Alleviating Oversold Conditions
We have a short-term oversold rally as stocks and commodities trend lower in the longer term.
The Dow, gold, and crude oil are alleviating oversold conditions on their daily charts.
The daily chart for the Dow is oversold as traders protect Dow 10,000. Weekly and annual resistances are 10,341 and 10,379. The 21-day and 50-day simple moving averages are set for a negative cross-over at 10,455 and 10,435 as the new market ceiling.
Source: Thomson / Reuters
Comex gold may have slipped below my quarterly pivot at $1084.9, but my new monthly pivot at $1093.5 will be a magnet in February with my annual pivot at $1115.2.
Source: Thomson / Reuters
Nymex crude oil remains above its 200-day simple moving average at $70.11 with weekly and annual pivots at $75.87 and $77.05.
Source: Thomson / Reuters
Option ARM Mortgage Problems Projected to Be Worse Than Subprime
The housing market and banking issues will face the challenge of an industry estimate of $134 billion of Option ARM mortgage resets over the next two years. Homeowners with these types of mortgages face resets of both a higher mortgage rate and a higher principal on their mortgage. With home values down, homeowners with Alt-A mortgages are highly likely to simply walk away from their homes.
According to the Case-Shiller Housing Market Index, home prices are still 50% higher than they were at the beginning of the 21st century. To me this indicates additional downside risk. Builders and developers owe banks $492 billion in Construction & Development Loans for planned but not finished homes and land developed for communities around the country.
Commercial Real Estate Woes -- There's another $1.09 trillion in loans collateralized by nonfarm nonresidential real estate, which is declining in value with defaults on the rise. This is on top of $1.28 billion in commercial real estate loans backed by apartment rents, store rents, and mall properties. Defaults and write-offs in this category are on the rise as well. All of these real estate issues will continue to cascade through the banking system right through 2012.
Sources say that $770 billion in commercial real estate loans will be underwater between 2010 and 2014, which further extends "The Great Credit Crunch". Not surprising, based on my observations of the recent FDIC Quarterly Banking Profiles.
The Congressional Oversight Panel estimates that the price-per-square-foot of office space has declined by 50% through 2009. The decline in commercial real estate values exceeds that for home prices, which has be buoyed by the $8,000 and $6,500 tax credit programs.
Fannie Mae (FNM) and Freddie Mac (FRE) Still Off US Balance Sheet -- The president's budget keeps the estimated $6.3 trillion in mortgages and debt of Fannie and Freddie out of the budget. This is significant as the US Debt Ceiling has just been increased by $1.9 trillion to $14.3 trillion. To include Fannie and Freddie, the debt ceiling would have to be $20.6 trillion.
As I've reported, US taxpayers are on the hook for all losses of Fannie and Freddie through 2012 on top of the $111 billion cost through the third quarter of 2009. The US Treasury projects this extra cost to be $54.4 billion in the current fiscal year ending September 30, 2010, and another $23 billion in 2011. I predict that the US Treasury is too optimistic.
For now, Fannie and Freddie are considered as "non-budgetary" items not counted as federal liabilities because "they are privately owned and controlled". That's not what Conservatorship is all about.
Where Are the "Shovel Ready" Projects? Construction Spending dropped sharply in December by 1.2% and down 12.4% in 2009. No sign of jobs created or saved in this statistic. The labor market isn't as strong as economists are telling us. The four-week moving average of Initial Jobless Claims is on the rise again with last week's reading of 470,000. In addition, 43 states say that unemployment rose in December.
Bailouts such as TARP total $485 billion of taxpayer money, according to ProPublica.org. This money has been promised to 770 companies and 11 programs.
Send me your comments and questions to Rsuttmeier@Gmail.com.
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