The Housing and Economic Recovery Act (HERA) of 2008 set the terms for the Conservatorship of Fannie Mae (FNM) and Freddie Mac (FRE) with a wind down date of December 31, 2009. The Enterprise MBS program will end the year at approximately $220 billion up from $202 billion shown on November 16, 2009. The GSE Liquidity Facility will end at zero having never been used.
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I have been predicting that the Conservatorship of Fannie and Freddie will be the largest cost to tax payers of all of the financial bailout programs, and that will prove to be the case as the GSEs will have unlimited access to the Senior Preferred Program though 2012, with around $111 billion already spent. All losses for Fannie and Freddie will be tacked unto the $200 billion lifeline set for each over the next three years with the lines of credit permanently set to that level on December 31, 2012. Thus, the total lines of credit will be $400 billion plus the losses over the next thirteen quarters.
This Christmas Eve gift to be paid by taxpayers is an admission that the two GSEs are needed as “The Great Credit Crunch” is expected to continue for another three years at least.
New highs across all Equity Averages on Christmas Eve, as the glass exceeds half full.
If the Dow opens above 10,472 it will be above the down trend that goes back to October 2007. The 50% retracement of the Bear Market was 10,334 with this week’s resistance at 10,988, and the 200-week simple moving average is at 11,187, well below the October 2007 high of 14,198. With the weekly chart overbought, a close below the five-week modified moving average at 10,267 signals a fake-out following the breakout. The downside in 2010 appears to be 7,500, which is a troubling risk / reward.
The S&P 500 broke out above its 50% retracement at 1121 with this week’s resistance at 1166, which is 500 points above the March 6th low of 666. Keep in mind that the October 2007 high is 1576. The 200-week simple moving average is resistance at 1237.
The NASDAQ breakout was above the 200-week simple moving average at 2210, but strength did not take out my annual resistance at 2296. This week’s resistance is 2340.
The Dow Transports ended last week below my annual pivot at 4199 with the 200-week simple moving average at 4360. My lower annual pivot is 4037.
The Russell 2000 shows a weekly resistance at 639.54 and the 200-week at 678.00 and the SOX has a weekly resistance at 364.38 and 200-week at 382.57.
Nine of eleven sectors are overvalued and the 30-Year yield is rising. This is a double-whammy reason not to chase the rally in stocks. The yield on the 30-Year is headed for my semiannual support at 4.75. This yield is above the 200-week at 4.52.
Basic Industries is now overvalued by 18.2% with Energy overvalued by 17.7%. Technology is only 1.1% undervalued with Heath Care, the cheapest sector, only 5% undervalued.
Comex Gold has alleviated an oversold on its daily chart with my quarterly pivot at $1094, the 50-day at $1116 and the 21-day at $1139.
Nymex Crude Oil is above its 50-day at $76.81 on a positive daily chart. The 21-day is support at $74.18 with the October 21st high at $82.
Disclosure: No Positions