Where Are We Now?

Where are we now? Man, what a mess — it's confusing. So let's recap what is happening.

1) Economic data:

a) U.S.: confusing, April data choppy, but 2-2.5 percent 2012 GDP still the consensus

b) China: soft landing, with GDP over 8 percent, still the consensus.

c) Europe: deteriorating. Germany looking weaker a source of concern.

2) Earnings: continue to improve, though companies with exposure to Europe are feeling it. We are 70 percent through earnings season: with 357 companies in the S&P 500 reporting, we are seeing earnings growth of 6.9 percent, well above expectations of 0.95 percent when we began earnings season three weeks ago, according to S&P Capital IQ. 69 percent have beat expectations, that is higher than the historic norm of about 62 percent.

Expectations for Q2 are modest, with only 2 percent growth expected. The problems start in Q3, where there are expectations of 16 percent earnings growth. This is predicated on a substantial lift from bank earnings, based on expectations of loan growth.

3) Housing: bottomed, but no significant lift-off. The amount of homes built and sold is expanding only slowly.

Why are publicly traded builders at or near new highs? Because those builders are capturing a larger share of the new home "pie" but the pie itself is not expanding significantly. New home sales are only about 7 percent of the homes sold each month; the other 93 percent are existing home sales. The publicly traded home builders have increased their share to about 30 percent of that 7 percent slice. That means public traded builders are about 2 percent (7 x 30 percent = 2.1 percent) of all homes sold each month.

So they can expand their share of the pie, but that share is very small.

IPOs: meanwhile, while there is much discussion about Carlyle Group's (ticker: CG) IPO pricing tonight, the hot IPO this week is a company you've probably never heard of: uber-hip teen and young adult retailer Tilly's (ticker: TLYS), seeking to price tomorrow for trading at the NYSE on Friday. Primarily on the west coast with a few stores on the east coast, the company sells dozens of hot brands to what looks like impossible good looking, perfectly tanned twenty-somethings. 8 million shares at a price talk of $11.50-$13.50, but that will likely rise. Check out the website: www.tillys.com

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