But there are some overlooked problems with this belief. The first is that while monthly sales of existing homes have improved, on a seasonally-adjusted basis, we are still worse off than we were last year in all regions but the west. Here’s some data from the National Association of Realtors:

The next problem we face is that inventory levels are still quite high. We are down from the peak of 11 months of backed up inventory, during parts of 2008. But today’s inventory level of 9.4 months is about to get a lot worse. Here’s why: Banks are sitting on their REOs (real estate owned a.k.a foreclosures) and are not re-listing many of these properties. Banks may be doing this for a number of reasons. Foremost is that they do not want to flood the market and drive down prices even further. But how long they will hold on to this “shadow inventory” before slowly releasing them on the market? That is anyone’s guess, but there is no doubt that there is a significant backlog of properties that will eventually hit the market.

The final blow to any hopes of a housing recovery are mounting foreclosures. The Obama administration’s “Making Homes Affordable” program has had abysmal results. Bank of America (NYSE:BAC) has modified 4 percent of its eligible loans. Wells Fargo (NYSE:WFC) has modified 6 percent. There is mounting evidence that lenders are simply unwilling to modify most loans since most modified loans end up right back in foreclosure after a few months. According to Renae Merle at the Washington Post, “The problem is that modifying mortgages is profitable to banks for only one set of distressed borrowers, while lenders are actually dealing with three very different types. Modification makes economic sense for a bank or other lender only if the borrower can’t sustain payments without it yet will be able to keep up with new, more modest terms.”

The other two types of distressed borrowers are those that will inevitable become delinquent again or those that can find a way to become current on their loan with a little coaxing. Banks have little incentive or desire to assist these two types of borrowers.

The housing market still has some serious challenges ahead. Sure, we may see a small increase in prices here or there, but long term, the fundamentals are still garbage. I am not saying that you shouldn’t buy a home right now, either as an investment or as a primary residence. There are screaming buys out there right now, and long term, real estate is still a great buy. Just don’t expect to be able to buy a property today and flip it for a huge profit in the next twelve months. You may see a small decline in your property value, but the huge drops seem to be behind us. We will still face a very long recovery period. But as Samuel Clemens said, “Buy land, they’ve stopped making it.”

Respectfully,

Christian Hill

Source: Don’t Believe What You Hear About a Housing Recovery

Earnings Announcements: Novellus (NVLS)

Many investors will try to profit from or hedge against the expected pullback by purchasing put options on the broad market proxies, such as the Spyders (the ETF which tracks the S&P 500). This type of trade makes you money when the market falls. But you are likely getting worse leverage than you could have a short while ago, making it more difficult to profit on your position.

Today we use a petroleum product instead of bamboo or cotton, but the process remains virtually unchanged. And with technological advances, the future of carbon fiber is astounding.

Carbon fiber, with a higher tensile strength than steel, will soon become the material of choice for almost everything you can imagine. But I want to focus on two huge growth opportunities that I believe will push carbon fiber to the forefront.

The first is the automotive industry. Carbon fiber is currently used to produce lightweight hoods, fenders, trunks, spoilers and various other parts for the aftermarket segment. A few small-run production cars use carbon fiber extensively in their construction, with an accompanying exorbitant price tag.

This is all about to change. With the newer fuel economy mandates, manufacturers will need to make their cars lighter. While aluminum is an option, carbon fiber will likely become the preferred alternative. That means the carbon fiber industry should get a huge boost over the next 5-10 years.

The second growth opportunity is related to alternative energy. Wind turbines are becoming more and more common. In 2007, production of wind-turbine blades increased 38% over the previous year. And as the turbine operators look to squeeze more juice out of every gust, they are turning to larger and lighter blades. This is a job for carbon fiber, not steel.

So how do you take advantage of these two growth sectors for carbon fiber? You find a company that has proprietary technology that allows it to produce some of the lowest-cost carbon fiber on the market.

That company is Zoltek (NASDAQ:ZOLT). While the stock has taken its lumps with the rest of the market over the last year or so, the company has spent the time going after new customers attracted to its lower manufacturing costs. It is perfectly positioned to rebound once the economy turns and demand for carbon fiber skyrockets. The current stock price has rebounded nicely from the November 2008 and March 2009 lows, and should resume its climb back up to the $40/share range from its current $12/share. That would be a very nice gain in your portfolio. Of course, you should perform your own research. But I think adding ZOLT is a fantastic play on the growing demand for carbon fiber.

Source: Take Advantage of the Growing Demand for Composite Materials

Look at it this way: there likely won’t be enough demand for that many gallons by 2022 at the current 10% blend, so the only way to reach the target is by increasing the blend to 15%, perhaps 20%.

If it were only that simple.

Already, there are numerous reports of engine failure due to ethanol blends that are higher than 10 percent. Simply put, existing engines are being destroyed at a 10 percent blend. A higher blend will accelerate the process. The other big problem: auto manufacturers’ warranties cover fuel blended with up to 10 percent ethanol. Increasing the blend to 15 percent will void all factory warranties, and rightly so.

But here’s the real rub: just a little over a week ago, the Obama Administration proposed raising mile-per-gallon requirements by 2016. This would raise the required fleet average from the existing 27.5 to 35.5 mpg. Cars would see the biggest increase in fuel economy, from the current requirement of 27.5 mpg standard to 39 mpg in 2016. Light trucks would see the requirement rise from the current 24 mpg to 30 mpg.

The problem with all of this is these requirements are to be met by 2016, in the middle of the timeframe to increase the use of ethanol in a gallon of gas (remember, 36 billion gallons by 2022).

The problem is that ethanol is less efficient that gasoline!

A gallon of E85 (85 percent ethanol currently used in “flex-fuel” vehicles) has approximately 27 percent less energy than a gallon a gasoline, according to drivingethanol.org. This translates into a 10-25 percent loss in fuel economy.

So on one hand, the government is requiring that more ethanol be blended with gasoline by 2022. This will undoubtedly lead to lower fuel economy. On the other hand, the President just proposed a major increase in fuel economy be in place by 2016.

Time will tell how this plays out. But I hope that the increased fuel standards take effect and we can finally end the ethanol fraud.

Source: The Ethanol Fraud

As much as I would like to see the recovery turn into sustained growth, I have to agree with Rick Pendergraft’s article a few weeks ago that this rally will soon run out of steam.

The reason is a bit different than Rick’s however. Looking at the charts, instead of the potential inverse head-and-shoulders that Rick points to, my reasoning is a little less fancy.

“Sell in May and go away”. As corny as it may seem, there is some merit to the old saying.

Here’s a chart of the last 5 years with June 1st denoted with a red bar and Sept. 1st denoted with a blue bar.

As you can see, the market goes virtually nowhere between June 1st and Sept. 1st. The moves each year were as follows:

2004: -3.3%
2005:  -0.08%
2006:  1.8%
2007: -1.6%
2008:  -7.8%

Unfortunately, things don’t look good for this rally. Expect sideways movement at best for the next few months, but more than likely a slide as Rick mentioned.

Source:  Will The Rally Last?

Next week we will find out how Existing Home Sales and New Home Sales fared in April (as of writing this article, Existing Home Sales are expected to increase, New Home Sales are expected to stay flat from last month).

Fortunately for us, the report wasn’t as bad as expected. However, the job losses are still significant and still approaching historical levels.

Before I get to the historical aspects of the job losses, there’s something else to consider when looking at the job losses: where the losses are occurring.

The losses aren’t simply blue-collar workers. They are also white-collar. And the hard part for many of the individuals who have lost their jobs recently is that their jobs may never come back. So it isn’t a matter of waiting around until a new job opens up when the economy turns around. The jobs will simply never be there again. For example, last month the economy lost approximately 149,000 jobs in the manufacturing sector. Many of the plants that closed will never open again. The same goes for some of the 110,000 construction jobs that were lost last month. Even white-collar employees are facing grim prospects. Last month, professional and business services lost 122,000 jobs. Whether the company went out of business, consolidated with another one, or simply trimmed ranks, these jobs are gone for a long time, perhaps forever.

Adding to the problem, many of these workers are not easily transitioned to ‘burgeoning’ job fields. For example, an autoworker who has worked for years in plants can’t simply transition over to the healthcare sector to find employment. They need time to take classes, learn, and become proficient in their new fields. Never mind older workers who have no desire to switch jobs at such a late stage in their careers.

So how historically bad have the job losses been? It depends on the comparison.

In terms of the shear number of jobs lost, the last 16 months have been staggering. We have doubled the previous number of jobs lost in consecutive months.

However, there are simply more workers today than ever before, so for an ‘apples to apples’ comparison, let’s look at the number of jobs lost in relation to workers. To do this, I pulled up the historical data, and looked at the number of workers the month before the losses started. For example, the number of non-farm workers in November 2007 was just over 139 million. The number of jobs lost so far is 5.73 million, so the economy has shed nearly 4.13% of the workforce during the last 16 months. As you can see, we are nearly identical to the percentage of jobs lost during the 1957-1958 time period. We would only need to lose 30,500 jobs in May to eclipse the 1957-1958 period, and become the worst percentage loss ever. Unfortunately, it would take a miracle for that not to happen.

So how do the huge monthly losses we have seen stack up? Surprisingly, not too bad. To determine this number, I took the number of jobs lost and compared that to the previous months payroll figures. For example, in April, the economy lost 539,000 jobs out of the roughly 132 million jobs that were on the payrolls in March. That’s 0.55% of the jobs that were available the month before. Historically, despite the huge numbers of jobs lost recently, only January ranks in the top 10 in terms of overall percentages.

Hopefully this gives you a good frame of reference to compare the mounting job losses we are seeing right now. In terms of shear numbers and percentages we are looking at the worst or almost the worst period in history. There have been much worse monthly losses, but not extended periods.

Another record we will set very soon is the number of consecutive months of jobs lost. We currently stand at 16 months, one shy of the record. It will take divine intervention to not set the record in June.

Source: A Look At The Recent Employment Figures And How They Match Up Against Other Recessions

Needless to say, when the number of jobs lost every month is in excess of 600k, we aren’t going to see an abrupt stop. We will unfortunately set the record for consecutive months of job losses in the next few months.

Monday

Economic Reports: Pending Home Sales

The Pending Home Sales report for March comes out this morning at 10:00 am, and I am a little surprised by the expectations (flat). With all the foreclosures continuing, and prices still sliding, I think this report will show a modest increase in Pending Home Sales.

Earnings Announcements: S

Tuesday

Economic Reports: ISM Services

This could be another month of contraction in the services sector if expectations are accurate. One thing to note when the report is released is if any sectors are expanding versus contracting. Last month the only sector to display expansion was in real estate rental and leasing. In any event, until more sectors are expanding than contracting the economy will continue to languish.

Earnings Announcements: KFT, UBS

Wednesday

Earnings Announcements: CSCO

Thursday

Earnings Announcements: GM, VRSN

Friday

Economic Reports: Non-Farm Payrolls, Unemployment Rate

Earnings Announcements: TM

Source:Employment Numbers Are About To Get Historically Bad

Like all companies, Google likes to have positive earnings surprises. Last year, Google had positive surprises three out of four quarters. It beat estimates by an average of 21 cents per share, or 4.5%.

In the fourth quarter of 2008, arguably just as bad economically as the first quarter of this year, Google beat earnings by 15 cents, and posted an EPS of $5.10.

Google’s EPS for the first quarter of this year is expected to be $4.91. So the bar has been lowered by $0.19 for this quarter versus last quarter.

But this “lowering” of the bar has been accelerating recently. A week ago, the estimate was for earnings of $4.98. Thirty days ago it was $5.01.

Remember, when Google beats estimates, it beat by an average of 21 cents, which if it holds true would make this quarter’s EPS $5.12 ($4.91 + $0.21).

This would not only allow Google to handily beat this quarter’s estimate, but it would also actually beat last quarter’s earnings by $0.02.

If GOOG beats estimates this handily, the stock should move higher. And a positive earnings announcement from a company such as GOOG would surely be an adrenaline shot for the market.

But is it all just earnings? Not really. There is also the technical and sentiment to consider.

On the technical side, GOOG is running into overhead resistance from the 200-day moving average as well as the upper rail of a trend channel. This could go one of two ways: it could act as resistance and hold GOOG below $375/share. Or, with a positive earnings announcement, GOOG could rocket through the resistance and move sharply higher.

Looking at the sentiment picture, Google has 28 buys, 6 holds, and 1 sell. So there isn’t much room for upgrades to push the stock higher.

So looking at the overall picture it seems GOOG has one positive going for it (easier to beat expectations) and two negatives (technical resistance and overwhelmingly positive analyst coverage).

So how will this play out? If I had to guess, it will be that GOOG beats estimates, but doesn’t beat last quarter’s numbers. To me, that isn’t good news, but the market may view it otherwise. Expect GOOG to move higher through resistance and move towards $450/share.

Source:  We Will Find Out If The Bar Is Low Enough