $15.9 billion, when that was the original intent of the TARP. • Inflows - $207.1 billion – Refunded $180.7 billion with revenues of $26.4 billion. • Net Outstanding - $306.8 billion. Are the Financial Media Coaxing Investors back into Stocks? I have seen it happen almost every time in my career. Investors shy away from stocks in a bear market fearing that price declines lead to more price declines. Based upon an on-line survey when I appeared as a blogger on Fox Business Live in early March 2009, 88% disagreed with my call that stocks would rise 40% to 50% from the March 5th low. Investors did not want to buy undervalued stocks with single-digit P/E ratios. Investors tend to follow the herd at market tops such as October 2007 ignoring overvalued fundamentals and high P/E ratios, as the financial media usher in strategist after strategist with those P/E multiple expansion market calls. At Dow 14K we were going to 18K. At 6,500 we were going to Dow 5,000. The better strategy is to book profits at highs and accumulate longs at the lows. Sell 50% at 14K and another 50% at 18K if that were to have occurred. Put the cash raised at 14K back in at 6.5K and add more money if the decline went to 5K. Learn how to buy weakness to a Value Level and to sell strength to Risky Level. It seems to me that the same investors than got burned in October 2007 were afraid in March 2009, which was the same as at the highs in March 2000 and the lows in the second half or 2002 and in March 2003. Capture a portion of the up trends and down trends, in a Buy and Trade Strategy.

Dow 11,000, but major resistances loom. There’s only another 4% to my semiannual resistance at 11,422. The risk to my quarterly support at 7,490 is 31.9%. Not a favorable risk / reward. I am not saying that you can’t capture another 4%, but make sure to have a sell stop given this risky profile. The “Wall of Resistance” stretches from my monthly resistance at 11,228, my annual resistance at 11,235, my weekly resistance at 11,330, and my semiannual resistance at 11,442.

Chart 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.”

Sign up to vote on this title
UsefulNot useful