Wednesday, May 25, 2011

BLANCHFLOWER: THE EURO CRISIS IS HEADED FOR “DISASTER”

David Blanchflower, a professor at Dartmouth College and former policy maker at the Bank of England, says the Euro crisis is headed for disaster. Blanchflower’s comments would normally seem extreme, however, he’s among the unique few who have an inside look at European monetary policy. Blanchflower says the EMU is too far behind the curve at this point and that they have simply kicked the can.

The more time that passes without a real Euro resolution, the more it will boil and the more combustible the situation will become. Blanchflower is exactly right. He understands that austerity is not working and that the Euro remains fundamentally flawed. All the while, the periphery countries are slowly realizing that they’re losing while the core benefits. And as the political unrest increases the situation becomes increasingly risky. European leaders need to work together to get out in front of this.

A lot of Value left in LDK Solar (LDK)

f you're looking for a bargain stock, check out LDK Solar (NYSE:LDK).

Over the past 12 months LDK Solar Co Ltd (LDK) shares have traded between $4.97 and its 52-week high of $15.1. LDK Solar shares are now trading with a P/E Ratio of 3.2 and EPS of 2.14.

The reason why shares have tanked is because the company has some debt issues. LDK has been planning to spin-off its operations that produce polysilicon, the key material used to make most solar modules, in an effort to cuts its debt of about $1.8 billion.

"With LDK likely in need of additional cash in 2011 and a poly plant spinout looking harder as pricing falls, we expect shares to remain under pressure," Wachovia analyst Sam Dubinsky said in a note to investors.

LDK said it still expects first-quarter revenue of $745 million to $755 million and gross margins of 30 to 31 percent.

MASTERY Bottom Line:

LDK is looking extremely undervalued at these levels, however the company is a little on the risky side with their debt ratio. In the past 30 days LDK stock's price has dropped 38%.

Still, this isn't another fly-by-night China company, they are legit. Jim Cramer was asked about LDK Solar during the lightning round last Thursday (May 19th). Cramer recommended against holding it, citing financial issues. Simply put, iand when LDK overcomes its significant working capital deficit, the company can be judged on its future prospects as a player in solar energy.

We think once they move forward with their debt offering and get some liquidity going again, shares will be off to the races. The stock can keep going lower, thus wait until a new 52-week low before taking any positions.

Jay Taylor: Turning Hard Times Into Good Times



The Rise of the Fourth Reich


click here for audio HOUR #1 HOUR #2

Market veteran Biggs: Bears are wrong about U.S. stocks

From Bloomberg:

Barton Biggs, the hedge fund manager who bought stocks when the market bottomed in March 2009, said he is bullish on U.S. equities and likes industrial shares even though the global economy has slowed.

"The U.S. and the global economy have clearly slowed pretty significantly," Biggs, who runs New York-based Traxis Partners LP, said in a radio interview with Tom Keene on Bloomberg Surveillance. "That's arousing the bears, who believe we're going to slip back into a long soft patch at best or maybe even a double-dip at worst," he said. "For a number of reasons I don't think that's right."

Biggs favors companies such as Caterpillar Inc. (CAT) and Deere & Co. (DE) because their earnings growth continues to exceed expectations and demand for farming and construction equipment remains strong.

"I don't see anything the matter with Deere and Caterpillar and the big American industrial companies, and in terms of valuation they're still very reasonable," he said.

The Standard & Poor's 500 Index climbed to an almost three- year high on the final trading day of April. It slumped 3.4 percent from that point through yesterday as economic data missed economists' estimates and investors prepared for the Federal Reserve to complete its $600 billion bond-purchase program, known as quantitative easing, at the end of June. The benchmark equity gauge rallied 4.8 percent from the end of 2010 through yesterday amid government stimulus measures and higher- than-estimated earnings.

Investor Reaction

Biggs, who oversees $1.3 billion, said last week that investors are overreacting to negative economic news such as the European debt crisis, housing and reduced stimulus from the U.S. Federal Reserve. Housing starts in the U.S. unexpectedly fell in April as flooding and tornadoes in the South shut down construction, the Commerce Department said May 17. Those issues will be resolved, while the U.S. market remains reasonably priced on an earnings basis for the next year.

"I still believe in emerging markets, particularly Asia," he said today. "China is going to be a terrific stock market in the second half of the year. China maybe has one or two more tightenings ahead."

The Shanghai Composite Index dropped for the fourth time today, losing 7.5 points, or 0.3 percent, to 2,767.06. The measure has lost 9.5 percent from the close of 3,057.33 on April 18, after earlier sliding as much as 10 percent, a level analysts say means the market has entered a correction.

'They Have Succeeded'

The Shanghai Composite, which tracks the bigger of China's stock exchanges, plunged 2.9 percent yesterday, erasing this year's advance of as much as 8.9 percent, after a manufacturing gauge fell to its lowest level in 10 months. China's preliminary manufacturing index, known as the Flash PMI, was at 51.1 in May, compared with the final reading of 51.8 in April, HSBC Holdings Plc and Markit Economics said yesterday. A number above 50 indicates expansion.

"It's apparent from the PMIs that came out yesterday that they have succeeded in slowing the economy very significantly," he said. "At the same time it's still a very dynamic economy. Now, is it going to grow 10 or 11 percent in real terms? No, it's not," Biggs said. "They're going to slow it down to 7 or 8 percent, but with a moderate inflation rate I don't see anything the matter with that and we can find a lot of attractive companies to own in China."

Half of Americans Found to be 'Financially Fragile'

Half of Americans have been dubbed "financially fragile," meaning if asked to come up with $2,000 in 30 days, they probably couldn't, according to a paper published by researchers at the National Bureau of Economic Research, the George Washington School of Business, Princeton University and the Harvard Business School.

The survey asked the question, "If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?"

In the United States, 24.9 percent of respondents reported being certainly able, 25.1 percent probably able, 22.2 percent probably unable and 27.9 percent certainly unable, The Wall Street Journal reports.

The $2,000 figure "reflects the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses, or a home repair," the report says.

That also doesn't apply just to lower-income Americans.

"The more surprising finding is that a material fraction of seemingly 'middle class' Americans also judge themselves to be financially fragile, reflecting either a substantially weaker financial position than one would expect, or a very high level of anxiety or pessimism," the Journal reports.

The U.S. economy may be officially out of the recession, but high unemployment rates and rising food and grocery prices are making many nervous, even if inflation stripped of volatile food and energy prices remains tame.

"Households appear to be reacting to recent inflation data in a way that is not warranted by the actual dynamics of inflation," says San Francisco Fed research adviser Bharat Trehan, according to Reuters.

An “Unsettling” Similarity to 1970s Inflation?

Well, at least the quality improvements of the iPad2 weren’t mentioned…

This paper by the San Francisco Fed’s Bharat Trehan, who, like most government economists has clearly drunk the Federal Reserve kool-aid, argues that Americans’ inflation expectations are unduly influenced by the rising cost of food (which they must buy in order to survive) and energy (which they must consume in order to travel back and forth to work) rather than the many low priced items we import from Asia.

This Economic Letter argues that the jump in household inflation expectations is a reaction to the recent energy and food price shocks, following a pattern observed after the oil and commodity price shocks in 2008. The data reveal that households are unusually sensitive to changes in these prices and tend to respond by revising their inflation expectations by more than historical relationships warrant. Since commodity price shocks have occurred relatively often in recent years, this excessive sensitivity has meant that household inflation expectations have performed quite badly as forecasts of future inflation.

Then again, maybe inflation, as calculated by government economists, does a poor job of reflecting what people actually spend money on, particularly at low income levels where food and energy make up a much larger share of their expenditures.

My uneducated guess is that if consumers at different levels of income or wealth were surveyed, you’d get a dramatically different picture of inflation expectations from the top to the bottom. Those whose food and energy expenditures constitute a relatively small portion of their overall spending would likely have their inflation expectations in line with the official measure of inflation, whereas, the growing number of people who struggle to put food on the table and gas in their cars would tell you that inflation in the U.S. is a lot like it is in Vietnam – about 20 percent.

Mr. Trehan goes on to note that professional economists are much better at predicting future inflation (presumably, in much the same way that foxes are good at watching hen houses), but he partially redeems himself by asking a few innocent sounding (and largely impenetrable) questions about 1970s style inflation.

At the same time, the high sensitivity of household inflation expectations to noncore inflation is puzzling. One could argue that this excess sensitivity reflects the fact that consumers buy things such as food and gas more frequently than they buy home furnishings or haircuts. In this case, expected inflation should come down relatively quickly because households will buy enough nonfood and non-energy goods at some point. It’s also possible that households’ sensitivity to noncore inflation goes up following substantial, sharp increases in the price of energy and food items, suchas those that occurred in the 1970s and over the past few years. This would be consistent with higher household sensitivity to noncore inflation at either end of our sample in Figure 2B. This similarity to the 1970s is unsettling because it suggests that consumers are not accounting for the ways monetary policy has changed over this period.

Maybe what they’re really accounting for is how the inflation calculation has changed…

Trehan should probably have a look at what St. Louis Fed President James Bullard has had to say about core vs. noncore inflation before he pens his next paper. From this report in Bloomberg earlier today:

Bullard, repeating a theme from a speech last week, urged that the Fed drop its focus on core inflation, which excludes volatile energy and food prices.

“The ‘core’ concept has little theoretical or statistical backing” and is very arbitrary, he said. “Headline inflation is the ultimate objective of monetary policy with respect to prices,” Bullard said.

Core, noncore, whatever. I’m just thankful we never had to see any “Whip Deflation Now” buttons.

Why India is a Better Investment Than China

Misallocation of resources and outright fraud are two major problems in China.

We’re all familiar with the arguments for global investing. There are 117 stock markets outside our borders. At any given time, some market somewhere is almost certain to offer greater profit potential than New York — probably quite a few markets, in fact.

If you latch on to these emerging markets in the early stages of an upswing, you can reap a bonanza.

However, as I’ve said before, the current global bull market for stocks is no longer a youngster. It’s 27 months old, and showing signs of age. For example, many bourses around the world have skipped a beat lately over the prospect that high prices for oil and other raw materials might crimp economic growth.

In this mature phase of the market cycle, we want to own countries (and companies) with the ability to keep growing even if global headwinds pick up.

Growth on a Giant Scale

On emerging market that fits the bill is India. By the standards of the industrialized world, India is still a poor country. GDP per capita, according to International Monetary Fund figures for 2010, amounts to only $1,265, less than a third that of mainland China ($4,382).

But India has some advantages over China. It’s a democracy, with free and open debate. The legal system, while creaky and inefficient, is based on English principles. The Chinese economy, by contrast, is riddled with government-mandated misallocation of resources, as well as outright fraud in the private sector. I’m leery of most Chinese stocks listed on U.S. exchanges.

India, on the other hand, seems to be grappling more or less honestly with its problems, and making progress toward solving them. To curb inflation, the central bank has repeatedly jacked up interest rates over the past year. (The key overnight rate stands at 7.25%.) And yet, the country’s “real” (inflation-adjusted) output of goods and services is still expected to grow at least 8% in 2011 – triple the pace of the United States. Recent local elections also cemented the leading position of the business-friendly Congress party.

How good a value are Indian stocks? Not the screamer they were at the March 2009 low, obviously. However, the blue-chip Bombay Stock Exchange index (Sensex) is quoted these days at less than 15 times estimated year-ahead earnings. Over the past 20 years, the forward P/E on the Sensex has averaged about 18 times. So the market appears to have at least as much upside to fair value as, say, the NYSE does, with greater long-term growth potential.

For safety, I prefer to own a basket of Indian stocks via an exchange-traded fund (ETF). I like the India ETF PowerShares India Portfolio (NYSE: PIN).

If you want to shoot for bigger gains with individual stocks, you might consider one of India’s premier growth enterprises, car-and-truck maker Tata Motors (NYSE: TTM).

Auto manufacturing a growth business? Maybe not in the United States or Europe, but India is a world apart. TTM’s April sales ran 72% ahead of two years ago. Profits have quadrupled in the past five years. From the tiny Tata Nano to the Jaguar/Land Rover luxury brand, which TTM acquired in 2008, this outfit boasts a complete product line catering to Asia’s rising consumer class.

Yet the stock remains incredibly cheap at only 7 time estimated FY 2012 earnings (ends March 31). I say slide in behind the wheel and feel the power!

Capital Market Forecasts and Recommendation Updates

This report is in response to requests for our various capital market Supercycle forecasts and associated investment recommendations in light of recent market action, which has further confirmed all of them, including the currently all-important, incipient aftershock double double-dip in the U.S. business cycle.

See the first chart below of the Conference Board's Coincident Economic Indicators Index as we uniquely adjust for population growth, which peaked in January, the four components of which the National Bureau of Economic Research primarily relies upon to date, with the increased certainty of hindsight, U.S. business cycle expansions and contractions. (We've explained previously where our more in-depth business work disagrees with their "official" declarations.)

Chart 1: Conference Board Coincident Economic Indicators Index and the S&P 500

Following our various advance calls for the dot.com bust that started 11 years ago and the U.S. housing bust that started five years ago, the second and likely final downleg in the commodity/China bust that started in the summer of 2008 is now clearly underway. This follows our bullish call on China and simultaneous bearish call on Japan 22 years ago. See the second through the sixth charts below.

Continuing our repeated buy-again calls to buy Treasury notes and bonds over the past 30 years with the most recent one in mid-Dec, we remain firmly bullish and expect further Supercycle lows in both interest rates and eventually inflation during the K-Cycle's downtrend (the combination of the Supercycle disinflationary Autumn and the ultimately deflationary Winter economic seasons). See the seventh through ninth charts below and the Supercycle Economic Seasons, associated asset classes and some of their key driving factors in the table at the bottom.

Although 10 to 12 years ago we first became extremely long-term or Supercycle bearish on the U.S. dollar (bullish on foreign currencies money markets) and bullish on precious metals, on May 1 for the RIA clients for which we are the investment strategist, we recommended the final partial-position sales to again realize profits in their client account investments in these asset classes. We expect to recommend re-establishing full portfolio allocations — again — in these asset classes, during the next several months.

Shorter term, keep in mind that the five- to six-month Weak Season in the stock market's annual cycle — starting at the highest high in Mar, Apr or May — is finally clearly underway from the May 2 SPX intraday high at 1371, and historically it has yielded net declines more than 90% of the time through the lowest low in Sep, Oct or Nov, as we've uniquely defined and reported before.

Also, despite the very popular notion that the stock market should be up this year because it has been up in all third years of the Presidential Election Cycle, which has only been true since 1943, seven of the nine (77%) such years during the previous two Supercycle Winter Periods ended their calendar years below their Feb or Mar highs (equivalent to the SPX Feb 18 high at 1344 this year): 1883, 1887 and 1895, and then again in 1931, 1939, 1943 and 1947. Since it's a mean-reverting phenomenon, and because (rather than despite the fact) it did not occur four years ago in 2007 (like 1935), we also fully expect such a net decline through year-end to occur during this third current Supercycle Winter since 1881.

The mean-reversion, or statistical "catch down," in this third election-cycle year is being driven in part by political events that will adversely impact the stock market.

And this year there are plenty of domestic political and financial potholes: Senate gridlock within the split-house Congressional gridlock, gridlock between Congress and the Administration, challenges to Obamacare, sharp conflicts over public union pensions and their collective bargaining rights, and especially the Gordian Knot of budget deficits at all levels of government, but most especially the federal deficit and its associated debt limit.

Interestingly, the last time there was Democratic President and Republican House, where financial bills must be initiated, was during 1859-60 and befittingly that was the end of a huge 26-year Supercycle Bear Market Period called The Great Debt Repudiation (available here).

On a happier note, I'm pleased to announce we're in the process of reinstituting our risk-adjusted relative-strength stock selection service started 44 years ago, which tentatively will be called Proprietary Alpha (PA). You may email me at Bob@bronsons.com to request a copy of our July 20, 1973 report illustrating and explaining the ten-stock model portfolio's 20+-fold gain in less than eight years, and Modern Portfolio Theory's alpha-beta upon which we developed our original black-box formula for selecting stocks. Our PA is based upon multi-decade data, re-optimized for various-sized model portfolios, to take the most profitable advantage of the coming Supercycle Bull Market Period (Supercycle Spring) that we continue to expect will start just before the mid-term Congressional election in Nov 2014.

We currently expect that during that ~16-year reflationary economic Supercycle Spring, the U.S. stock market will triple every eight years — if not double every five years — on a total return basis, with the Dow reaching 50,000, if not 100,000 by 2030. Of course, I would love to be working during all of next 19 years, but in any case we are putting business succession plans in place.


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The Last Tango of the Currencies will end in Golds favour


Euro Chart 23 May 2011.JPG

The debt problems now weighing on the Euro have inflicted a devaluation of around 6% this month with no recovery in sight for the PIIGS, Portugal, Ireland, Italy, Greece and Spain. The harder the ECB tries to badger and cajole the PIIGS into accepting a serious dose of austerity, the more the people, who will have to carry this burden, revolt.

We have seen riots in the streets in Athens, demonstrations in Madrid, marches in London, all expressing their dissatisfaction with the status quo. Heavy defeats in regional elections have been inflicted on the ruling party in Germany, which must be of grave concern to Angela Merkel, the Chancellor of Germany, assuming that she wants to stay in office. The same goes for Spain where regional elections have gone against the current incumbents.

In the mean time European Union officials are running hither and dither with arm fulls of newly printed euros in an attempt to support the latest basket case. However, Standard & Poors cut its outlook for Italy to “negative” from “stable” on Saturday, following a downgrade by Fitch on Friday for Greek debt. So we have a situation where there could be very well be political changes at the top, however, the debt, just like a rotten smell, remains.

This slippage, experienced by the Euro has had the effect of boosting the dollar as these two currencies are the main constituents of this basket of currencies. As the chart above shows a fall in the value of the euro, the chart below shows a rise in the value of the US Dollar. This race to the bottom between the currencies will continue as each sovereign state believes that a weaker currency will boost exports and ultimately will get them out of this mess. The fact that each currency devaluation negates the previous one would appear to have gone unnoticed, by those involved.

USD Chart 23 May 2011.JPG

The chart above shows the dollar rallying this month as its inverse relationship with the Euro continues. The demise of the euro hides the fact that the dollar is not well, so this rally may be short lived.

So what does this tango of the currencies mean for gold? Well, sooner or later the investment community will realize that a flight to safety will be a flight from anything paper, no matter who’s portrait is printed on it.

Gold Chart 23 May 2011.JPG

So now you are thinking; will the summer doldrums cap the progress of the gold prices as interest wanes and trading becomes lackluster, could be. However, there are a few factors to be considered here, a civil war in Libya, general unrest in the desert, Al Qaeda, a leaderless International Monetary Fund, the US debt ceiling, a wobbling coalition government in the UK, supply side difficulties in the mining sector and the specter of inflation. All in all we expect the summer to be choppy with the real fireworks for gold and silver beginning mid August and continuing through to January 2012.

Having acquired a certain amount of gold and silver our strategy will be to look for bargains amongst the quality producers as they have production and cash flow. The junior/exploration sector still appears to us, to be an outside punt and so we will allocate only a small amount of our capital to them. To add a little spice to the mix we will look to the options sector with the view to turbo charging our trading account.

Go gently, but do prepare and get into position as this gold bull has a long way to run.


Oil rises 2 percent as Goldman boosts price forecast

(Reuters) - Oil rose 2 percent on Tuesday in choppy trading after Goldman Sachs raised its price forecasts for Brent crude, saying demand from economic growth will eat into stockpiles and OPEC spare capacity.

Goldman raised its Brent price forecast to $115, $120 and $130 a barrel on a three-, six-, and 12-month horizon and boosted its year-end target for Brent to $120 per barrel from $105 and its 2012 forecast to $140 from $120.

A weaker dollar also supported oil prices, which had declined 2 percent the previous session.

The euro edged up from a two-year low against the dollar on German data that was better than expected, though nagging fears about Europe's debt crisis were expected to check euro gains.

Brent crude for July delivery rose $2.43 to settle at $112.53 a barrel, having swung between $109.50 and $112.65.

U.S. July crude rose $1.89 to settle at $99.59 a barrel, having pushed intraday as high as $100.09 and ending above its 100-day moving average of $98.80.

Crude futures trading volumes remained tepid, with total U.S. volumes 23 percent below and Brent volumes 18 percent under their 30-day averages, according to Reuters data.

"Data showing U.S. home sales rose in April was supportive to the market, in addition to the buying encouragement prompted by the Goldman Sachs forecast for higher Brent crude prices," said Joe Posillico, broker at MF Global in New York.

New U.S. single-family home sales rose a second straight month in April, but an overhang of previously owned homes was expected to limit any market recovery.

The view that the U.S. economy is mired in a soft patch was reinforced by a Richmond Federal Reserve survey showing central Atlantic region manufacturing activity stalled in May.

Oil prices showed little immediate reaction to news the United States announced new sanctions on OPEC-member Venezuela's state oil company PDVSA and six other smaller oil and shipping companies for trading with Iran.

The sanctions are narrowly targeted and will not affect PDVSA's sales of oil to the United States or the activities of its subsidiaries including U.S.-based CITGO.

U.S. front-month June gasoline and heating oil futures helped lead the complex up early and posted higher settlements, though gains were pared when trade sources said a gasoline-making unit at Irving Oil's Canadian refinery had restarted.

Also curbing gasoline gains was a report that U.S. retail gasoline demand fell last week against both the previous week and the year-ago period, even as fuel prices began to recede, according to a MasterCard report.

GOLDMAN PRICE TARGET SHIFTS

Goldman Sachs in April predicted a sharp oil price correction that materialized the first week of May, then issued a note in early May saying oil could surpass recent highs by 2012, before issuing raised targets for Brent on Tuesday.

Morgan Stanley on Tuesday also raised its Brent crude price forecast for 2011 and 2012.

Citing improved demand coupled with production lost to Libya's conflict, Morgan Stanley raised its 2011 Brent crude price forecast to $120 per barrel from $100 a barrel, and its 2012 forecast to $130 from $105.

U.S. OIL INVENTORIES

U.S. crude oil inventories fell 860,000 barrels last week, according to the weekly report from the industry group American Petroleum Institute, released late on Tuesday.

Crude stocks increased slightly at the key Cushing, Oklahoma, hub, but gasoline stocks rose 2.4 million barrels and distillate stockpiles fell 846,000 barrels, the API said.

Oil prices pared gains slightly after the report in post-settlement trading.

Ahead of the report, a Reuters poll of analysts yielded a forecast for U.S. crude stocks to have fallen 1.3 million barrels. Distillate stocks were expected to be near flat, up only 100,000 barrels, while gasoline stockpiles were estimated to be up by 300,000 barrels.

The weekly inventory report from the U.S. Energy Information Administration will follow on Wednesday at 10:30 a.m. EDT (1430 GMT).

Cramer: A Practically Unstoppable Stock

In this difficult market, home gamers need to look for long-term themes that they can count on regardless of what’s happening in the global economy, Cramer said Tuesday.

That’s why he likes Weight Watchers [WTW 83.57 -0.50 (-0.59%) ]. With two-thirds of Americans overweight and one-third of that population considered obese, the weight management business is booming. So with all the diets out there, why does Cramer like WTW?

“Weight Watchers is not just some faddish diet,” the “Mad Money” host said. “They’re more like an anti-fad diet, a lifestyle company that's a medical company, frankly, all about helping people change their behavior to lose weight and keep it off.”

The New York-based company has taken off since rolling out its new points system after Thanksgiving. In February, it reported a stellar quarter and raised guidance, which caused the stock to skyrocket 46 percent in a single day. In May, Weight Watchers reported another beat and raise, causing the stock to jump another 14 percent. In fact, the company has gained 219 percent sinceCramer recommended it in June of 2010, and Cramer thinks there’s more upside to come.

To find out more about what’s in store for Weight Watchers, Cramer spoke with CEO David Kirchhoff.

Troubled home market creates generation of renters

A growing number of Americans can't afford a home or don't want to own one, a trend that's spawning a generation of renters and a rise in apartment construction.

Many of the new renters are former owners who lost homes to foreclosure or bankruptcy. For others who could afford one, a home now feels too costly, too risky or unlikely to appreciate enough to make it a worthwhile investment.

The proportion of U.S. households that own homes is at its lowest point since 1998. When the housing bubble burst four years ago, 31.6 percent of households were renters. Now, it's at 33.6 percent and rising. Since the housing meltdown, nearly 3 million households have become renters. At least 3 million more are expected by 2015, according to census data analyzed by Harvard's Joint Center for Housing Studies and The Associated Press.

All told, nearly 38 million households are renters.

Among the signs of a rising rental market:

-- The pace of apartment construction has surged 115 percent from its October 2009 low. It's still well below a healthy level. But permits for apartments, a gauge of future construction, hit a two-year peak in March. By contrast, permits for single-family home are on pace for their lowest annual level on records dating to 1960.

-- The number of completed apartments averaged about 250,000 a year before the boom. They fell to 54,000 last year and will probably number around the same this year. But then the number will likely double to about 100,000 in 2012 and hit 250,000 by 2013 or 2014, according to the CoStar Group, a research firm. The lag is due to the time it takes for an apartment building to be completed: an average of 14 months.

-- Demand is driving up rents. The median price of advertised rents rose 4.1 percent between the end of 2009 and the end of 2010, census data shows. Few expect the higher prices to stem the flood of renters, though. One reason: Younger adults don't value homeownership as earlier generations did and many prefer to rent, studies show.

-- Rental housing is giving builders more work just as construction of single-family homes has dried up. Still, that economic lift won't make up for all the single-family houses not being built. Apartments account for only about one-fourth of homes. And renters are outspent roughly 2-to-1 by homeowners, who pay for items from lawn care to remodeling and help drive the economy.

Before the housing bust, mortgage rates were so low it was often cheaper to buy than rent. That was true a decade ago in more than half the 54 biggest metro areas, according to Moody's Analytics. Today, by contrast, it's cheaper to rent in about 72 percent of metro areas.

Consider Mason Hamilton, 26, an energy consultant who rents an apartment with his wife for $1,100 a month in Alexandria, Va., outside Washington. He'd like something bigger. But he says he doesn't plan to buy even though he could afford to.

"My parents always told me, `You need to buy a place; you need to buy property,'" he says. "But the housing market is insane."

Many younger Americans see owning as risky. It hardly seems the best way to build wealth, especially when prices are falling.

"There's been this idea for years, a part of the American dream, that owning a home improves and strengthens communities," said John McIlwain, a senior fellow at the nonprofit Urban Land Institute. "But what we've learned over the past few years is that many people simply are not ready to own a home."

From the 1940s until 2007, homes appreciated an average of nearly 5 percent a year, adjusted for inflation. In the past four years, the median price of a single-family home has sunk 37 percent, by $57,500, to its lowest since 2002. Yet in some areas, owning is still too expensive for many.

"It's becoming so difficult for most Americans to afford a home, with larger down payments and tighter credit, that it is creating a renter's nation," says Robert Shiller, a Yale economist and co-creator of the Case-Shiller home price index. "The home is no longer an investment; it's a burden."

Homeownership bestows its own financial advantages, of course. Each loan payment builds equity. Loan interest and property taxes provide tax deductions. And in normal housing markets, home values rise over time.

But for now, renting is more attractive. Hamilton, the energy consultant, says his father, a 58-year-old teacher in Richmond, Va., still owes nearly as much on his mortgage as his house is worth.

"He's stuck in that house," Hamilton says. "After telling me to buy for all of those years, he'd love to rent like me."