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Rising yields will hurt Housing and hence Main Street USA.

|Includes: DIA, DUG, GLD, iShares 20+ Year Treasury Bond ETF (TLT)
The yield on the 10-Year increased to 3.255 overnight and is up 92.1 basis points since testing 2.334 on October 8th. The 10-Year yield is above its 200-day simple moving average at 3.086 for the first time since May 5th. QE2 HAS BEEN A TOTAL FAILURE SO FAR! Gold traded to a new all time high at $1432.5, but closed below Monday’s low for a Key Reversal Day. Crude oil traded to a new 52-week high at $90.76 and closed below Monday’s low for a Key Reversal Day. The euro closed below my quarterly pivot at 1.3318. The Dow Industrials flirted with confirming a Dow Theory Buy Signal with a close above its November 5th high at 11,444.08, but did not and now we risk a double-top at 11,450 instead. A close above 1228.74 SPX would have violated the 61.8% Fibonacci Retracement of the decline from October 2007 into March 2009, but that did not happen either and the high was below this week’s risky level at 1236.20. This week’s other risky levels / pivots are 2662 NASDAQ, 5110 Transports, 758.57 Russell 2000 and 420.81 SOX. The Housing Market and the Health of Community Banks are the Keys to Economic Growth.
10-Year Note – (3.158) My semiannual value level is 3.479 with weekly and daily pivots at 3.142 and 3.039, and annual pivots at 2.999 and 2.813, and quarterly, semiannual and monthly risky levels at 2.265, 2.249 and 1.949. Note that this yield is above its 200-day simple moving average.
Courtesy of Thomson / Reuters
Comex Gold – ($1399.0) Quarterly, semiannual and annual value levels are $1306.4, $1260.8, $1218.7 and $1115.2 with daily and weekly pivots at $1410.6 and $1400.5, and monthly risky level at $1443.5. Note that Tuesday was a Key Reversal Day.
Courtesy of Thomson / Reuters
Nymex Crude Oil ($88.15) Semiannual, annual and monthly value levels are $83.94, $77.05 and $75.50 with a weekly pivot at $86.30, and daily, semiannual and annual risky levels at $89.70, $96.53 and $97.29. Note that Tuesday was a Key Reversal Day. 
Courtesy of Thomson / Reuters
The Euro – (1.3264) Daily and monthly value levels are 1.3101 and 1.2500 with my quarterly pivot at 1.3318, and Weekly and semiannual risky levels at 1.3473 and 1.4733.
Courtesy of Thomson / Reuters
Daily Dow: (11,359) Semiannual, annual, monthly and quarterly value levels are 10,558, 10,379, 10,325 and 8,523 with annual, semiannual and daily pivots at 11,235, 11,296 and 11,309, and weekly risky level at 11,440. ValuEngine shows 15 of 16 sectors overvalued this morning.
Courtesy of Thomson / Reuters
The Housing Market and the Health of Community Banks are the Keys to Economic Growth
The potential bottoming of the housing market faces several roadblocks led by the sale of foreclosed properties. Because of the recent foreclosure freeze do to potential paperwork errors foreclosure sales plunged 25% in the third quarter and 31% year over year. However the average discounts on distressed properties is larger versus normal home sales. This adversely affects property appraisals at the county level across the country.
Put into perspective sales of non-foreclosed properties fell 29% in the third quarter sequentially and 31% year over year according to RealtyTrac. The average sale price of a depressed property was 32% lower than the non-depresses home sale in the third quarter.
The decline in sales of bank-owned properties known as Other Real Estate Owned (OTCPK:OREO) is in line with these overall figures, but OREO at FDIC-Insured Financial Institutions increased $3.7 billion in the third quarter extending the record to $53.2 billion, up 43.2% year over year. This puts considerable stress on the banking system, particularly community banks that are also saddled with about $1.43 trillion in commercial real estate loans.
The foreclosure process has slowed as banks attempt to modify loans, and by banks slow to list foreclosure and OREO homes not wanting to overload the market with low-priced inventory.
The home builders want to build more new homes as their inventory is near record lows, but community banks are reluctant to rebuild their books of Construction and Development Loans at a time when C&D Loans have been declining since 2007 and dropped another $28.9 billion in the third quarter, down 7.6% sequentially and 28.2% year over year.
Wall Street and the major “too big to fail” banks may have screwed up the mortgage market and hence home owners while about half of the community banks became unmanageably overexposed commercial real estate loans including construction and development loans. This double dilemma will take years not quarters to unwind.
During the housing boom Main Street benefited with significant job growth at the community level. Without housing construction and improved balance sheets at community banks the US economy will continue to flounder with elevated unemployment rates. You can’t grow the economy and create jobs without the housing market and fixing the network of community banks.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist, (800) 381-5576
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