Homebuyer Credit, Where art thou? and..More Dollar Bullishness (Updated)

This is not good news for the housing market. I’m starting to agree that maybe this won’t be extended or at the most will be extended, but not expanded.

An administration that has been voicing more concern for the deficit could be setting the stage for some stimulus withdrawal. Given that the Treasury is now attempting to move out some of the debt to finance all the stimulus farther down the curve, they might need to actually take some responsible fiscal steps in order to not cause higher long-term interest rates from refinancing their upcoming maturing debt.

The tipping point also most likely was the fact that there have been widespread reports of fraud with the existing credit.

If it wasn’t extended, it would probably dominate the headlines for a couple of days and could be the final nail in the coffin for an already visibly winded bull market. If extended, it might give the bull a couple more extra innings, though recent market action has been quite uninspiring.

UPDATE: Well they are in the process of expanding and extending the homebuyer credit. If it passes then the day of reckoning for the housing market will be delayed by about 6 months. If employment is not strongly back on its feet and consumers are not spending, then we will once again see weakness. Just kicking the can down the road. Maybe we will see strength by then; I am having an open mind, but so far given the data, there is strong possibility for disappointment.

On the point above regarding the dollar, I believe that this could be a large bullish catalyst. Think about it. The Fed needs to rollover a large portion of its debt farther down the curve. This could involve a 40% increase in the issuance of 10 and 30 year Treasury bonds. If bond investors see the dollar getting pummeled and a US administration that is turning a blind eye, then that will not inspire confidence, sales will be lower, yields would rise (perhaps strongly) and the recovery would be doomed anyways. In order to rollover the debt, there must be some semblance of fiscal responsibility. Defending the dollar would be in the US’s best interest.

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