Curiously the bond market is not reacting strongly to the declining dollar. Who has more to lose that holders of USD bonds which are now largely in foreign hands?

From the Big Picture:

http://www.ritholtz.com/blog/2009/09/yet-another-bailout-housings-hair-of-the-dog/

1. Stimulus
2. Loan modification programs
3. Fear of rising mortgage rates

The stimulus ($8K for first time home buyers and $10K in California on any new home) have artificially stimulated demand, as did cash for clunkers for auto sales. The big questions are: will demand collapse once the programs end? Will the government extend or increase the programs if demand does collapse. (There had been talk of $15K for home buyers, first-time or not). There has been a rush to buy before the programs run out. That rush stabilized home prices so others rushed in to buy because they saw home prices stop falling.

The workout programs have had a large effect. Not all that many loans are being successfully modified, but the review process is slowing down the foreclosure process.

Yet another factor is fear of rising mortgage rates. The same fear of inflaton that is driving up the price of gold, silver and to some degree stocks has put somewhat of a floor on housing prices and increased demand.

The big question is whether the stimulus (home, auto, low interest rates) will create a self perpetuating demand cycle or whether the demand is artificially induced and will fall off once the stimulus ends.

Regarding the markets, I think that the weak dollar is playing a significant role in the strength of most asset and commodity markets. Another major crisis comes along and the dollar and yen will strengthen and asset prices will fall. The weak housing market may stop the markets advance, but the weak dollar may stop any decline in the market.

http://www.marketwatch.com/story/hiring-plans-drop-to-record-low-manpower-2009-09-08?siteid=rss&rss=1

We’ll be at 1200 any day now!