Stocks may be undervalued fundamentally, but mainly because the 30-Year bond rate is below 3.00%. If the Dow Industrial Average closes above 12,500 today technical momentum takes over. All daily charts are overbought and the weekly charts are either overbought, or will be soon. To review; The Dow Industrial Average has been influenced by my annual and quarterly pivots at 12,312 and 12,478 and has tested the down trend connecting the highs of May and July 2011 at the 12,500 area. The other major averages have stayed below their quarterly risky levels at; 1305.4 SPX, 2777 NASDAQ, 2422 NDX, 5448 Dow Transports, 829.03 Russell 2000, and 390.17 SOX. Monthly value levels lag at; 11,210 Dow Industrials, 1152.8 SPX, 2432 NASDAQ, 2185 NDX, 4443 Dow Transports, 646.71 Russell 2000, and 310.48 SOX. The yield on the 10-Year has tested my semiannual pivot at 1.903. Gold tested both of my semiannual pivots

We are ending 2011 with a year to date low for the euro versus dollar on Thursday, which pulled gold well below its 200-day simple moving average at $1622.4. Crude oil is ending the year testing and failing at my annual pivots at $99.91 and $101.92. The yield on the 10-Year US Treasury is ending the year below its 50-day simple moving average at 2.025. The Dow Industrials and Dow Transports are above their 200-day SMAs at 11,944 and 4977 with the S&P 500 just above its 200-day at 1258.9, and with the other major averages below their 200-day SMAs at; 2661 NASDAQ, 2288 NDX, 762.78 Russell 2000, and 390.68 SOX. Fundamentally about 73% of all stocks are undervalued, but by sectors seven are undervalued and nine are overvalued.

10-Year Note – (1.899) Daily, semiannual, quarterly and annual value levels are 2.017, 2.414, 2.669 and 2.690 with the 50-day

The Dow Industrial Average is the only major average above its 200-day simple moving average at 11,941. The major averages that did not reach their 200-day SMAs for the Santa Claus rally are: 2661 NASDAQ, 763.01 Russell 2000 and 390.93 SOX. The NASDAQ 100 (NDX) was above its 200-day at 2288, but closed below it on Wednesday. The S&P 500 did the same with its 200-day at 1258.9. Dow Transports closed just below its 200-day at 4977. The Santa Claus rally thus appears to be over, or has just limited additional upside. The yield on the 10-Year US Treasury is back below its 50-day SMA at 2.031. Gold is now trending below its 200-day SMA at $1621.7. Crude oil failed to stay between my annual pivots at $99.91 and $101.92. The euro remains oversold and below its 50-day simple moving average at 1.3462.

10-Year Note – (1.914) Semiannual, quarterly

Definition of MOJO – This is my term for technical momentum. I use what’s called “12x3x3 slow stochastic readings” from daily, weekly and monthly charts. The scale is zero to 10.0 where above 8.0 is overbought and below 2.0 is oversold.

Looking at my proprietary analytics there is still some year end upside; my quarterly risky levels are 12,507 Dow Industrials and 1303.7 SPX. I show annual pivots at 5179 Dow Transports and 784.16 Russell 2000. Next week I will have a brand new set of weekly, monthly, quarterly, semiannual and annual value levels, risky levels and pivots. The yield on the 10-Year US Treasury trades around its 50-day SMA at 2.035. Gold remains below its 200-day SMA at $1620.8. Crude oil remains above its 50-day and 200-day SMAs at $96.03 and $95.74 confirming a bullish crossover, and is between its annual pivots at $99.91 and $101.92. The euro remains

I have been tracking the 2011 Santa Claus Rally and the S&P 500 joined the Dow Industrials and Dow Transports with a close on Friday above its 200-day simple moving average at 1259.2. The NASDAQ closed between its 50-day and 200-day SMAs at 2617 and 2661. The 200-day SMA for the Russell 2000 remains a barrier at 763.49. Since the May / July period the major averages have seen lower highs. The Russell 2000 set a new all time high at 868.57on May 2nd. The Dow Transports reached an all time high at 5627.85 on July 7th. This makes me believe that this Santa Claus Rally is a bear market correction. The yield on the 10-Year US Treasury tested its 50-day SMA at 2.038 on Friday. Gold continues to have a tough time getting back above its 200-day SMA at $1620.0. Crude oil remains above its 50-day and 200-day SMAs

A successful Santa Claus rally would have all equity averages above their 200-day simple moving averages at; 11,936 Dow Industrials, 1259.6 S&P 500, 2662 NASDAQ, 2288 NASDAQ 100 (NDX), 4977 Dow Transports, 763.99 Russell 2000, and 392.08 SOX. Only the Dow Industrials & Dow Transports are providing this leadership. Stocks are cheap when 75% or more of all stocks are undervalued and today’s reading is 73.6%. The yield on the 10-Year US Treasury is below its 50-day SMA at 2.046, but my weekly risky level at 1.826 has been tested. Gold traded as high as $1643.7 on Wednesday versus my semiannual pivot at 1644.8, but the close was just below the 200-day SMA at $1618.1. Crude oil popped back above its 50-day and 200-day SMAs at $95.16 and $95.77, and with a larger than expected inventories drawdown there could be a bullish crossover where the 50-day rises above the 200-day.

I was a U.S. Treasury securities trader for many years in the primary dealer community in the early stages of my career. It is unheard of to question the full faith and credit of the United States. In my opinion, the downgrade of U.S. debt is the downgrade of all global debt. Since this is a milestone event it will be difficult to judge the long term impact to the economies and markets around the world. Short term volatility in the U.S. capital markets has already been extreme, so this downgrade just adds to uncertainties and should cause higher yields for this week’s auctions of 3-Year, 10-Year and 30-Year U.S. Treasuries. The S&P downgrade will not alter the fact that U.S. stocks entered a new Bear Market on August 1st.

The new bear market for stocks was ushered in last week with a 698 point

Quotes from the CRS Report for Congress, Order Code RS22950 dated September 15, 2008: (I could not find a publicly available link to RS22950, but I have a PDF version if anyone is interested.)

On September 7, 2008, the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that play a critical role in the US home mortgage market, in Conservatorship. As conservator, the FHFA has full powers to control the assets and operations of the firms. Dividends to common and preferred shareholders are suspended, but the US Treasury has put in place a set of financing agreements to ensure that the GSEs continue to meet their obligations to holders of bonds that they issued or guaranteed. This means that the US taxpayer now stands behind about $5 trillion of GSE debt.

Why is this $5 trillion debt guarantee not subject to the

Is there stability in the housing market or just a minor blip in what should be the season for home sales to improve?

Housing starts rose by 14.6% in June to a seasonally adjusted annual rate of 629,000 units. The National Association of Home Builders (NAHB) commented that access to construction credit remains a detriment to starting new projects and creating construction jobs. Since there are many potential home buyers opting to rent, multi-family starts jumped by 30.4% to 176,000 units. Single-family starts posted a 9.4% to a gain of 453,000 units, the best pace since November 2010. Single-family permits were flat in June. Keep in mind that housing starts were a June release and that in July the NAHB reported that their Housing Market Index posted just a two point gain to 15, a continued depressed level where 50 is neutral.

Housing starts improved in June, but new home

Activity in the housing market remained depressed, as both weak demand and the sizable inventory of foreclosed or distressed properties continued to hold back new construction. Starts and permits of new single-family homes were essentially unchanged in April and May, and they stayed near the very low levels seen since the middle of last year. Sales of new and existing homes remained at subdued levels in recent months, while measures of home prices fell further.

Commercial mortgage markets continued to show tentative signs of stabilization. In recent months, delinquency rates for commercial real estate loans edged down from their previous peaks. However, commercial real estate markets remained weak. Property sales were tepid, and prices remained at depressed levels. Issuance of commercial mortgage-backed securities slowed somewhat in the second quarter.

Conditions in residential mortgage markets were little changed overall but remained strained. Rates on conforming

Last week Sheila Bair’s term as FDIC Chairman came to an end. When she began her five year term in mid-2006, home prices were at their peak and the banking system was logging record profits. Most analysts praise the performance of Bair as FDIC Chair, but like the other regulators, Paulson/Geithner at Treasury and Bernanke at the Fed, she did not see the pressures building in the banking system.

In mid-2006, Sheila Bair inherited a banking system that was at its peak in profitability. The FDIC Quarterly Banking Profile for the second quarter on 2006 showed that the banking system generated record earnings of $38.1 billion for the quarter. Industry data showed that the banking system added over $1 trillion in assets year over year, which proved to be a double-edged sword. While great for earnings, it should have been a warning that overleveraging was going to be a problem.

• 48 banks have failed year to date in 2011
• 370 banks have failed since the end of 2007
• I still predict 500 to 800 bank failures in total by the end of 2012 into 2013.

• The FDIC List of Problem Banks rose by 4 in the first quarter to 888 from 884, which

FOMC Says Slower Economic Growth Temporary - My concerns are about comments related to the construction industry as this is the key to economic growth on Main Street USA. The FOMC Statement says, "Investment in nonresidential structures is still weak and the housing sector continues to be depressed."

The committee will keep the federal funds rate at 0 to ¼ percent for an extended period. The $600 billion QE2 will be continued through month's end and the Fed will maintain its existing policy of reinvesting principal payments from its securities holdings, from both mortgage backed securities and U.S. Treasuries.

At Bernanke's press conference it became clear that the Fed is concerned about the housing market and the banking system. As I have been saying the key to an economic recovery and job creation is helping the housing market and cleaning up the community banks that

As I have said many times Main Street USA needs a vibrant construction sector to create jobs. The problem is that many communities are left with incompleted housing projects, strip malls and office complexes. Declining home prices and now lower stocks have citizens on Main Street worried about what can come next. Banks both big and small have slowed home foreclosures, but maintain tight lending standards for those wanting to buy a home. Can anything be done to help stabilize the housing market?

Two Suggested Tax Law Changes That Would Help All Homeowners and Prospective Home Buyers

We should change the tax laws so that homeowners who sell their underwater home, or sell at a price below their original purchase price, can write off capital losses on their income taxes? I am amazed that we have a very generous way to handle capital gains from a home sale, but no

U.S. stocks were higher mid-session on Thursday, as economic data was deemed better than expected. My interpretation differs from the Wall Street conventional wisdom.

• Initial Jobless Claims remain elevated at 414,000 and well above the recessionary threshold of 350,000. Fact - The National Bureau of Economic Research time-stamped the start of recession as December 2007 when the Unemployment rate was 4.6%. The NBER time-stamped the end of recession in June 2009 when the Unemployment rate was 9.5%.
• Housing Starts rose by 3.5% to 560,000 in May, but this release was should be trumped by yesterday's report that the National Association off Home Builders Housing Market Index slumped three points in June to an extremely depressed reading of 13 on a scale of zero to 100. Yesterday's NAHB HMI was based upon June data so builders adding slightly to inventories in May but potential buyers did now show up

FDIC Claims Banking System on the Mend Despite Cloudy Q1 2011 Data

The FDIC touts fewer bank failures and problem banks, but my statistics show more banks in trouble. The FDIC’s list of “Problem Banks” only grew by four to 888, but like the questionable profit numbers mentioned below, slow growth in the number of problem banks is based on the fact that 56 banks were absorbed by merger and 26 banks failed in the first quarter. I would also argue that the FDIC continues to be slow in closing banks overexposed to Commercial Real Estate loans and thus the next wave of bank failures is delayed rather than avoided.

Profits are on the rise for the FDIC-insured financial institutions, but a closer look at the data reveals that this is only due to reduced loan-loss provisions. In fact, net operating income for FDIC institutions was lower year-over-year for only

The Fed Statement shows an economic theme that expansion is proceeding at a moderate pace with the labor market improving gradually. The Fed recognizes that commodities prices have spiked since last summer and that the rise in the price of crude oil has contributed to an inflation pick-up in recent months, but the FOMC believes that inflation expectations remain stable and that underlying inflation remains subdued. The FOMC will continue to expand its holdings of U.S. debt as announced in November. This $600 billion QE2 will end on June 30 and then the Fed will re-invest maturing Treasury and MBS holdings, keeping the expanded balance sheet bloated. In addition, the Federal Reserve will maintain the federal funds rate at zero to 0.25 percent for a continued extended period. Wall Street responded with a new round of commodity and equity speculation as the dollar got whacked.

Fed Statement – Status Quo