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

ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

covers over 5,000 stocks every day.

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks,
and commentary can be found HERE.

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March 9, 2010 – Treasury Supply is the Focus Today Through Thursday

The US Treasury auctions $40 billion in 3-Year Note Auctions today. Valuations were extremely
cheap a year ago, but are not today. While we review the markets and valuations year over year,
keep in mind that our economic problems began in mid-2005 with overvalued homebuilders,
and that community and regional banks peaked at the end of 2006 into February 2007.
Yields have risen in anticipation of this week’s $74 billion in note and bond auctions. Today its
$40 billion in 3-Year notes with my semiannual support at 1.432 the key level to hold. If it does risk
aversion should make this issue a success. My annual resistance is 1.293.

Chart Courtesy of Thomson / Reuters

On Wednesday the US Treasury auctions $21 billion re-opened 10-Year notes with that yield cheaper
than my semiannual pivot at 3.675. The chart shows a trading range of 3.83 to the 200-day simple
moving average at 3.55 around the pivot at 3.675.
On Thursday the US Treasury auctions $13 billion re-opened 30-Year bonds

Chart Courtesy of Thomson / Reuters

The 30-Year is an important auction with semiannual support at 4.823 and semiannual resistance at
4.543. A breakout to higher yields is a drag on equity valuations, which in one year have gone from
extreme undervalued readings to having nine of eleven sectors overvalued.
Valuations March 9, 2009 versus March 9, 2010 – All eleven sectors were significantly undervalued a
year ago with Consumer Durables by 32% at the low end to Healthcare by 44.9% at the high end.
Today nine of eleven sectors are overvalued. The three most expensive sectors are Consumer
Durables at 14.5% overvalued, Basic Industries at 13.0% overvalued and Energy 10.2% overvalued.
 Increasing Stress in the Banking System is Deepening
“The Great Credit Crunch”
I first became concerned about the Housing Market in mid-2005 when I observed that the
homebuilders had become extremely overvalued according to ValuEngine. Back then I predicted that
the stocks in the Home Building Industry would peak during the summer and experience a prolonged
price decline. This prediction proved accurate as the industry peaked at the end of July 2005.
As the home builders began their price decent, I began to worry about community and regional
banks, but it was not until March 2006 when I began to connect the dots that the banking system could
be vulnerable. I read a column in the St. Petersburg Times in Florida concerning bank overexposures to
Construction and Development (C&D) loans, so I contacted the reporter, who introduced me to her
source of information at the Federal Deposit Insurance Corporation (FDIC).
The analyst at the FDIC introduced me the FDIC Quarterly Banking Profile (QBP), which at first
blush appeared quite confusing. I was determined to learn how to read and interpret the information
and data, and began to do so with the QBP for the first quarter of 2006. When compared to the fourth
quarter of 2005, I observed that community and regional banks were becoming overexposed to C&D
loans at an alarming rate.
 I learned that FDIC staff economists had generated internal reports warning of heavy risk
concentrations to C&D loans and to Commercial Real Estate (CRE) loans as early as 2003 if not
earlier. I then discovered that the US Treasury, the Federal Reserve and the FDIC developed
preliminary guidelines for exposures to this type of lending in the autumn of 2005. I have been referring
to the finalized guidelines, which were released at the end of 2006.
After observing continued increasing C&D and CRE loan exposures in the Quarterly Banking
Profiles for all of 2006, on March 1, 2007, I predicted that the deterioration in the banking system would
put the US economy in Recession in 2008 / 2009. In addition, I correctly predicted that GDP in 2009
would be below that of 2008 for the first time since 1948 / 1949, and that a Multi-Year Bear Market for
stocks would begin before the end of 2007.
Since the basis of my predictions was the FDIC Quarterly Banking Profile, I have concluded that
this data is the single most important leading indicator for the US economy. I call the QBP the balance
sheet for US GDP, as the assets and liabilities support all loans and deposits associated with growth
and decline of the US economy.
My observations and conclusions in this detailed report are that the US banking system remains
under considerable stress extending “The Great Credit Crunch” at least for another four years, and that
the US economy, if indeed is declared out of Recession, will experience a Double-Dip. In this scenario
the US Stock Market is in a wide trading range at best.
That’s today’s Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at
1:30 PM. The next broadcast is Monday, March 8, 2010.
http://www.forextv.com/Forex/custom/LiveVideo/Player.jsp
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
ValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sample
issues of my research.

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