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January 20, 2010 – Confidence Sliding on Main Street

Both Home Builder and Consumer Confidence continue to slide. The FHA tightens credit
standards. President Obama’s Mortgage Modification has helped only 7%. Credit card charge-
offs are on the rise. Today is Round 12 of the Title Bout between the Bull and the Bear.
Home Builder Confidence Slides in January
The National Association of Home Builders Housing Market Index slumped to 15 in January on
continued concerns about the weak jobs market and the increasing number of foreclosure sales.
Community banks are reluctant to lead to builders and developers as nearly 3000 banks are
overexposed to C&D and CRE loans. Because of this homebuilders have thinned inventories and
slowed new construction. Remember that a reading of 50 is neutral for this index and at 15 it’s a sign of
a housing depression.
Consumer Confidence Continues to Slide
The ABC News Consumer Comfort Index fell to -49 last week down 8 points since the beginning of
2010. This index is approaching the Recession and record low reading of -54, set a year ago. 45% of
Americans say their personal finances are positive, which is below 50% for 75 of the past 78 weeks,
another record by far. Only 33% say is a good time to spend, which is 14 points below average and
only 9% rate the economy positively, 29 points below average.

This chart shows that Consumer Confidence was declining but stayed positive in the Recession of
2001, which to me is a sign that the Federal Reserve was wrong to cut the federal funds rate to 1% in
June 2003.
The FHA will make it tougher to buy a home
The Federal Housing Administration is making it tougher for homeowners to get a mortgage by raising
fees and tightening lending standards. The FHA is losing money as the foreclosure rate rises. As a
result its reserves have fallen below the minimum required by Congress. This should cause yet another
drag on housing as they insure 30% of all new loans, and the FHA is the largest backer of mortgages
for first-time buyers. The FHA only requires a 3.5% down payment, but now requires an upfront
mortgage insurance premium of 2.25% from 1.75%, which can be a deal breaker. Borrowers with a
credit score below 580 must put 10% down. More than 18% of FHA borrowers are at least one payment
behind or in foreclosure compared to 14% for all mortgage loans.
Obama’s Mortgage Modification Plan Helps Only 7%
What was supposed to help 3 to 7 million homeowners, the president’s mortgage modifications only
received 900,000 requests for help so far and only 66,500 have received permanent relief. The
program totals $75 billion and does not even keep up with monthly defaults and foreclosures. It
appears that the paperwork avalanche is too much for both the banks and the homeowner to handle.
Credit Card Charge-offs rise in December
Shoppers may have used their credit cards during the holiday season, but credit card charge-offs
increased for Bank of America and Capital One in December. Because of these charge-offs
delinquency rates declined slightly. It seems like consumers stressfully spent this holiday season. Bank
of America reported charge-offs up to 13.53% up from 13% in November. Capital One reported 10.14%
versus 9.6%.
JP Morgan reported steep losses on both mortgage and credit card loans, as Main Street woes
trumped Wall Street profits in the fourth quarter. CEO Jamie Dimon said, “We don’t know when the
recovery is.”
Obama’s Mortgage Modification Plan Helps Only 7%
What was supposed to help 3 to 7 million homeowners, the president’s mortgage modifications only
received 900,000 requests for help so far and only 66,500 have received permanent relief. The
program totals $75 billion and does not even keep up with monthly defaults and foreclosures. It
appears that the paperwork avalanche is too much for both the banks and the homeowner to handle.
Even with Tuesday’s Dow strength, the Bear could score a knock-out this week. The score now
stands at 9 to 2 favoring the Bull. My annual support is 10,379 with a weekly pivot at 10,634, and
monthly and annual resistances at 10,997 and 11,235. A knock out bunch by the Bear requires a
weekly close below 10,379. A close below 10,574 breaks the Ascending Wedge support that goes back
to the March 2009 lows.
 Chart Courtesy of Thomson / Reuters

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That’s today’s Four in Four. Have a great day.

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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
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