WSJ - Home sales slow

New-home sales fell for the fourth-straight month in August to
the lowest level in a half year as the bursting of the housing
bubble continued to weigh on the US economic recovery. Sales
fell 2.3% from a month earlier to a seasonally adjusted annual
rate of 295,000, the Commerce Department said Monday. The pace
was the weakest in six months, and the month was the
seventh-worst on records dating to 1963. The results, however,
were in line with forecasts, and July's results were revised
upward slightly to a rate of 302,000. Compared with a year
earlier, when new-home sales hit a record-low pace of 278,000,
new-home sales were up 6.1%.

Turmoil in financial markets after Standard & Poor's
unprecedented downgrade of US debt, fears of a renewed recession
and Hurricane Irene all combined to keep buyers away in August.
Given those factors, "we are moderately relieved at this number,"
wrote Ian Shepherdson, chief US economist at High Frequency
Economics. "Still, the market is dead, and even record-low
mortgage rates are not doing anything to help." New-home sales
are down nearly 80% from their peak in July 2005. They remain far
below healthy levels, which would be more than double August's
rate. Consumers have slowed their spending this year, pulling
down economic growth and preventing unemployment from falling.
Many people also can't get financing amid tight lending
standards. The Obama administration and federal regulators are
working on steps to allow more borrowers to refinance at ultralow
rates. And last week, the Federal Reserve said it would begin
putting payments from its portfolio of government-backed mortgage
bonds back into mortgages. Still, the Fed's move isn't expected
to do much for home purchases. Many people aren't buying, and
sellers aren't selling, because prices keep dropping. The median
US price in August for a new home, at $209,100, was down 7.7%
from a year earlier.

US problems more serious than Europe's?

Renowned investor Jim Rogers says the US economy has more serious
problems than Europe. "Europe has a few bad, bankrupt states, so
does America. We've got Illinois which is bigger than Greece,
we've got California, we've got New York, you know those are
pretty big states that have serious economic problems. We have
pension plans in America that are terribly under water," Rogers
said. According to Rogers, the US has deeper structural problems
than Europe as well as higher debt levels. "Europe's got some
bad problems but the entity as a whole is not nearly as deep in
debt as the US They don't have a huge balance of trade deficit,
like we do." Investors have been worried about the lack of a
unified response from Europe. Leaders in the single currency
group have been accused of being behind the curve and not getting
to grips with the crisis even as stock markets have swooned. But
Rogers believes that America, despite having a single fiscal
policy, is actually worse off in terms of its debt situation.
Despite his bearishness towards the US economy, Rogers said he
continued to hold onto dollars, which he bought earlier this
year, when investors were extremely bearish on the currency. He
said he might buy more if the situation in Europe worsened,
driving more people towards the safety of the greenback.

WSJ - home prices sideways

S&P/Case-Shiller home-price data showed sideways movement in
July, as prices were boosted from a month earlier thanks to
seasonal factors but remained below year-ago levels. The
composite 20-city home price index, a key gauge of US home
prices, posted a 0.9% increase from June but fell 4.1% from a
year earlier. On a seasonally-adjusted basis, which aims to
account for stronger housing demand in the spring and summer
season, the 20-city index was flat in July from the previous
month. Eighteen of the 20 cities posted annual declines in June,
only Detroit and Washington posted year-to-year gains. Las Vegas
and Phoenix were the only cities to post monthly declines. But on
a seasonally adjusted basis just eight cities — Boston,
Chicago, Dallas, Detroit, Miami, Minneapolis, New York, and
Washington, D.C. — posted monthly increases. “It should
surprise no one that housing remains weak and today’s data does
nothing to dispel that idea,” said Dan Greenhaus of BTIG LLC.
“While the worst of housing’s collapse is most certainly
behind us, upward movement has proved fleeting. Prices are still
down by 31% from their summer 2006 high and with current
fundamentals in place, there is no reason to expect significant
price increases in coming quarters.”

USD is the only safe haven

If sentiment turns negative again, as it was at the end of the
last week, there's only one place for foreign exchange investors
to hide, according to David Bloom, the head of foreign exchange
strategy at HSBC. “Last week’s gloomy outlook for global
growth from the (Federal Open Market Committee), the
(International Monetary Fund), and the World Bank has caused an
exodus from risk assets such as equities and commodities,” said
Bloom. “The main beneficiary of this repositioning has been the
US dollar." This flight to the dollar comes despite the huge
structural problems facing the United States, which has the
world’s largest national debt and a huge trade deficit with
China. “The only reason that the dollar has benefited is that
no alternative safe haven exists. The other traditional safe
havens – the Japanese yen and the Swiss franc – have been
taken out of play by official Japanese and Swiss intervention to
halt their appreciation,” said Bloom. Other nations with safe
haven characteristics simply do not have sufficient liquidity to
absorb safe-haven flows, according to Bloom.

Freddie Mac deal defective

According to an oversight report prepared by the inspector
general of the Federal Housing Finance Agency and scheduled for
release today, Freddie Mac used a flawed analysis when it
accepted $1.35 billion from Bank of America to settle claims that
the bank misled it about loans purchased during the mortgage
boom. The faulty methodology significantly increased the
probable losses in Freddie Mac’s portfolio of loans. The
agency official who questioned the loan review methodology
contended that Freddie Mac’s analysis greatly underestimated
the number of dubious loans bought from the Countrywide unit of
Bank of America from 2005 to 2007. The deal between Freddie Mac
and the bank resolved claims associated with 787,000 loans, some
of which were repurchased by the bank, and cannot be rescinded.
The report also noted that the settlement with Bank of America in
December was completed over the objections of a senior examiner
at the agency. Freddie Mac officials did not want to jeopardize
the company’s relationship with Bank of America, from which it
continues to buy loans, the report concluded. The inspector
general’s report does not specify how much additional money
Freddie Mac could have received from Bank of America had it used
a more effective analysis. But the senior examiner who questioned
the deal told the inspector general’s staff that Freddie
Mac’s faulty process could cost the company “billions of
dollars of losses.”