Fostering even lower long-term interest rates will not help Main Street USA with a weak housing market.
NEW YORK (TheStreet) -- If Federal Reserve policymakers issue a statement Wednesday that they're creating QE3 or extending "Operation Twist," they will only help the "too big to fail" banks and the bigger regional banks by inviting another round of speculation in commodities and equities.
If the Federal Open Market Committee continues to include the phrase "the housing market remains depressed" in its statement without offering a solution, then shame on it.
Regional banks have not passed the benefits of lower interest rates on to consumers or small businesses. Banks pay next to nothing on CDs and money market funds, while they have raised rates on credit cards and small business loans.
For example, Wells Fargo(:WFC) sent a notice to clients earlier in the year that significantly raised the interest rate on Small Business Line of Credit Accounts in May.
The interest rate on lines of credit was 5.75%, 250 basis points higher than the prime rate, which is 3.25%. But now the spread is 500 basis points, and the bank is charging an interest rate of 8.25%.
A QE3 or an extension of "Operation Twist" will thus not help Main Street USA, so let's not twist again!
Today I will profile the 24 banks in the KBW Bank Index(:BKX.X) to measure the risk/reward in these stocks in reaction to the FOMC decision at 12:30 p.m. EDT Wednesday. Federal Reserve Chairman Ben Bernanke begins his press conference at 2:15 p.m. EDT.
In my judgment, additional Fed easing is not justified unless it is specifically directed at helping the housing and mortgage markets.
The daily chart for the KBW Bank Index shows rising momentum (12x3x3 daily slow stochastic).
The BKX is above its 21-day and 200-day simple moving averages at $43.54 and $42.38, respectively.
Tuesday's high was a test of the 50-day simple moving average at $45.64.
My annual value level is $42.98 with downtrend resistance at $47.72. The downtrend connects the highs of March, April and May.
The BKX is up 15.3% year to date and up 39.5% since its Oct. 4, 2011 low, and is down 10.4% from its March 19 high.
Chart Courtesy of Thomson/Reuters ValuEngine Data and Value Levels/Risky Levels for the 24 Stocks in the BKX
The BKX has 10 buy-rated stocks (4-Engine) according to ValuEngine with the other 14 rated hold (3-Engine).
Last 12-M Return (%): Those in red are lower over the past 12 months. Those in black are higher.
Forecast 1-Year Return (%): No big movers as First Niagara Financial Group(:FNFG) is expected to drift lower by 3.3%, while US Bancorp(:USB) could gain 9.9% over the next 12 months.
Value Levels: Investors looking to buy should enter a good-'til-canceled limit order to buy weakness to a Value Level. This applies to adding to an existing long position, or to covering a short position.
Pivots: This price level is between the Value Levels and Risky Levels and tends to be a magnet in reversal-oriented trading.
Risky Levels: Investors looking to book profits or add to a short position should enter a GTC limit order to sell strength to a Risky Level.
This "buy and Trade" strategy is used in the ValuTrader Model Portfolio available at www.ValuEngine.com. Click on the Newsletters tab. FDIC Data for the 24 Stocks in the BKX
The above data come from the FDIC Quarterly Banking Profile for the first quarter of 2012. I sorted the banks by assets so that the four "too big to fail" banks are listed first. JPMorgan Chase(:JPM) is the largest by assets with $1.975 trillion.
The bank with the largest portfolio of Construction & Development Loans (C&D) is Wells Fargo, with $19.2 billion on the books of the bank. There will likely be problem loans in this category, but the exposure is well below the regulatory guidelines at 25.9% of risk-based capital vs. the 100% guideline.
There are no "red flags" in terms of exposures to C&D and CRE loans. None of the Regional Banks have a C&D loan ratio of more than 100%.
New York Community Bancorp(:NYB) and People's United Financial(:PBCT) have overexposure to CRE loans vs. risk-based capital with ratios of 710.5% and 304.5%, respectively. There are no loan pipeline issues.
In my opinion you can "buy and trade" the regional banks between value levels and risky levels, but longer term, the risk/reward is a coin toss at best.
At the time of publication, the author did not own shares of any stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.