Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

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February 25, 2010 – Bernanke’s Pixie Dust

While New Home Sales plunge to a record low, Fed Chief Ben Bernanke sprinkles pixie dust on
the House Financial Services Committee. You cannot have sustained growth with bank lending
down 7.5%, the worst showing since the 1940’s. A look at gold, crude oil, the dollar and the Dow
Sales of new homes plunged 11.2% in January to a record low 309,000 units annualized.
The National Association of Home Builders described the report as showing “how fragile the economic
and housing recovery is right now.” This type of report and industry reaction shows what’s happening
on Main Street, while Wall Street deposits those bonus checks.
Consumer Confidence released on Tuesday was a disappointing prelude to this data, as Americans
worry about job security with the Present Situation reading at a 27 year low.
If Existing Home Sales do not rise as expected on Friday, I would assume that the tax credit incentives
are just not enticing prospective first time home owners or those considering a move to another home.
Americans just don’t have the confidence to take the giant steps necessary to buy a home at this time.
If existing home sales are strong it simply means that below market prices for short sales and
foreclosures sales has crowded out the builders of new homes.
Bernanke Sprinkles Pixie Dust at House Testimony - First of all, when the Federal Reserve changes
the Discount Rate it is a function of monetary policy even when the Fed says that the federal funds rate
will stay low for an extended period.
Why would you need to keep the funds rate at zero if you project the economy to grow by 3% to 3.5%
this year and 3.5% to 4.5% in 2011, particularly when you state that it’s hard to judge how quickly jobs
will return. Then you say that the unemployment rate will be 6.5% to 7.5% in 2012.
Bernanke does not see inflationary pressures on the horizon just as Main Street tells you that it’s tough
to keep up with the higher cost of living, particularly those on reduced income.
The final sprinkle of pixie dust is telling the House that there are few toxic assets left on the Fed’s
balance sheet. If that’s the case tell us the status and pricing of the $29 billion in securities purchased
from Bear Stearns. Just a few months ago you said that you still could not price them.
From the FDIC QBP, lending dropped 7.5% or $587 billion, the largest decline since the 1940’s,
which implies that GDP will take a hit on lack of financing to support economic expansion.
The yield on the 10-Year Note is just below my semiannual pivot at 3.675, as risk aversion is trumping
supply and inflation concerns. Weekly resistance is 3.605.

Chart Courtesy of Thomson / Reuters

Comex gold shows declining MOJO on its daily chart as attempts to re-inflate with a trend above my
annual pivot at $1115.2 have been unsustainable. Quarterly support is $1084.9 with my semiannual
resistances at $1139.7 and $1186.5.

Chart Courtesy of Thomson / Reuters

Nymex crude oil shows overbought MOJO on its daily chart with my monthly pivot as a magnet at
$79.90. A weekly close below my annual pivot at $77.07 signals reduced global energy demand.

Chart Courtesy of Thomson / Reuters

The Euro is approaching its recent low at 1.3450 as MOJO approaches an oversold condition once
again on its daily chart. It’s been a battle to sustain gains above this week’s pivot at 1.3544.

Chart Courtesy of Thomson / Reuters

The Dow ended Wednesday just below my annual pivot at 10,379 and the 50-day simple moving
average at 10,376. The daily chart shows overbought MOJO with the 21-day simple moving average at
10,192. Weekly support is 10,105.

Chart Courtesy of Thomson / Reuters

Send me your comments and questions to Rsuttmeier@Gmail.com. For more information on our
products and services visit www.ValuEngine.com
That’s today’s Four in Four. Have a great day.

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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
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“I Hold No Positions in the Stocks I Cover.”