Market peaked last week near January highs.

Market forces May 11,
The recent market rally was good news because the market last week was almost on pare with the January peak indicating that the next decline could be the classic double bottom as opposed to a new record low. However Warren Buffet is not so certain. He said in an interview this weekend that he was fairly confident now that within five years the US economy will recover.

Signs of Deflation in China
Consumer prices in China fell 1.5 percent in the year to April, marking the third consecutive month of deflation after a 1.2 percent fall in the 12 months to March according to the National Bureau of Statistics. Factory-gate prices in China fell 6.6 percent in the year to April, the rate of decline accelerated from the 6.0 percent drop in the 12 months to March. China accepts the deflation as normal after price rises for shortages last year. It will help their trade balance.


Jim Cramer was right:
He said the recent rally was focussed on "junk stocks", stocks that were doing terrible but had survived and could rise the quickest in the bear market rally. Coffee stocks like DDRX have made 3000% gains since Jim Cramer proclaimed this a junk stock rally. To date they have had less than 0.3% short selling so this is no short squeeze. Americans are now drinking less coffee and the fad is declining so it is likely that a many investors who bought DDRX and other coffee stocks are in for a rude awakening. Jim Cramer calls such people pigs that deserve to be crushed.

Treasury debt dilemma:
Poor demand for Treasury debt could raise the cost of capital and cause a relapse into U.S. banking crises. That actually has begun to happen. The treasuries had been a safe haven for investors getting out of the stock market. As the market rallies those investors sell their treasuries and buy stocks causing the US cost of debt to rise thereby putting strain on interest rates and causing stagflation. Recently, U.S. debt prices slid, sending the 30-year Treasury bond yield to its highest since November. When the cost of capital for the US becomes more expensive, the cost of the $trillions of new federal debt comes crushing down upon the economy.

US Jobless Rate Climbs to 8.9%
The economy lost 539,000 jobs in April not the much lower amounts reported in earlier Pollyanna Wall Street estimates, sending the jobless rate to a 25-year high.


Market Outlook

Us stock index futures pointed to a lower open on wall street on early Monday, with futures for the S&P 500 down 1.3 percent, Dow Jones futures down 1.2 percent and NASDAQ futures down 1.9 percent, as investors were poised to take recent gains. European shares were also down in early trading.

Last night's results: China is down 1.7%, Hong Kong is down 1.8%, India is down 1.6%, and Japan's market was flat.

European markets are down in the range of 0% to -1.8% mid way through their day.

US futures indicate the markets will start lower today as wiser investors turn their imaginary paper gains into real profits and avoid being crushed as Jim Cramer forecasted for pigs. Jim Cramer had suggested the correction could be 10% or about 33% of the previous rally. However typically as markets bounce along a bottom the corrections are half to all of the earlier rally gains.