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

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April 5, 2010 – The Credit Squeeze is intensifying on Main Street

Banks do not want to lend to Main Street homeowners and consumers. Mortgage delinquencies
rise at Fannie Mae. Higher US Treasury yields will put a drag on equity valuations. ISM shows
only slow job creation and mounting inflationary pressures. Construction spending continues
to decline tightening the noose on Main Street jobs. Initial Jobless Claims are at a cycle low
extending gains in stocks, but still above the Recessionary 350,000 threshold. Economy is
creating some jobs, while personal bankruptcies rise 35%. The Wall of Resistance for the Dow
Even if you are current on your mortgage and credit card payments banks do not want to lend.
This even applies if your credit score is in the upper 20 percentile.
My son and I visited our mortgage servicer last Wednesday to test their lending standards for Home
Equity Loans and Credit Cards. We bought a new home last June and this bank services our mortgage,
for which we put 20% down on a 30-Year fixed rate mortgage with a 4.5% rate.
The bank branch had three other clients ahead of us with only two of five offices open with bankers on
duty. When it was our turn we found out that we could not get a Home Equity Line being told that house
values have declined since last June, and that you need to have more than 30% equity before getting a
home equity line of credit. How many homeowners do you know that have 50% or more equity in their
homes at this time?
With regard to credit card applications even though our credit scores are in the upper 20 percentile, the
best interest rate offered was 18.99% for purchases and 20.24% for cash advances. We said thanks,
but no thanks.
Main Street bailed them out, but they obviously do not want to extend credit either backed by home
equity or on a credit card given to citizens with great credit scores. They explained that many
customers are starting to default even with great credit scores.
I have always opined that Credit Scores are worthless. They helped cause “The Great Credit
Crunch” when no-doc loans were offered, and now they do not help credit worthy citizens on Main
Street, USA. As long as Main Street can’t get the credit it needs, the US economy will not be able to
sustain the fragile economic growth being touted by Wall Street.
To test this theory, my son and I went to the bank where we have our business account. Same story,
HELOC loans only if you have more than 30% equity, and credit card rates in the 19% area.
That afternoon I received a new credit card in the mail, one that I cancelled more than a year ago. They
gave me a credit line of $35,000 with an APR for purchases and balance transfers at 18.99% and
23.99% for cash advances. I shredded this card.
Then I received my IRA Statement from the bank that has had my retirement funds since 1991. My rate
for the money market fund was down to 0.03%. I will be moving my IRA to another financial institution
as soon as possible.
I have four credit cards with another major bank, so I decided to look at the various rates once again. I
have four cards with the same banks because of the many mergers over the years. I use two of these
cards, but always pay off the balances monthly. For the other two I have large balances with a 2.99%
promotional rate established two years ago. I pay the minimum each month as this rate was for the life
of the loan. The normal rates on these cards range from 8.99% to 16.24% for purchases and all have a
19.24% rate for cash advances. These rates just recently went up to beat new credit card regulations.
Starting at the end of March all banks must apply payments above the minimum to the highest rate
balance. So this month I paid the minimum plus those other balances. My next statements should show
only the balances at 2.99%. Everyone should take a look at this for their own benefit.
In sum, I want to thank the Obama Administration for instituting such wonderful new
regulations to protect consumers. We now lend money to banks at next to zero percent and
borrow from them on credit cards at 20%.
Fannie Mae reports an increase in Serious Delinquency Mortgages for single-family homes. Their rate
rose to 5.52% in January from 5.38% in December and 2.77% in January 2009.
ISM shows a stronger manufacturing sector with a reading of 59.6 for March. It’s not all good news
as Prices Paid rose to 75, inventories rose to 55.3 and Employment fell to 55.1. Despite a stronger than
expected number, job creation is lagging and inventories cost more to replace, and without demand the
inventory rebuild cycle could come to an end.
Construction Spending fell a larger than expected 1.3% in February after a downward revision in
January. This is bad news for Main Street, as construction increases are necessary for job creation.
Initial Jobless Claims remain well above the 350,000 Recession Threshold, but with a cycle low
reading of 439,000 stocks continued to track this decline by moving higher.
Nonfarm Payrolls rise by 162,000, much less than the 300,000 to 350,000 the bullish economists
projected. The Unemployment Rate stayed at 9.7% and the average workweek rose to 34.0 hours. On
the negative side of the coin, personal bankruptcies rose 35% in March from February.
The Dow has broken out above its 120-month simple moving average, but now the S&P 500, as
both become overbought on their monthly chart. 2010 has the look and feel of 2007.
The Dow is overbought on its daily and monthly charts, and will be overbought soon on its weekly
chart. There is now a “Wall of Resistances” that stretch as follows; 11,202 for this week, 11,228 for
April, 11,235 for 2010 and 11,442 until the end of June. A weekly close below my annual pivot at 10,379
indicates risk to quarterly support at 7,490. Dow 8,500 before 11,500 remains my call.

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