Probably due to Japan's slowing purchases of US Treasury instruments.

The dropoff of capital flows into the US for April is old news. That was during the peak of the dollar sell off, the "unwinding of the carry trade". In the last month, the yen has declined about 5% vs the dollar, probably due to Bank of Japan intervention, a very, very busy period for them.

US government long bonds have been weak lately, but the homebuilders and MBS have been strong. Are the foreign central banks supporting the US building industry as per the Reuter's article?

The home builders have been strong, alan? Huh?

Today they are up, probably on the encouraging employment data. But they are all still in a major downtrend. I expect today's rally will fade rather quickly.

Bill,

Capital flows from the US up, and with good reason. This is the main reason why the M3 is history - the new Fed strategy is: Keep those mushrooms in the dark, and keep shoveling on the brown smelly stuff!

To number2 son: You may be right, but as Bill said, a crash in the dollar would be the nail in the coffin for homebuilders and the US economy. However, the dollar has been acting well for the last month. And the homebuilders are up strongly today and just about NET FLAT FOR THE LAST 5 DAYS, which is not bad in a brutal market.

Yep, that's true about the relative strength of the HBs over the past week, alan. But I attribute that to the fact they were sold off well ahead of the rest of the market. A rally in these stocks was overdue, but I also believe they are going to continue trading lower longer-term as both their respective EPS and book values decline.

To number2son: You are missing the point I tried to make. Putting together the Reuter's article and the fact that TLT is down from about 85.50 to 84.50 over the last 5 days and the home builders are rallying -Bill mentioned they might rally for a couple of weeks in his weekend review- my point was that maybe foreign central banks were buying the MBS and housing stocks in lieu of US government securities.

The value funds are buying up the homebuilders. Saw it somewhere. Legg Mason, Hussman, etc.

Sorry for being dense. I get your point now, alan. I just don't see a very strong correlation between small changes in the long bond and the HB rally; the 10-yr is up sharply today and there are many other fundamental factors working against these stocks, none of which are changing for the better.

Legg Mason already holds a lot of HB stock, Mark. It's curious that they would be buying more.

In any event, I'm not heavily short the HBs right now. In the near term, the risk/reward isn't as appealing as it was two months ago. If this rally has legs, I'll look to short some more later on. These stocks are a long way from the bottom of their cycle, imo.