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October 20, 2010 – Gold, Crude Oil and the Euro are now longer Overbought.

The yield on the 10-Year note is back below my monthly pivot at 2.555, so we renew our watch
for quarterly and semiannual risky levels at 2.265 and 2.249 in anticipation of QE2. Gold tested
my weekly risky level at $1373.6 on Monday then closed below my monthly pivot at $1343.7 on
Wednesday, so there’s risk to my quarterly value level at $1306.4. Crude oil is back below this
week’s pivot at $82.38 with my annual pivot still at $77.05. The euro appears headed for a test
of my quarterly value level at 1.3318. The Dow will lose its overbought characteristic on its
daily chart today or tomorrow. My monthly pivot is 10,857 with weekly, annual and semiannual
risky levels at 11,229, 11,235 and 11,296. Single-family housing starts rise, but community
banks reluctant to lend to home builders. Thoughts on the FDIC Deposit Insurance Fund!
10-Year Note – (2.475) Weekly, annual and annual value levels are 2.620, 2.813 and 2.999 with
monthly and daily pivots at 2.555 and 2.515, and quarterly and semiannual risky levels at 2.265 and
2.249.

Courtesy of Thomson / Reuters

Comex Gold – ($1333.7) Quarterly, semiannual and annual value levels are $1306.4, $1260.8,
$1218.7 and $1115.2 with my monthly pivot at $1343.7, and weekly and daily risky levels pivots at
$1373.6 and $1378.9.

Courtesy of Thomson / Reuters

Nymex Crude Oil – ($79.56) My annual value level is $77.05 with daily and weekly pivots at $82.23
and $82.38, and semiannual and monthly risky levels at $83.94 and $84.74.

Courtesy of Thomson / Reuters

The Euro – (1.3731) My quarterly value level is 1.3318 with daily and weekly risky levels at 1.3895
and 1.4060. My monthly value level is 1.2342 with semiannual risky level at 1.4733.

Courtesy of Thomson / Reuters

Daily Dow: (10,979) Monthly, semiannual, annual and quarterly value levels are 10,857, 10,558,
10,379 and 8,523 with daily, weekly, annual and semiannual risky levels at 11,138, 11,229, 11,235,
11,290 and 11,296. My annual risky level at 11,235 was tested at the April 26th high of 11,258.01.

Courtesy of Thomson / Reuters

Single-Family Housing Starts rise 4.4% in September - Nationwide housing starts edged up 0.3%
to an annual rate of 610,000 units in September, as singe-family starts jumped 4.4% according to U.S.
Commerce Department figures released today.
The main stumbling block for a housing recovery is the lack of credit for new construction. The main
reason for this is the fact that community banks do not want to write new Construction & Development
Loans, as that category of Commercial Real Estate loans remains a huge drag.
• 1172 of all community banks (14.8%) are overexposed to Construction & Development Loans.
• 1432 or 18.1% are overexposed to Nonfarm / Nonresidential real estate loans.
• 2504 or 31.7% are thus overexposed to Commercial Real Estate loans.
• 1317 or 16.7% have a real estate loan pipeline that’s 100% funded.
• 2622 or 33.2% have a pipeline that’s between 80% and 100% funded.
• 3939 of 49.9% of all banks have a pipeline that’s 80% or more funded. So half the
community banks in America remain overleveraged to Commercial Real Estate and the
possible losses remain about $1.5 trillion.
The seasonally adjusted annual rate for single-family housing starts is 452,000 units the best showing
since May. Could it be that the uncertainty of the foreclosure mess benefits home builders, particularly
the big builders who have a mortgage finance division? Why bother with the foreclosure sale red tape,
when you can purchase a brand new home with builder financing. My ValuTrader Model Portfolio has
positions in KB Home (KB) and Ryland Group (RYL).
Thoughts on the FDIC Deposit Insurance Fund - The FDIC gets a reprieve on the requirement to
get the Deposit Insurance Fund to 1.15% on insured deposits by June 2013. The Dodd-Frank
Financial Reform Bill sets a reserve ratio of 1.35 by September 2020 kicking this can down the road
seven years. The new Restoration Plan forgoes a uniform 3 basis point assessment previously
scheduled to take effect January 1, 2011. Keep in mind that banks have prepaid all annual
assessments through 2012 at a total of $15.333 billion per year. The FDIC magically projects
somewhat lower losses from 2010 through 2014, which I find as a stretch given 829 banks on the
FDIC List of Problem banks. With so many community banks overexposed to C&D and CRE loans and
with 50% having funding pipeline issues, I do not know how the FDIC can achieve a positive balance
even by 2020.
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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