While China's linking the Huan to the dollar protects the dollar from attack it keeps the world in a deflationary spiral.

World Outlook
“Japan’s economy is in a mild deflationary phase,” Japan's government said in a monthly report in Tokyo yesterday, referring to prices in its evaluation. "The economy is “in a difficult situation,” the report continued.

China takes so much money out of the world's economy by selling goods under market value that it is sucking the economic life out of the world. When speculators attack the dollar, China devalues the Huan making China's products even cheaper, killing competition around the world, and driving down prices (deflation) thus supporting the dollar and defeating the $US speculators.

But if china were to abandon the dollar the dollar would fall, as would all the dollars China holds. Ultimately this is a no-win situation for China and the Chinese economy will collapse if it continues too long. In the mean time China is arming itself. China may be preparing to attack Taiwan, disputed territories in India, and mcould even invade disputed territories in Russia. I could also be preparing to suppressing any democratic revolution at home.

China must allow their currency to appreciate enough to help decrease the trade disconnect with America and that would stop world-wide deflation and yet that new link would continue to protect the dollar from a major attack for another year.

Market Outlook:
Unless the broader American stock market surges at least 3.2% on average volume over the next week we will have what looks to be a greater than 5% perhaps up to 20% drop in stock prices as the pessimists take over the market again. We can see the panic growing in Congress as unemployment grows. We expect the increase in newly unemployed will spike up this week as the unemployment extension kicks in unless they hide the increase with some sort of correction.

In the mean time Jim Cramer betrayed his followers yesterday by announcing that he got his followers out of natural gas (i.e. UNG) in time (which is a complete lie). Yesterday was the first time he went negative on natural gas and it has dropped 40% this year while he continually pumped the industry to his listeners. He also made fools of his followers yesterday by saying that just because he said the housing industry would bottom last July doesn't mean he meant his followers should have invested in that industry. He said he hated the housing industry where average prices in America have fallen 30% since 2006. Jim Cramer has a yellow streak down his back and he lies and backtracks once again after losing his followers another fortune. After once again pumping stocks at their height in prices Jim Cramer turns negative after the market declines instead of telling them to sell into the peak.

But on the positive side the market volume collapsed yesterday saying that the sellers were hesitating and pulling back as prices fell. There still is the possibility of that 3.2% rise in the broad market that is needed if a substantial correction (10% to 20%) is to be avoided and replaced by the 3% to 5% type corrections we have had since March.


This week recap:
This is an important week. We expected an improvement in housing markets.

NY Fed Manufacturing Survey indicates that conditions for New York manufacturers improved in November, but at a somewhat slower pace than in October.
Bernanke spoke in NYC and would like to avoid the 1994-type bond market carnage of higher interest rates. It was interpreted positive.
September Business Inventories Fell 0.4%, another positive factor for increasing production.
Home Depot sales were better than predicted
The USA markets continued to rally.

In September, the goods deficit increased $5.6 billion from August to $47.6 billion, and the services surplus was virtually unchanged at $11.1 billion. Exports of goods increased $3.5 billion to $90.3 billion, and imports of goods increased $9.1 billion to $138.0 billion. Exports of services increased $0.2 billion to $41.6 billion, and imports of services increased $0.2 billion to $30.5 billion. This shows world trade is improving.

Industrial production increased 0.1 percent in October after having averaged monthly gains of about 0.9 percent over the previous three months.

Housing has bottomed and the economy should grow at a reasonable pace next year, the president of the Federal Reserve Bank of Richmond told state legislators Tuesday. In housing, Jeffrey M. Lacker said several indicators of sales and construction activity hit low points earlier this year and have already risen modestly.

"Housing is no longer a major drag on GDP growth," he said, referring to gross domestic product, which is the sum total of goods and service produced in the country.
"In fact, it should make positive contributions, in welcome contrast to the past three years."

Consumer Price Index showed that inflation has not yet started.
Housing Starts were down allowing the inventory of unsold homes to decrease so that prices of homes can stabilize and mortgage defaults can decline.

Yesterday:
Unemployment Claims- According to the U.S. Department of Labor, 505,000 new claims for unemployment insurance were filed last week, which is the same as the revised number for the week before. The four-week average - which is presented to even out volatility in data - decreased by 6,500 to 514,000 when compared to numbers from the previous week. That means the data was adjusted so that those who just got extensions were not counted as new claims but will be counted as unemployed rather than ignored altogether.
The index of leading economic indicators rose for the seventh consecutive month in October, showing that a recovery is "unfolding" in the U.S. economy, the private Conference Board said Thursday. The leading indicators rose 0.3% in October after a 1% gain in September, the private research group said. It was the smallest increase since March.
New home building permits were down meaning housing inventory could be reduced at a faster pace easing the downward pressure on prices.

Today there is little to look at except the market forces.

Market forces November 20
The market is now on its last legs. We estimate the NYSE must rise another 3.2% from yesterday's close to be interpreted as a continuing rally not a declining shoulder sell signal. But 3.2% would take two days and a new rally at this point may not be that long-lived. In any event even if the market surged 3.2% a normal 3% to 5% correction is due so it is still wise to take profits were possible.

Asian markets were slightly lower last night; China down -0.4%, Hong Kong down -0.8%, India up 1.4%, Japan down -0.5%, Seoul flat 0.0%and Taiwan down -1%.

European markets are down with the average in a range from -0.4% to -0.5% this morning about half way through their day.

US pre-market futures are down at about -0.6% today at 8:30 AM EST.

It is important to be able to take stock profits quickly if the NYSE does not set a new high at least 3.2% above yesterday's closing price and on above average volume within the next few days. We would even consider getting retirement investments on the sidelines under those conditions.