Friday, September 28, 2012

Q1 Trends Still Up in the Air

I track the key levels for the US Capital Markets, and discuss three of my ten predictions for 2010 – The drag of Fannie (FNM) and Freddie (FRE), Mortgage Delinquencies and Emerging Markets.

The US Capital Markets continue to trade within their staging ranges.

The 10-Year yield continues to trade between my monthly pivot at 3.868 and my semiannual pivot at 3.675, which is the balance between supply and inflation concerns and a return to risk aversion.

Comex gold is between my quarterly support at $1084.90 and my weekly, monthly and semiannual resistances at $1157.80, $1166.70 and $1186.90. Parabolic bubble is reluctant to re-inflate.

Nymex Crude oil is above my annual support at $77.05. Below is quarterly support at $67.22, and above is my annual resistance at $97.29, which would be a June or July pre-hurricane season high.

The dollar Index remains the wildcard needing a weekly close above my quarterly resistance at $80.23 to signal an end to the dollar carry trade.

Chart Courtesy of Thomson / Reuters

The weekly chart shows the Dow above the down trend that goes back to October 2007, with my annual pivot at 10,379 the key level to trigger significant downside risk towards quarterly support at 6,705, or a continued grind higher to weekly, monthly, annual and semiannual resistances at 10,746, 10,997, 11,235 and 11,422. We had the Breakout – We await the possible Fake-out.

Reviewing the Accounting behind the Conservatorship of Fannie Mae and Freddie Mac - Starting from the bottom up I dissect the latest chart of the bailouts for Fannie and Freddie from the FHFA.

Federal Reserve purchases of GSE Debt and MBS end on March 31 with only $15 billion in debt to buy and $237 billion in mortgage backed securities. Treasury purchases of MBS and the GSE Liquidity Facility have ended with Treasury and hence tax payers owning $221 billion in mortgage backed securities.

Under the Senior Preferred program the Treasury can now purchase more than $400 billion in Senior Preferred. The total through Q3 2009 has been $111 billion. All losses between now and the end of 2012 will be unlimited and will add to the $400 billion for a grand total through 2012.

Serious Delinquencies continue to rise rapidly in all Categories: Subprime ARMS 40.8%, Subprime Loans 28.7%, FHA Loans 8.7%, All Loans up to 8.9% up from 8% in November, and Prime Loans 8.7%. Obviously, as delinquencies continue to increase so will foreclosures. This will force Fannie and Freddie to tap their unlimited Senior Preferred heavy in each of the next thirteen quarters.

The Fannie Mae key metrics at the end of November – Their mortgage portfolio is $752 billion and can rise to $900 billion, but cannot exceed $810 billion at the end of 2010. Fannie outstanding debt is $782 billion. At the end of Q3 Fannie had an REO inventory of 72,275 single-family homes valued at $7.0 billion.

The Freddie Mac key metrics at the end of November – Their mortgage portfolio is $762 billion and can rise to $900 billion, but must be $810 billion at the end of 2010. Freddie outstanding debt is $809 billion. Their inventory of foreclosed single-family homes is valued at about $4.7 billion.

The Emerging Markets Index Fund (EEM) is up 3.7% in the first two days of 2010, which is not surprising given the Wall Street hype. I would use strength to my annual, monthly and semiannual resistances at $44.99, $46.12 and $48.09 to book profits. A weekly close below my annual pivot at $39.81 indicates risk to my quarterly supports at $25.01 and $22.83.

Chart Courtesy of Thomson / Reuters

The China 25 Fund (FXI) is up 4.2% in the first two days of 2010. I show annual pivots at $39.25 and $44.53 as a neutral zone with monthly resistance at $49.74. A weekly close below $39.25 indicates risk to quarterly support at $19.75.

Chart Courtesy of Thomson / Reuters

Disclosure: No Positions

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