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

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April 7, 2010 – Fed Policy Minutes Shows Double-Dip Concern

The theme at the Federal Reserve is that financial conditions have become modestly more
supportive of economic growth, but between the lines, extreme caution prevails. It’s one down
and two to go for US Treasury auctions. The Fed shows no inflation concerns, but they are
wrong, as they were in 2003 / 2004. Tracking overvalued and overbought stocks.
Minutes of the March 16th Federal Open Market Committee - What I am concerned about are the
same as the Fed’s concerns;
• Housing activity remained flat and the nonresidential construction sector weakened further.
• A sizable increase in energy prices pushed up headline consumer price inflation in recent
months.
• The level of initial claims for unemployment insurance benefits remained high.
• Household income appeared less supportive of spending than at the January meeting, reflecting
downward revisions to estimates by the Bureau of Economic Analysis of wages and salaries in
the second half of 2009.
• Activity in the housing sector appeared to have flattened out in recent months. Sales of both
new and existing homes had turned down, while starts of single-family homes were about
unchanged despite the substantial reduction in inventories of unsold new homes. The underlying
pace of housing demand likely remained weak.

The Fed Minutes re-iterated that the federal funds rate will remain unchanged for an “extended period.”
In my opinion the Fed is in no hurry to raise rates and my definition of an “extended period” is a rolling
next three to six FOMC meetings.

Total bank credit contracted substantially in January and February. This includes continued
declines in the loan categories I have been tracking in the FDIC Quarterly Banking Profile.
• Commercial and industrial (C&I) loans
• Commercial real estate loans also posted significant declines.
• Household loans on banks' books contracted as well, in part because of a pickup in bank
securitizations of first-lien residential mortgages with the government-sponsored enterprises in
February.
• Consumer loans originated by banks declined, primarily reflecting a large drop in credit card
loans.
The FOMC staff did make modest downward adjustments to its projections for real GDP growth
in response to unfavorable news on housing activity, unexpectedly weak spending by state and
local governments and a substantial reduction in the estimated level of household income in
the second half of 2009.
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 of the federal funds rate for an extended period.
Today the US Treasury auctions $21 billion in new 10-Year notes. $13 billion 30-Year bonds on
Thursday.
For the 3-Year note auction went well holding my tight weekly and daily supports at 1.768 and 1.778.
The $40 billion was auctioned at 1.766 with a strong bid to cover at 3.1 times and Indirect Bid at 52%,
well above my assumed 30% to 40% neutral zone.
For the 10-Year note auction the yield is testing levels not seen since June 11, 2009. Semiannual
support is 4.25 with daily and weekly pivots at 3.980 and 3.953. The rise in yields is now overdone.

Courtesy of Thomson / Reuters

For the 30-Year bond auction the yield is under the influence of daily, weekly and semiannual pivots
at 4.842, 4.828 and 4.823.
Comex Gold – Quarterly and annual supports are $1052.8 and $938.7 with annual and semiannual
pivots at $1115.2 and $1139.7, and daily, weekly, semiannual and monthly resistances at $1148.6,
$1162.6, $1186.5 and $1202.5.

Courtesy of Thomson / Reuters

Nymex Crude Oil – Annual and quarterly supports are $77.05 and $58.41 with monthly and daily
pivots at $84.54 and $87.15, and weekly resistance at $89.90. Annual and semiannual resistances are
$97.29 and $97.50.
 Courtesy of Thomson / Reuters

The higher 30-Year bond yield has made all eleven sectors overvalued:

The Dow is now overbought on its daily, weekly and monthly charts. The “Wall of Resistances” stretch
from 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. The Armadillo Rally - Bad news bounces off its coat of armor, and on down
days it burrows into a self created hole.
 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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issues of my research.

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