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March 28, 2011 – Bank Failure Friday Slows Despite Increased Problem Banks
The FDIC List of Problem Banks rose by 24 in the fourth quarter to 884 from 860, which is
11.5% of the 7,657 FDIC-insured financial institutions, yet the FDIC has slowed the pace of
closing problem banks on Bank Failure Friday. As the first quarter draws to an end the FDIC
has closed only 26 community banks year to date, including one last Friday.
Since the end of 2007 the FDIC has closed 348 banks on the way to my predicted 500 to 800 bank
closings into 2012 / 2013. Many of the remaining community banks have the same overexposures to
commercial real estate loans including construction & development loans that cause the 348 banks to
fail. If the banking system was improving the number of problem banks would be declining not rising.

There are 1265 community banks that remain overexposed to C&D loans and another 1358 that are
overexposed to CRE loans excluding C&D loans. This includes nonfarm and nonresidential real estate
loans. The total of 2623 community banks is 34.3% of all banks that still needs to unwind risk
exposures.
Looking at Pipeline Risk, which is the ratio of CRE loans to CRE loan commitments, 4479 community
banks have a Pipeline that’s 80% or move funded, which is 58.5% of all FDIC- insured financial
institutions. Such a high ratio indicates that borrowers are late in making loan payments.
Total Assets in the banking system declined $51.8 billion in the 4th quarter 2010 with C&D loans down
$32.5 billion. Even so C&D loans still total $321.6 billion with nonfarm, non-residential real estate loans
at $1.07 trillion. Potential problem loans thus totals nearly $1.4 trillion, which continues to show
considerable stress in the banking system. This stress translates into tighter lending standards with
banks with these overexposures reluctant to lend.
You cannot have a job-creating sustained economic recovering with the housing market
depressed and with continued stress in the banking system.
Not helping matters is fact that US Treasury yields are on the rise once again. On March 16th the yield
on the 10-Year US Treasury note was as low as 3.139. Last Friday’s close was 3.443. This is pushing
up mortgage rates once again.
In March we learned that Existing Home Sales declined 9.6% in February with New Home Sales
plunging 16.9% to a record low. Home prices fell 5.2% year over year. This is a major economic risk.
Stocks Remain Overvalued Fundamentally – We are not operating under a ValuEngine Valuation
Warning, but 59.4% of all stocks are overvalued. In addition all 16 sectors are overvalued with 5 by
double-digit percentages.
10-Year Note – (3.442) Weekly, annual, and semiannual value levels are 3.641, 3.796 and 4.268 with
daily, monthly, annual, and semiannual risky levels at, 3.350, 3.002, 2.690, 2.441, and 2.322.

Courtesy of Thomson / Reuters

Comex Gold – ($1427.3) Annual, quarterly, semiannual and annual value levels are $1356.5,
$1331.3, $1300.6 and $1187.2 with monthly and quarterly pivots at $1437.7 and $1441.7, and daily,
semiannual and weekly risky levels at $1446.7, $1452.6 and $1469.8.

Courtesy of Thomson / Reuters

Nymex Crude Oil – ($105.49) Monthly, and semiannual value levels are $96.43, and $87.52 with
annual and weekly pivots at $99.91, $101.92 and $105.31, and semiannual, daily and quarterly risky
levels at $107.14, $109.19 and $110.87.

Courtesy of Thomson / Reuters

The Euro – (1.4077) My quarterly value level is 1.3227 with a weekly pivot at 1.4119, and daily,
semiannual and monthly risky levels at 1.4215, 1.4624 and 1.4637.

Courtesy of Thomson / Reuters

Weekly Dow: (12,221) Weekly MOJO shows declining MOJO with a reading of 7.6 on a scale of 0.0 to
10.0. The weekly chart profile is neutral, and a weekly close below the five-week modified moving
average at 12,036 is required to shift the weekly profile to negative. This week’s risky level is above
the February 18th high at 12,391.29 at 12,488. My annual value level remains at 11,491.

Courtesy of Thomson / Reuters

Key Levels for the Major Equity Averages – All weekly charts are neutral, except the SOX, which is
negative. All major averages ended last week above their five-week modified moving averages except
the SOX. All major averages have declining weekly momentum.
• The Dow Industrial Average (12,221) Daily and annual value levels are 12,144 and 11,491
with weekly and monthly risky levels at 12,488 and 12,741.
• The S&P 500 (1313.8) Daily, quarterly and annual value levels are 1304.1, 1262.5 and 1210.7
with weekly and monthly risky levels at 1353.7 and 1381.3.
• The NASDAQ (2743) My daily value level is 2709 with weekly, quarterly and monthly risky
levels at 2830, 2853 and 2926. Semiannual and annual value levels are 2363, 2335 and 2172.
• The NASDAQ 100 (NDX) (2316) My daily value level is 2270 with weekly, quarterly, and
monthly risky levels at 2389, 2438 and 2499. Semiannual value levels are 2006.8 and 1927.6.
• Dow Transports (5208) My annual, daily and weekly pivots are 5179, 5196 and 5295.
• The Russell 2000 (823.85) Annual and quarterly value levels are 784.16 and 765.50 with a
daily pivot at 821.96 with monthly and weekly risky levels at 850.79 and 857.75.
• The Philadelphia Semiconductor Index (SOX) (436.27) My daily value level is 430.69 with
monthly, weekly, and quarterly risky levels at 453.89, 459.29 and 465.93. Semiannual and
annual value levels are 296.89, 270.98 and 259.30.
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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