Germany's Obama type socialist market economy has failed.

Market forces May 18,
Germany, Europe's largest economy and the world's largest exporter (still ahead of China) has seen its industrial orders and production plunge this year, but nobody predicted that the German economy would hit a wall and fall 6.7% year to year. The experts are predicting a 6% slump for the remaining year as well. But the country is facing an even bigger shock next year. "After the export recession there will be a recession in the domestic economy," said Johannes Muller, an analyst with DWS. The drop in exports will have an impact on unemployment, which is expected to rise beyond 4 million.

Tax shortfalls and two stimulus packages have blown a $500billion hole in the budget for each of the next four years. The German general election will be a consensus vote on whether Germany's Obama type socialist market economy model that seeks to balance private enterprise and state intervention, has failed.

Muller told Die Welt there was an illusion that things will go back to how they were before the crisis, when Germany in effect benefited from excessive US consumption. “I fear it will not be as easy as that."

US retail sales drop put a crimp in NBC/GE/Pravda/Obama’s recovery claims. The Commerce Department said Wednesday that retail sales fell 0.4 percent last month, much worse than the flat reading economists expected. The April weakness followed a 1.3 percent drop in March that was also much worse than first estimated.


Market Outlook

Robert Prechter says dividend payouts, the ratio of share prices to earnings and dwindling cash at mutual funds mean U.S. equities may be expected to plunge as much as another 80 percent before the bear market ends.

The 43 percent drop by the Standard & Poor’s 500 Index since October 2007 did not take prices to levels needed to begin a bull market, according to Prechter. Prechter, the advocate of a theory of market analysis developed by accountant Ralph Nelson Elliott during the Great Depression, first achieved fame in 1987 for predicting that year’s crash two weeks before it occurred. He’s published a monthly newsletter, The Elliott Wave Theorist, since 1979. He advised shorting U.S. stocks three months before the market peaked in lat 2007.

“We have a long way to go to where the market may be at bear-market-bottom yields,” he said. The price-earnings ratio on the S&P 500 was about 60 at the end of last year, based on 2008 profits, according to data compiled by S&P. In prior bear-market lows, the measure sank to 6 or 7, Prechter said. “That gives you a flavor for how much the market’s still going to have to come down,” he said.

There are different measures of the price-to-earnings ratio. Yale University Professor Robert Shiller tallies the figure using 10 years of profits to smooth out short-term fluctuations. His current reading is about 15.7, near the historic average of 16.3 going back over the past 128 years, according to data on his Web site. Shiller’s P/E ratio got as low as 5.6 during the Great Depression. That would imply only another 60% drop coming not the additional 80% drop Prechter predicts.

Elliott Wave Theory holds that market trends follow a predictable, five-stage structure of three steps, or waves, forward, two steps back. In addition, the waves share a variety of features. The current trend toward saving and avoidance of debt is still leading to an economic depression and deflation, he said. Gold and oil prices are still under longer term downward pressure. Mutual fund managers have less than 5.6 percent of their assets in cash, showing there isn’t enough buying power to sustain a bull market rally in stocks. We have not seen this bear-market bottom yet, Prechter said.

We are on the sidelines until the market re-tests its lows.

Last night's Asian results were chaos. China up 0.3%, Hong Kong up 1.4%, India's election market was up 17.4%, and Japan's market was down 2.5%.

European markets are up in the range of 0.9% to +1.1% mid way through their day again reflecting US market futures activity.

US futures indicate the US markets will start up about 1% today.

Socialists are hoping for further signs that the housing collapse is decelerating which Pravda will then spin as a turn around when in fact it means we are at an inflection point about half way to the housing bottom.