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September 22, 2010 – The FOMC Downgrades the US Economy, Stocks Rise

The 10-Year US Treasury yield tested my monthly pivot at 2.562 this morning on Fed induced
risk aversion. Gold trades to another all time high at $1295.8 this morning with a daily risky
level at $1296.7. Crude oil is between monthly and annual pivots at $74.45 and $77.05. The euro
moves above its 200-day simple moving average at 1.3218 for the first time since January 19th,
and approached it’s August 6th high at 1.3334. The Dow remains extremely overbought on its
daily chart but grinds higher on its journey towards my annual pivot at 11,235 by Election Day.
The FOMC downgrades the US economy, but Housing Starts rise by 10.5% unexpectedly. “The
Great Credit Crunch” that began in March 2007 continues.
10-Year Note – (2.596) Daily, annual and annual value levels are 2.647, 2.813 2.999 with a monthly
pivot at 2.562, and quarterly, weekly and semiannual risky levels at 2.495, 2.487 and 2.249.

Courtesy of Thomson / Reuters

Comex Gold – ($1289.3) Monthly, semiannual, quarterly and annual value levels are $1263.8, 1260.8,
$1218.7, $1140.9 and $1115.2 with a weekly pivot at $1283.5 and daily risky level at $1296.7.

Courtesy of Thomson / Reuters

Nymex Crude Oil – ($74.92) Weekly and quarterly value levels are $72.72 and $56.63 with a monthly
pivot at $74.45, and daily and annual pivots at $76.84 and $77.05, and semiannual risky level at
$83.94.

Courtesy of Thomson / Reuters

The Euro – (1.3239) My weekly value level is 1.2902 with a daily risky level at 1.3350. Quarterly and
monthly value levels are 1.2167, 1.1721 and 1.1424 with semiannual risky level at 1.4733.

Courtesy of Thomson / Reuters

Daily Dow: (10,761) Weekly, annual, monthly and quarterly value levels are 10,445, 10,379, 10,164
and 7,812 with my semiannual pivot at 10,558, and daily and annual risky levels at 10,826 and 11,235.
My annual risky level at 11,235 was tested at the April 26th high of 11,258.01. The Dow has
become extremely overbought.

Courtesy of Thomson / Reuters

FOMC Downgrades Economy – Sets Stage for QE 2
Information received since the Federal Open Market Committee met in August indicates that the pace
of recovery in output and employment has slowed in recent months. Household spending is
increasing gradually, but remains constrained by high unemployment, modest income growth,
lower housing wealth, and tight credit. Business spending on equipment and software is rising,
though less rapidly than earlier in the year, while investment in nonresidential structures continues to
be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed
level. Bank lending has continued to contract, but at a reduced rate in recent months. The
Committee anticipates a gradual return to higher levels of resource utilization in a context of price
stability, although the pace of economic recovery is likely to be modest in the near term.
Measures of underlying inflation are currently at levels somewhat below those the Committee judges
most consistent, over the longer run, with its mandate to promote maximum employment and price
stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation
expectations stable, inflation is likely to remain subdued for some time before rising to levels the
Committee considers consistent with its mandate.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and
continues to anticipate that economic conditions, including low rates of resource utilization, subdued
inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the
federal funds rate for an extended period. The Committee also will maintain its existing policy of
reinvesting principal payments from its securities holdings.
The Committee will continue to monitor the economic outlook and financial developments and is
prepared to provide additional accommodation if needed to support the economic recovery and to
return inflation, over time, to levels consistent with its mandate.
NET-NET –
• The pace of recovery in output and employment has slowed in recent months.
• Household spending is increasing gradually, but remains constrained by high
unemployment, modest income growth, lower housing wealth, and tight credit.
• Employers remain reluctant to add to payrolls.
• Housing starts are at a depressed level.
• Bank lending has continued to contract.
The NBER tells us that the recession ended in June 2009, but I re-iterate that “The Great Credit
Crunch” continues unabated.

Back in March 2007 everyone said subprime was contained. I said subprime was the tip of the
iceberg. I said, “Goldilocks Is Getting Wrinkles”! I called for a Recession in 2008 / 2009 and for the
beginning of a Bear Market for stocks by the end of 2007. This is when “The Great Credit Crunch”
began! The home builders had already peaked in July 2005, community banks peaked at the end of
2006, and the regional banks peaked in February 2007 signaling the start of “The Great Credit
Crunch”, which continues today based upon the current Federal Reserve concerns.
Housing Starts Rose 10.5% in August as Builders Struggle to obtain Financing - The National
Association of Home Builders describe the rise as bringing the pace of production more in line with
construction activity before the home buyer tax credit temporarily stimulated sales earlier in the year.
Single home sales increased only 4.3% to 436,000 units still 9.1% below the pace of August 2009 as
builders had difficulty obtaining finance and amidst concerns about sustained demand.
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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