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

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September 9, 2009 – More Defaults, Gold Flirts with a Grand and S&P MOJO

More loan defaults are on the horizon as mortgage modifications stall. The Jobless
Rate correlates to Credit Card defaults. Gold at a Grand, and the S&P 500
Another Two Years of Mortgage Defaults and Foreclosures
I have often talked about the Option ARM mortgage reset wave, which won’t crest until the
end of 2011.
Option ARM mortgages are like candles burning at both ends – They involve resets at a
higher interest rates and higher principal amounts. These cannot be refinanced because of
the significant decline in home values. As of April when this wave of $189 billion worth of
resets began, some 35% were already at least two months in arrears.
These mortgages were making the bet that home values would continue to inflate, but instead
home prices declined by 30% or more depending upon location. You guessed it, 75% of
Option ARM mortgages are in California, Florida, Nevada and Arizona.
This will add to the cost of Conservatorship of Fannie Mae and Freddie Mac, and should be a
drag on “too big to fail” banks, Bank of America, JP Morgan and Wells Fargo, as
Countrywide, Washington Mutual and Wachovia through Golden West, issued the bulk of
these loans.
Update on Loan Modifications
We know that the Making Home Affordable program was designed to save nine million
homeowners. This will not happen, as the plan was too slow from the get go. Homeowners
became more than 5% then 25% underwater. The plan could not keep up with the tsunami of
foreclosures.
Most banks that service mortgages could not keep up with the surge in applications and
complained about the complexity of the program.
Rising joblessness is making it even more problematic and even some of the modified
mortgages have gone into re-default. Instead of helping nine million keep their homes about
half will loose them by the end of the year. By the end of 2011, some nine million homes may
be lost.
My simple “Mortgage Mulligan” program described first in February 2008 had a chance
of preventing this, as it would have begun before the crest of the tsunami.
Credit Card Losses Stabilize, But Will Rise Again
Credit card debt that banks say will never be repaid declined from a record high of 10.4% in
June to 9.8% in July. This turn will be temporary as more Americans lose their jobs. The main
reasons for improvement include: Fewer cards being issued, and tax refunds are being used
to pay down some debt.
Considering the 9.1 million part-time workers the unemployment rate is more like 16.5%,
which means a much higher default rate right through 2011.
American Express, Bank of America, JP Morgan, Citigroup, Capital One and Discover
Financial Services make up around 80% of the credit card industry.
Comex Gold flutters at a grand and the daily chart for the S&P 500
My monthly and semiannual pivots for gold are $994 and $991 with today’s pivot at 1,004 and
weekly resistance at $1011. Above are semiannual and quarterly resistances at $1,101.9 and
$1,117.1.
The daily chart for the S&P 500 will shift to positive on a close today above its 21-day simple
moving average at 1010.65, but the August 28th high remains resistance at 1039.47.
Send me your comments and questions to Rsuttmeier@Gmail.com. For more information on
our products and services visit www.ValuEngine.com
That’s today’s Four in Four. Have a great day.

Richard Suttmeier
Chief Market Strategist
ValuEngine.com
(800) 381-5576

As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website
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