The Socialist/Communist group came in fourth place in the German elections.

German Chancellor Angela Merkel has won re-election. In addition the Social Democrats declined to third place and were replaced by a new free enterprise loving group in second place. Ms Merkle now has a less socialist government to make Germany productive again. On the day of the German elections, the Al-Falluja jihadist forum wrote a post saying, "the mujahideen's attack against Germany is coming."



Tomorrow is the one-year anniversary of the Dow's biggest one-day point loss ever, when the blue chip average plummeted 777.68 points and the broad market lost $1.2 trillion in market value.

Wednesday, payroll-services firm ADP is expected to report that employers in the private sector cut 200,000 jobs from their payrolls in August after cutting 298,000 in July. Also outplacement services firm Challenger, Gray & Christmas will report on the number of announced job cuts in August.

The final reading on second-quarter gross domestic product (GDP) growth is expected to have shrunk at a 1.2% annualized rate, versus the previously reported 1% rate. That means the recession has continued. Analysts have been incorrect in using leading indicators to say the recession is over. Typically leading indicators are six months early but they are much worse than usual because they include the stock market as an indicator and that makes the indicator incestuous.

Tuesday afternoon, Federal Reserve Vice-Chairman Donald Kohn is speaking in Washington at the Cato Institute. He is expected to discuss exit strategies the central bank is considering as it unwinds some of the trillions it injected into the economy.

Thursday, the weekly jobless claims report from the Labor Department is expected to show that claims have risen to 535,000 from 530,000 in the previous week. Continuing claims, a measure of Americans who have been out of work for a week or more, are expected to have risen to 6.178 million from 6.138 million last week.

The Institute for Supply Management's manufacturing index for September is expected to have risen to 54.0 from 52.9 in August showing that manufacturing is no longer contracting while employment has contracted. That means productivity is rising fast.

The August pending home sales index is also expected this week. Sales growth is expected to have shrunk to 1% after rising 3.2% in July. Construction spending is expected to have fallen 0.2% in August after dipping by the same amount in July. Federal Reserve Chairman Ben Bernanke will testify at the House Financial Services hearing, starting around 9 a.m. ET.

Friday the September jobs report from the Labor Department is expected to show that employers cut 180,000 jobs from their payrolls after cutting 216,000 in the previous month. The unemployment rate, generated by a separate survey, is expected to have risen to 9.8% from 9.7% in the previous month. August factory orders are expected to have risen 0.5% after rising 1.3% in July.


Market forces September 28

The stock market extended losses for three days. We are cautious and recommend setting market re-entry price targets anywhere from 50% of the most recent gains to down to the highs of the previous stock cycle. We recommend a slow re-entry.

Oil, gold, and commodities peaked and should decline to close to previous levels. Inflation probably will become evident later this year so the recent rally was premature.


Market Outlook

President Obama has done a great job overall at the G20 meeting. It is not often that the group focuses on real issues like the economy and Iran's nuclear threat instead of socialist wealth redistribution plans.

Bank of America has reportedly decided to stop working with ACORN and will no longer be intimidated any further by ACORN threats.


Asian markets were down sharply last night; China down -2.7%, Hong Kong down -2.1%, Japan down -2.5%, S. Korea down -0.9%, and Jakarta down -1.9%.

European markets follow US futures higher, up about -1% to +1% this morning about half way through their day.

US market futures are up about 0.5% at 9:00 AM EST after the sell-off last week. The sharp sell-off of a correction has not happened yet.

The stock market correction is three days old now. If the correction is just 9% overall, then since many stocks will not decline that means many stocks will drop 20% or more to make up the average decline. Technology stocks usually show the greatest changes. Therefore hedge funds have an opportunity to do better than the market averages by buying deflated sectors and selling or shorting bloated sectors. To some extent individual investors can do the same but it requires a trading mentality.