Friday, October 03, 2008

The Lousy Bailout

10/4/08 The Lousy Bailout

Wachovia shareholders will receive 0.1991 shares of Wells Fargo for every share of Charlotte, N.C.-based Wachovia stock they own, valuing Wachovia Corp. at about $7 per share.
Wells Fargo & Co. will record merger and integration charges of about $10 billion, but says it expects earnings to be boosted within the first year after the acquisition closes. No government assistance is part of the deal terms.
Wachovia abandoned the Citigroup deal in favor of the one with Wells Fargo.

U.S. employment fell by 159,000 in September, the worst job losses since March 2003, the Labor Department reported Friday. The unemployment rate was steady at 6.1% as expected, the government said. An alternative measure of unemployment that includes discouraged workers rose from 10.7% to 11%, the highest since April 1994. The economy has now lost 760,000 jobs this year, further evidence that the economy was in a recession even before the financial market crisis of the past few weeks. Job losses in September were worse than expected and double the average monthly loss this year.Employment continued to fall in construction, manufacturing, and retail trade, while mining and health care continued to add jobs. Average hourly earnings for production and nonsupervisory workers in the private sector edged up by 3 cents, or 0.2 percent, in September. Over the past 12 months, average hourly earnings have increased by 3.4 percent. From August 2007 to August 2008, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) rose by 5.9 percent.

AMG Data Services: "Including ETF activity, Equity funds report net cash inflows totaling $9.137 billion in the week ended 10/1/08 with Domestic funds reporting net inflows of $9.730 billion and Non-domestic funds reporting net outflows of -$593 million; Excluding ETF activity, Equity funds report net cash outflows totaling -$7.697 billion with Domestic funds reporting net outflows of -$5.096 billion and Non-domestic funds reporting net outflows totaling -$2.601 billion; Exchange Traded (Equity) funds report net inflows of $16.834 billion with the largest flows: $10.007 Bil to the SPDR Tr Series I fund;$2.191 Bil to the iShares Russell 2000 Index fund;$1.661 Bil to the PowerShr QQQ fund;$1.405 Bil to the iShares MSCI Emerg Mkt Index fund; Excluding ETF activity International funds report net outflows of -$1.891 billion which are accelerating (-$3.2 billion/week, as measured over 4-weeks; the largest rate of outflows from the sector on record (1/8/92) Net cash outflows are reported in all Emerging and Developed regions; Excluding ETF activity Taxable Bond funds report net outflows totaling -$3.862 billion; Money Market funds report net cash inflows totaling $4.396 billion as General Money Market funds report net cash outflows of -$80.292 billion and Government Money Market funds report net cash inflows totaling $84.688 billion;
Municipal Bond funds report net cash outflows of -$848 million."

California Gov. Arnold Schwarzenegger said that California may need up to $7 billion in emergency funding from the federal government as the state is almost running out of cash to pay for daily government operations, according to a report Friday in the Los Angeles Times.

Rabindranath Tagore: "The greed of gain has no time or limit to its capaciousness. Its one object is to produce and consume. It has pity neither for beautiful nature nor for living human beings. It is ruthlessly ready without a moment's hesitation to crush beauty and life out of them, molding them into money."

Seeking to break an ongoing liquidity logjam, the Bank of England on Friday relaxed rules regarding the types of collateral it will accept from commercial banks to secure three-month loans. Eligible collateral is being expanded to include AAA-rated asset-backed securities of some corporate and consumer loans, as well as highly-rated asset-backed commercial programs, where the underlying assets would be eligible if they were securitized. The new rules apply to the central banks' weekly three-month repo operations. "In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity," said BOE Gov. Mervyn King, in a statement.

Rob Hanna: "Including Thursday there have been 18 days since 1960 where the S&P 500 has closed down 4% or more. Four of them have come in the last 3 weeks. The only other period to come close was the Crash of ’87 when it occurred on 10/16, 10/19, and 10/26. Of the previous 17 instances, the market finished higher the next day 14 times."

Nouriel Roubini: "It is now clear that the US financial system - and now even the system of financing of the corporate sector - is now in cardiac arrest and at a risk of a systemic financial meltdown. I don’t use these words lightly but at this point we have reached the final 12th step of my February paper on “The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster” (Step 9 or the collapse of the major broker dealers has already widely occurred)...
We are indeed at the cardiac arrest stage and at risk of the mother of all bank and non-ban runs as:
- The run on the shadow banking system is accelerating as: even the surviving major broker dealers (Morgan Stanley and Goldman Sachs) are under severe pressure (Morgan losing over a third of its hedge funds clients); the run on hedge funds is accelerating via massive redemptions and a roll-off of their overnight repo lines; the money market funds are experiencing further withdrawals in spite of government blanket guarantee.
- A silent run on the commercial banks is underway.... A run on the short term liabilities of the corporate sector is also underway as the commercial paper market has effectively shut down with little trading and no issuance or rollover of such debt while corporations have no access to long or short term credit markets and they are therefore facing massive rollover problems (over $500 billion of rollover of maturing debts in the next 12 months).... The money markets and interbank markets have shut down as - despite the Senate passing the bail-out bill - yesterday USD Overnight Libor was still at 268bp after reaching an all-time high of 6.88%; the USD 3m Libor-OIS spread widened to record 270 basis points; EUR 3m LIBOR-OIS spread is at record 130bp; the TED spread is at record 360bps (TED was 11bps one month ago); Money and credit markets are dysfunctional also in emerging markets ; and agency bond spreads are also at highs again...counterparty risk is now extreme (no one trusts any more in this crisis of confidence even the most reputable and trustworthy financial and corporate counterparties)."

Swiss bank UBS AG will cut 2,000 jobs at its troubled investment banking unit, most of which will be lost in the U.S. and Britain, an official said.
Some cuts will also be made at offices in Switzerland and the Asia-Pacific region, UBS AG spokeswoman Sabine Woessner said.
The layoffs will bring staffing levels at the investment unit to about 17,000 by the end of the year, 6,000 fewer than at its peak in third quarter 2007, UBS said.

The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars increased to 4.33 percent, the most since January, the British Bankers' Association said. The corresponding rate for euros climbed to a 5.33 percent, an all-time high. The Libor-OIS spread, a gauge of cash scarcity among banks, widened to a record and Asian bank rates climbed to the highest levels in at least nine months.

Commodities are set to face their biggest weekly decline in over 50 years on concerns about the growing severity of the financial crisis.

Tesoro By Caris & Co. ($16.28, Oct. 2, 2008)
WE ARE UPGRADING THE SHARES OF TESORO (ticker: TSO) to Average from Below Average, raising our target price to $17 from $14.
Our $17 target is based on our revised 2009 earnings-per-share estimate of $1.42 (up from $1.15) and a 12 price/earnings multiple. Risks to our target include operational and/or execution issues, changes to regulatory and/or environmental legislation, economic activity.

The Boeing Co. delivered 84 commerical airplanes in the third quarter, down from 109 in the year-ago period. Deliveries of certain models were affected by a labor strike that began in September.

John Gray, who recently retired as a professor at the London School of Economics, wrote in the London paper The Observer: 'Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably.
"'The era of American global leadership, reaching back to the Second World War, is over… The American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated."

Russian equities tumbled Friday, forcing the suspension of trading for several hours on the RTS stock exchange. The dollar-denominated RTS stock index was last down 7.8% in intraday trading. The RTS exchange said in a statement that trading was halted for one hour at 2:30 p.m. Moscow time because the technical index fell more than 5% compared to the opening value. In a second statement, the exchange said that trading was suspended for an hour between 4 p.m. and 5 p.m. Moscow time because of the slide in shares. At Micex, Moscow's other stock exchange, the ruble-denominated Micex index fell 6.2% in intraday trading.

Over the past few months the dollar index has soared from 72+ to 80+. If the dollar were a safe haven, I could understand the move. Rather, it is an accident waiting to happen. Economic growth is not on the verge of returning to the U.S. economy. Debt is growing out of control and crisis is the word of the day. I think we will find that global central bankers have had a coordinated effort to prop up the dollar. We know how brilliant these bankers truly are!

Eric Hoffer: "In times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists."

Toyota Motor Corp. has announced zero-percent financing on 11 models as it tries to woo would-be buyers sidelined by the consumer credit crunch.
The top Japanese automaker's U.S. division said Thursday in a news release that the incentives range from 36 to 60 months and are being offered on the Matrix, Corolla, Camry, RAV4, Highlander, FJ Cruiser, 4Runner, Sequoia, Sienna, Tacoma and Tundra.

Bill Bonner: "Copper has collapsed. So has shipping. Both are telling us that they world's economy is slowing down. Housing prices are falling faster. Job cuts are accelerating. Local governments are getting hit by lower revenues - they're having to cut back. Households are cutting back too. Wal-Mart says it's cutting prices for Christmas toys. Newspapers and magazines are cutting pages.
The sky is falling and anyone with any sense is running for cover…and protecting their portfolio at the same time. The meltdown is far from over...The language says $700bn is the most the President and the Secretary can request…at any one time.
"So this is bailout by installments. But $700bn is not the end. It is just the beginning, provided Congress signs off."

"Investors expect the U.S. House to approve the bailout, but even if that happens, it would have a neutral impact on the market as its effectiveness is still questionable," said Takahito Murai, general manager of equities at Nozomi Securities in Tokyo.

The ISM nonmanufacturing index hit 50.2% in September, compared with from 50.6% in August.The new-orders index rose to 50.8% from 49.7%. Meanwhile, the employment index declined to 44.2% from 45.4%. The production index rose to 52.1% from 51.6%.

Hedge funds likely lost 5%-9% in September, the worst monthly performance in more than a decade, according to a report Friday by Hennessee Group, which tracks returns in the $2 trillion industry.

November crude closed at $93.88 per barrel Friday on the New York Mercantile Exchange, down 9 cents. It lost 12.2% for the week. Gold for December delivery was last down $12.30, or 1.5%, at $832 an ounce on the Comex division of the New York Mercantile Exchange.

The House of Representatives voted to approve a revised $700 billion bailout plan for the financial markets on Friday. The Dow was up about 313 points as the vote was taking place. After the passage the Dow closed down about 158 points, the Nasdaq 29, and the S&P 15.

The U.S. recession will be "significantly deeper" than they previously thought, Goldman Sachs economists predicted Friday in a research note. The economy will probably show no growth at all between the middle of 2008 and the middle of 2009, with gross domestic product falling 2% this quarter and 1% next, they said.

The Securities and Exchange Commission ban on short selling of financial stocks will be lifted just before midnight on Wednesday.

Thursday, October 02, 2008

The Credit Freeze Worsens

10/3/08 The Credit Freeze Worsens

Here's a liquidity look: Commercial banks, investment banks and American International Group borrowed a record $410 billion from the Federal Reserve as of Wednesday, an increase of 60 percent from the prior week amid a worsening credit freeze, the Fed reported Thursday. AIG borrowed $61.2 billion, the investment banks and broker-dealers borrowed $146.6 billion, and commercial banks borrowed $49.5 billion, the Fed said. In addition, banks have tapped $152.1 billion to buy asset-backed commercial paper from money market mutual funds.

U.S. weekly jobless claims remained at their highest level in seven years, the Labor Department reported Thursday, as people in the hurricane-hit states of Louisiana and Texas filed for benefits. For the week ended Sept. 27, seasonally adjusted first-time claims for unemployment benefits rose 1,000, to 497,000 - the highest level since late September 2001. Without the hurricane-related effects, initial claims would have been about 439,000. The four-week average of claims rose 11,500 to 474,000 -- the highest since October 2001. For the week ended Sept. 20, continuing claims rose 48,000 to 3.59 million -- the highest since September 2003. The four-week average of continuing claims rose 46,750 to 3.53 million -- the highest since October 2003.

Merrill Lynch cut its 2009 oil price forecast to $90 a barrel from $107 a barrel and warned that a "synchronous global recession" could bring oil prices to $50 a barrel. It said U.S. oil demand is far outpacing its decline expectations, European demand is falling rapidly, and some of the emerging markets aren't keeping up either. Plus, a string of fields in Saudi Arabia, Qatar and others will bring about 3 million barrels of oil a day in incremental capacity over the next 12 months.

U.K. house prices fell 1.7% in September compared to the same point a year ago, according to data compiled by the Nationwide Building Society. The monthly fall means that house prices fell 12.4% on annual basis.

The Securities and Exchange Commission on Wednesday extended its selective ban on short-selling -- betting that a stock's price will drop -- until just before midnight Eastern Time Oct. 17, media reports said.

Business conditions in China's manufacturing sector declined for a second straight month in September as orders fell at a record pace, reflecting sluggish domestic and global demand, according to a brokerage survey. CLSA Asia-Pacific Markets said its China Manufacturing PMI fell to a record low of 47.7 in September, down from 49.2 in August. Export orders declined for a second straight month and at the fastest pace in the survey's history, with many firms reporting the stronger yuan had exacerbated the downturn in global demand. Input cost inflation fell to its lowest level since Feb. 2006, helped by easing prices for steel and commodities. The survey also noted manufacturers had laid-off workers at a marginal rate while others suspended hiring plans.

GM Chief Operating Officer Fritz Henderson warned of weakness for months to come in both the U.S. and western European markets.

"Certainly in the first half (2009) it's going to be weak," Henderson told reporters at the auto show.

Ford Motor Co Chief Executive Alan Mulally said he expected no recovery in the global car market until 2010 and urged governments and central banks to work together to bring stability back to the financial markets.

Richard Daughty: "I can tell you EXACTLY what is going to happen 'after taking all relevant factors into account', because what is going to happen is the same thing that ALWAYS happens when an idiot government starts creating, or allows to be created, excess money and credit, which is that the money in question will expand and expand, and end up with zero purchasing power while gold, when priced in a currency that has no purchasing power, soars to infinite levels when priced in that currency, and that is what has always happened, anyway, and that is why I am 100% sure, dead-bang sure, no-doubt-about-it sure, can't-miss sure that it will happen again! Betting with gold against a fiat currency in the hands of politicians is the biggest no-brainer on the planet! Whee! This investing stuff is easy!"

Brett Steenbarger: "The collapse of bond prices, reflecting increasing concerns over default, along with those falling commodity prices and materials shares, suggest that this is a market increasingly concerned over deflation and a severe contraction in the economy."

Guy Wyser-Pratte has blocked withdrawals from his hedge fund after the veteran New York arbitrageur and activist warned that the “calamitous” market conditions were the worst since he started trading in the 1960s.

Wyser-Pratte Eurovalue, a $500m fund campaigning for change at mid-sized companies across Europe, suspended withdrawals on Tuesday after some clients asked for their money back.

Eight in 10 fear the crisis will affect them directly, according to an AP-GfK poll. Yet 45 percent of all adults still opposed the proposed government bailout.

Some 38 percent were in favor of the $700 billion financial-market rescue plan and 16 percent were not sure in the poll, which was conducted Sept. 27-30.

In an interview with CBS Evening News anchor Katie Couric that aired Tuesday, Republican vice presidential candidate Sarah Palin said that it “kinda doesn’t matter at this point” if human activity is responsible for climate change.
You can see a video of the interview here.

Embarq, which put itself up for sale several weeks ago, is finding suitors are not easy to come by, as potential acquirers face difficulties raising the necessary capital.

Seeking Alpha: "The figure in the title of this piece is the amount of money committed by the Federal Reserve Bank since December 17, 2007 until September 23, 2008 in an effort to boost confidence in the financial system. Since December 17, 2007, we've had the failure of Bear Stearns, Fannie Mae, Freddie Mac, IndyMac Bank, WaMu, Wachovia, Merrill Lynch, and various other financial institutions, which would have failed, but were sheltered in some way or another. The above figure of $1.816 trillion is the amount that the Federal Reserve has committed to no avail. This does not include the many decreases in the discount rate and Fed Funds rates. These rates have fallen as dramatically as the Fed's tab has increased. Sure, not all of the money went out at the same time and not all of it was evaporated into nothingness. However, $1,816 trillion is the amount that has been holding the hands of weak or hobbling financial companies. Did it stop the bleeding? Of course not. Which is the reason why the Treasury felt the need to step in, bail out AIG, and ask for $700 billion as the first of many more requests for funds to “save” the financial markets?"

Michele Leder: "Only in Washington can something grow so quickly. Just 10 days ago, Treasury Secretary Hank Paulson released this $700 billion 3 page plan for saving the economy. A few days later, it had morphed into a 110-page plan. And by Wednesday, it had grown to a 451-page plan."

Nouriel Roubini: "The next step of this panic could become the mother of all bank runs, i.e. a run on the trillion dollar plus of the cross border short-term interbank liabilities of the US banking and financial system as foreign banks are starting to worry about the safety of their liquid exposures to US financial institutions."

Home prices dropped in 24 of 25 U.S. metropolitan areas in July from a year earlier as foreclosures depressed property prices.

The difference in yields between two- and 10-year Treasury notes widened to the most since the collapse of Bear Stearns Cos. on concern that turmoil in global financial markets will deepen.

The yield spread widened to as much as 200 basis points for the first time since March 10, when speculation mounted that Bear Stearns, then the fifth-largest U.S. securities firm, lacked sufficient access to capital. The Federal Reserve engineered JPMorgan Chase & Co.'s takeover of the firm a week later.

General Electric Co. raised $12.2 billion by selling 547.8 million shares at a discount of 9.2 percent to yesterday's closing price, giving it more cash to fund operations in the worst U.S. financial crisis since the Great Depression. The shares were priced at $22.25 each, Fairfield, Connecticut-based GE said in a statement today. Despite many co-managers handling the deal, the shares could not hold the $22.25 offering price.

Asked why he has been falling in polls since the financial crisis, Republican presidential candidate John McCain sums it up this way: "Cause life isn't fair."Maybe McCain should look in the mirror. The voting public is not favorably disposed towards his image. An Associated Press-GfK poll released Wednesday showed Obama surging to a seven-point lead, 48-41, over McCain one month before the presidential election.

Hotel company Marriott International Inc. said Thursday that its third-quarter profit dropped 28 percent, and warned investors about deteriorating conditions for 2009 amid the ongoing financial crisis.

The news that John McCain's campaign is abandoning its efforts in Michigan -- first reported by Jonathan Martin at Politico -- is the latest in a series of negative developments for the Republican ticket over the last two weeks.

November crude dropped $4.56, or 4.6%, to close at $93.97 per barrel Thursday on the New York Mercantile Exchange.Gold for December delivery lost $43, or 4.8%, to close at $844.30 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing price since Sept. 17.

Greece's government will guarantee all bank deposits in the country, Reuters reported Thursday, citing an unnamed, senior finance ministry official. Greek laws currently guarantee deposits of up to 20,000 euros, the report said.

We had another dive in equity prices on Thursday with the Dow down 348, the S&P down 47, and the Nasdaq 93. Oil stocks, gold stocks, ag stocks, natural gas stocks, industrial metal stocks, transportation stocks, and Apple and Google were hit particularly hard.

``If the financial markets collapse and loans aren't available, businesses large and small will follow,'' Obama said in Grand Rapids, Michigan. The auto industry is getting ``even more decimated because people can't get car loans right now. Small businesses aren't able to make payroll. If this continues, we could see the unemployment rate jump even higher.''

Hong Kong is prepared to ban short-selling in financial-sector shares, following the footsteps of other leading markets around the world, if "abnormal" trading activities were observed in the stock market, the Standard daily reported Friday, citing a government source.

Asian markets fell sharply Friday after a sell-off on Wall Street overnight, with heavy losses in exporters and machinery stocks sending Japan's benchmark Nikkei 225 Average below the 11,000-point level for the first time in more than three years.

Yahoo closed at $15.58.This is a 52-week low and a 5-year low.

The Australian dollar fell to a 14- month low against the greenback and traded at the lowest since 2005 versus the yen as concerns over slowing growth sent prices tumbling for commodities the nation exports. New Zealand's currency also fell.

Wednesday, October 01, 2008

Prolonging The Misery

10/2/08 Prolonging The Misery

Rep. Ron Paul: "Now nearly $1 trillion more is somehow supposed to magically appear and solve all our problems! No - creating more money might delay the inevitable for some well-connected banks on Wall Street, but in a few weeks we will find ourselves right back in this same position, but much poorer.
The unfortunate thing is that we've already spent at least $700 billion on other bailouts that did not solve the problem. And while all this negotiation was taking place, the auto industry was quietly bailed out, with no controversy, no discussion, to the tune of $25 billion.
Inevitably, it appears Congress will call their constituents' bluff and the bailout will pass, because that is the habit Wall Street and Washington have fallen into. People are right to be concerned about our financial future. I've been talking for 30 some years about reasons we need to be concerned and change our ways. We find ourselves now in a position of no good options, and no silver bullets. But the worst thing we can do is to compound our problems by intensifying the mistakes of the past. We do have tough economic times ahead, no doubt, no matter what we do, even if we do nothing. The question, is will we have the courage to take our medicine now and get it over with, or will we prolong the misery for many years to come? I'm less and less optimistic about the answer to that question."

Rep. Brad Sherman: "The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn't owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can't buy it. It was rejected. The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday."

Woody Allen: "The government is unresponsive to the needs of the little man. Under 5'7", it is impossible to get your congressman on the phone."

According to Bloomberg, the paralysis in credit markets is changing how U.S. companies do business as banks pull back on loans or make them prohibitively expensive. Some companies are closing plants and stores, postponing takeovers and grabbing any available credit in a fight for survival.
``If businesses don't have access to capital, smaller companies in particular, they might get wiped out,'' said Alec Young, a New York-based equity strategist at Standard & Poor's. ``It's impossible to quantify how expensive this crisis is going to be for Corporate America; there's unlimited downside.''

Winston Churchill: "The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries."

Newly registered voters back Obama over McCain by a margin of 61% to 30%, according to a WSJ/NBC poll conducted with MySpace. More than half of the respondents don't plan to vote.

The Pentagon formally notified Congress it wants to sell Israel up to 75 fighter jets being developed under a contract led by Lockheed.

According to the FT, investors in gold are demanding “unprecedented” amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen.
Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.

Mary Williams Walsh: "Cities, states and other local governments have been effectively shut out of the bond markets for the last two weeks, raising the cost of day-to-day operations, threatening longer-term projects and dampening a broad source of jobs and stability at a time when other parts of the economy are weakening...In New York, a real estate boom has suddenly gone bust. Washington has shelved a planned bond offering to pay for terminal expansion and parking garages already under construction at Dulles and Reagan National Airports.

Billings, Mont., is struggling to come up with $70 million more for a new emergency room. And Maine has been unable to raise $50 million for highway repairs.
“We really are in terra incognita here,” said Robert O. Lenna, executive director of the Maine Municipal Bond Bank, which helps that state’s towns and school districts raise money. He said he had worked in public finance for 34 years and had never seen credit evaporate so completely."

Mortgage applications in the U.S. fell last week with fewer Americans refinancing their mortgages even as interest rates declined.
The Mortgage Bankers Association's index of applications to purchase a home or refinance a loan decreased 23 percent to 455.4 from 591.4 the prior week. The group's purchase index fell 11 percent and its refinancing gauge slumped 35 percent, the most in six months.

The random telephone survey of 1,515 workers indicated that 48 percent of workers believe they will still be working either full- or part-time at age 67. The most cited reason among them — declared by 83 percent — was to stay mentally engaged.
The second most common reason cited was to earn enough money to live well, cited by 77 percent of workers.
Other top reasons for continuing to work into retirement were love of career and staying close to people.
Keeping health care benefits was another commonly stated reason.

Employment dropped by 8,000 in the private sector of the U.S. economy in September, according to the ADP employment index released Wednesday. Economists were expecting the ADP index to fall 65,000 after it lost a revised 37,000 in August. The ADP index has shown a much stronger job market this year than the government's nonfarm payroll report has. Economists expect a loss of 103,000 in nonfarm payrolls when it is reported Friday.

Investment-grade corporate bonds are headed for their worst month in almost three decades, losing 6 percent in September, after the failures of Lehman Brothers Holdings Inc. and Washington Mutual Inc. spurred losses.
This month's decline, the biggest since a 7.4 percent drop in February 1980, will also cap the worst quarter since a loss of 6.8 percent in the three-month period ended in September 1981, according to Merrill Lynch & Co.'s U.S. Corporate Master index. Daimler AG, the maker of Mercedes-Benz cars, was the only company among the 50 biggest issuers in the index to rise this month.

Recently trailing or tied, Democrat Barack Obama now leads Republican John McCain in a trio of the most critical, vote-rich states five weeks before the election, according to presidential poll results released Wednesday.
The Democrat's support jumped to 50 percent or above in Ohio, Florida and Pennsylvania in Quinnipiac University surveys taken during the weekend — after the opening presidential debate and during Monday's dramatic stock market plunge as the House rejected a $700 billion financial bailout plan.
Combined, these states offer 68 of the 270 electoral votes needed for victory on Election Day, Nov. 4.
The new surveys show Obama leading McCain in Florida 51 percent to 43 percent, in Ohio 50 percent to 42 percent and in Pennsylvania 54 percent to 39 percent.
Since 1960, no president has been elected without winning two of those three states.
“It is difficult to find a modern competitive presidential race that has swing so dramatically, so quickly and so sharply this late in the campaign,” said Peter Brown, assistant director of the Quinnipiac University Polling Institute. “In the last 20 days, Sen. Barack Obama has gone from seven points down to eight points up in Florida, while widening his leads to eight points in Ohio and 15 points in Pennsylvania.”

A Friedman, Billings, Ramsey analyst said Wednesday that the recent announcement of an oil discovery off Brazil in the Campos Basin provides another reason to own shares of oil and gas company and Devon Energy Corp.
Devon and Houston-based Anadarko Petroleum Corp. announced the find on Tuesday. Devon, headquartered in Oklahoma City, has a 25 percent working interest in the field. Anadarko, through a subsidiary, holds a 30 percent interest.

Fortune Magazine: "A CDS is just a contract: The "buyer" plunks down something that resembles a premium, and the "seller" agrees to make a specific payment if a particular event, such as a bond default, occurs. Used soberly, CDS offer concrete benefits: If you're holding bonds and you're worried that the issuer won't be able to pay, buying CDS should cover your loss. "CDS serve a very useful function of allowing financial markets to efficiently transfer credit risk," argues Sunil Hirani, the CEO of Creditex, one of a handful of marketplaces that trade the contracts.
Because they're contracts rather than securities or insurance, CDS are easy to create: Often deals are done in a one-minute phone conversation or an instant message. Many technical aspects of CDS, such as the typical five-year term, have been standardized by the International Swaps and Derivatives Association (ISDA). That only accelerates the process. You strike your deal, fill out some forms, and you've got yourself a $5 million - or a $100 million - contract.
And as long as someone is willing to take the other side of the proposition, a CDS can cover just about anything, making it the Wall Street equivalent of those notorious Lloyds of London policies covering Liberace's hands and other esoterica. It has even become possible to purchase a CDS that would pay out if the U.S. government defaults. (Trust us when we say that if the government goes under, trying to collect will be the least of your worries.)
In just over a decade these privately traded derivatives contracts have ballooned from nothing into a $54.6 trillion market. CDS are the fastest-growing major type of financial derivatives. More important, they've played a critical role in the unfolding financial crisis. First, by ostensibly providing "insurance" on risky mortgage bonds, they encouraged and enabled reckless behavior during the housing bubble.
"If CDS had been taken out of play, companies would've said, 'I can't get this [risk] off my books,'" says Michael Greenberger, a University of Maryland law professor and former director of trading and markets at the Commodity Futures Trading Commission. "If they couldn't keep passing the risk down the line, those guys would've been stopped in their tracks. The ultimate assurance for issuing all this stuff was, 'It's insured.'"
This is the market which is essentially devoid of federal regulation and is entirely unaddressed in the Banker Bailout bill.

Nouriel Roubini: " In Q2 of 2008 the FDIC reports $4462bn insured domestic deposits out of $7036bn total domestic deposits; thus, only 63% of domestic deposits are insured. Thus $ 2574bn of deposits are not insured.
Given the risk that many banks – small, regional and national – may go bust (as even large ones such as WaMu and Wachovia went recently bust) there is now a silent run on parts of the banking system. Deposit insurance formally covers only deposits up to $100000. Thus any individual, small or large business and/or foreign investor or financial institution with more than $100000 in a FDIC insured bank is now legitimately concerned about the safety of its deposits.
Particularly at risk are the cross border short term interbank lines of US banks with their foreign counterparties that are estimated to be close to $1 trillion."

Paul Kedrosky: "The K-10 annex of AIG’s last annual report reveals that AIG had written coverage for over US$ 300 billion of credit insurance for European banks. The comment by AIG itself on these positions is: “…. for the purpose of providing them with regulatory capital relief rather than risk mitigation in exchange for a minimum guaranteed fee”. AIG thus helped to organise regulatory arbitrage on a gigantic scale. A formal default of AIG would have had a devastating impact on banks in Europe. This explains why AIG’s problems had sent shock waves through the share prices of European banks. For the time being the US Treasury has saved, inter alia, the European banking system, but given that AIG is to be liquidated European banks now have to scramble to find other ways of obtaining the ‘regulatory capital relief’ they appear to need urgently."

Bloomberg reported the Baltic Dry Index, a measure of commodity-shipping rates, dropped 8.2 percent yesterday, bringing its slide in September to 53 percent, as raw-material demand from China's steelmakers weakened. The Topix Marine Transportation Index was the biggest decliner out of 33 groups in the Topix index.
``The selling signal for shipping stocks is clear,'' said Yoshihisa Miyamoto, an analyst in Tokyo at Okasan Securities Co. ``There isn't going to be a big rebound in the Baltic index.''

Moody's projects that New York City and its suburbs will lose 65,000 finance jobs by the middle of 2010, or 11% of the total.
Economists are projecting that Manhattan real estate prices will finally sink under the pressure of financial-sector layoffs and shrinking Wall Street bonuses. Wall Street accounts for about 12% of jobs in the city of New York, and a quarter of salaries.
"New York is the stone in the puddle that ripples across the country," said Scott Simmons, vice-president and founding partner of Crist/Kolder Associates, an executive recruiting firm in Chicago.

Thomas P. Au: "If the 1930s is any guide, the country will spend the better part of a decade in a “workout” mode before being able to re-start with more or less a clean slate. What would be required for the next secular bull market? Probably at least two back-to-back up Presidential election years, that would signal the progression, and finally the end of the “workout.” These couldn’t occur until 2012 and 2016 at the earliest, which is why we won’t see the next bull market until at least 2017. Putting aside the 1930s, which few remember, the experience from 2000 to that time will resemble the decade-and-half bear market from the late 1960s to the early 1980s, which many people living today have gone through. We’re actually about half way through the secular bear market of 2000-2016. This realization may make the second half easier to bear, although the remainder may be even less pleasant."

The U.S. Senate moved to vote on the $700 billion bailout package, which includes tax breaks for alternative energy. The measure includes tax credits for the production and use of solar energy and wind power.

Basically, GE shares are trading at their lowest level in 10 years. This is an event that cannot be ignored. GE is not just another company caught in this downdraft. Deutsche Bank AG reduced its 2008 and 2009 earnings estimates. "Our adjustments largely reflect deterioration at GE Capital-driven by tighter credit markets, asset shrinkage and debt pay-down," wrote analyst Nigel Coe. "GE Capital's swap spreads had hit a record wide of 740 basis points earlier on Wednesday and are up from about 398 basis points a week ago." General Electric will sell $12 billion in common stock in a secondary offering and sell $3 billion in preferred shares to Warren Buffett's Berkshire Hathaway Inc.

U.S. Sept. ISM manufacturing index 43.5% vs 49.9% in Aug. This is a disastrous number and points out the severe weakness in our country's manufacturing sector. This is the sharpest one-month drop in the index since 1984. The index is at its lowest level since October 2001.

Investors are demanding the highest yields to own the bonds of banks, brokers and insurers in Europe relative to non-financial borrowers.
The spread on bonds included in a Merrill Lynch & Co. index of financial company debt soared to a record 371 basis points over government notes after the U.S. House of Representatives voted down a $700 billion rescue package. That's 159 basis points more than the spread for non-bank issuers, the widest gap since Merrill started compiling the data.

Jefferson County, Alabama, won't make an $83.5 million payment on some of its $3.2 billion of sewer bonds, as it continues to seek more time to negotiate an end to the debt crisis that has pushed it close to bankruptcy.

``Loan rates have climbed to ridiculous heights and the terms are very short,'' said Dmitry Lutsenko, a board member at Mirax Group, the Moscow-based company that's building the Federation Tower, which will be Europe's tallest skyscraper when completed.
Mirax canceled plans to develop 10 million square meters (108 million square feet) of commercial and residential space after interest rates on some loans rose to as high as 25 percent, Sergei Polonsky, Mirax's billionaire owner, said in a Sept. 29 e-mail. The company's Web site shows it has projects in countries including Russia, Ukraine, France, Turkey, Cambodia, Vietnam, Montenegro.
Higher borrowing costs already are crimping demand for apartments, said Oleg Repchenko, head of Real Estate Market Indicators. Prices may fall in the fourth quarter and in 2009 post the first decline in 11 years, according to the Moscow-based research group. The drop may reach as much as 30 percent for some types of apartments by the end of 2009, Repchenko said.
Prices for homes in Moscow have risen more than sixfold since 2003. In the first six months of this year, they increased 25 percent to an average of 136,404 rubles ($5,318) per square meter, according to, a market research company

The American Petroleum Institute reported Wednesday a rise of 3.3 million barrels in crude supplies for the week ended Sept. 26. The Energy Department had reported a climb of 4.3 million barrels for the latest week. Motor gasoline supplies were down 557,000 barrels, the API said. The government had reported that supplies rose by 900,000 barrels. Distillate supplies were down 3 million barrels, the API said. They were down 2.3 million barrels for the week, according to the Energy Department. Refinery utilization was at 72.3% compared with 66.7% of capacity a week earlier. Following the news, November crude was down 3.3% at $97.36 a barrel on Globex.

Ford Motor Co. on Wednesday reported a 34.6% drop in September U.S. sales to 120,788 vehicles from 184,612 in September 2007. September marked the lowest sales month so far this year for Ford and the industry, the automaker said.

Americans bought 964,873 vehicles in September, the lowest sales figure since February 1993, according to Autodata Corp. and the automotive Web site. Sales fell 27 percent compared with September 2007, with every major brand but General Motors Corp. reporting drops of at least 24 percent.
"It was tantamount, really, to a natural disaster," said George Pipas, top sales analyst for Ford Motor Co.

Mexicans living in the U.S. sent home 12 percent less money in August, the largest drop on record since the Bank of Mexico began tracking remittances 12 years ago, the central bank reported on Wednesday.

Con-way Inc. lowered its earnings outlook for the year on declining trucking volume and demand. Late-traded shares of Con-way were halted at $42.94. The company lowered its 2008 earnings outlook from continuing operations to a range of $2.60 to $2.80 a share, from a previous range of $3 to $3.40 a share. Analysts surveyed by FactSet Research estimate $3.22 a share. "Over the past several weeks we have seen volumes decline further, exacerbated by September's weather events, all of which continue to pressure yields," said Douglas Stotlar, Con-way president and chief executive, in a statement. "To date, the traditional peak seasonal uptick in demand has been muted so we expect the challenging business environment to continue through the 2008 fourth quarter."

Eli Lilly & Co. is in advanced talks to acquire ImClone Systems Inc. for $70 a share, The Wall Street Journal reported on its Web site Wednesday, citing sources close to the matter.

November crude closed at $98.53 per barrel Wednesday on the New York Mercantile Exchange, down $2.11, or 2.1%, for the session. November natural gas climbed 3.9% to close at $7.728 per million British thermal units as a a fresh forecast renewed concerns over the Atlantic hurricane season, feeding the potential for further energy output disruptions. Gold for December delivery gained $6.50, or 0.7%, to end at $887.30 an ounce on the Comex division of the New York Mercantile Exchange.

Toyota Motor Corp.'s September U.S. sales fell 32.3% to 144,260 vehicles from 213,042 a year ago. U.S. Lexus sales in September fell 37.7% to 9,430 vehicles from a year ago. U.S. light truck sales dropped 38% to 55,918 vehicles in September.

France will propose a 300 billion euro ($424 billion)rescue package for the European financial sector, Reuters reported, citing a European government source.

Broke! Fix It!

10/1/08 Broke! Fix It!

Bill Bonner: "For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. It now has more financial obligations than assets. It is, effectively, broke."

Rep Ron Paul: “Removing governmental power to manipulate money removes the temptation for government to spend, print and cheat. Sound money ensures that our government’s spending priorities would be brought into sharp focus and reduced to only what we can afford."

Democratic presidential candidate Barack Obama on Tuesday proposed to raise the limit on federal deposit insurance to $250,000 from $100,000, according to media reports. ABC News' Political Radar blog printed part of Obama's email statement, which said that although the current limit is "more than adequate for most families, it is insufficient for many small businesses that maintain bank accounts to meet their payroll, buy their supplies, and invest in expanding and creating jobs."

Banks remained afraid to lend to each other Tuesday, leaving money markets in a deep freeze that economists warned could lead to a wider economic collapse.
"Money markets are in a state of extreme distress," said Neil Mackinnon, chief economist at ECU Group, a research firm.
The overnight London interbank offered rate, or Libor, posted a record one-day increase, climbing to 6.875% from 2.56875% on Monday, according to news reports. Libor rates for sterling and euro loans also rose.
And three-month dollar Libor, a closely followed short-term rate, rose to 4.0525% from 3.8825%.

Constellation Energy Partners said Tuesday that it retained Tudor, Pickering, Holt & Co. Securities Inc. to help it review strategic alternatives. The company cited current market conditions and the recent merger deal of its sponsor, Constellation Energy Group, which received a $4.7 billion bid from MidAmerican Energy Holdings Co., a subsidiary of Warren Buffett's Berkshire Hathaway Inc.

Shortly after 4 a.m. Eastern, S&P 500 futures rose 32.5 points to 1,151.30, Nasdaq 100 futures added 32.5 points to 1,544.50 and Dow industrial futures rose 230 points.

U.S. high-yield bond defaults may climb to 10 percent or more as highly leveraged companies fail, Martin Fridson, chief investment officer at Fridson Investment Advisors, told the Reuters 2008 Restructuring Summit on Tuesday.Fridson also said if the United States falls into a severe recession similar to 1990-1991 period, default rates may climb to 15 percent or higher, a level not reached since 1933.

Rob Hanna: "The S&P 500 today lost 8.7%. That wasn’t the worst of it. The Nasdaq 100 lost about 10.5% and the banking index (BKX) lost 20%. For the S&P 500 there has only been 1 day that has been worse – 10/19/87 - the crash of ’87. On October 26, 1987 the S&P dropped 8.3%, which was close. Some other memorable drops since then would include 10/27/97 (-6.9%), 8/31/98 (-6.8%), and 9/17/01 (-4.9%). This was about 2% worse than any of those...1932 and 1987 were the only instances that were near a low.
In no case was a V-bottom like ’97, ’98, or ’01 formed. A sharp bounce was followed by either sideways or downward movement.
A sharp bounce occurred within 3 days in all cases.
1932 was the only time the day of the big drop came after an extended decline. In contrast, the crashes of 1929 and 1987 happened as a breakdown from a topping pattern."

Kathy Lien: "Now more than ever, the US needs to rely on foreign funding. If Central Banks and Sovereign Wealth Funds around the world start to lose confidence in the US financial markets or the US government, we could be looking at a complete freeze in lending that expands beyond the banking sector.
According to an article in the Wall Street Journal, central banks are already loading up on gold as European central banks cut their sales to the lowest level in almost 10 years. Gold prices are up more than $35 an ounce today as a hedge for inflation and a hedge for the US economy. Everyone is starting to realize that commodities are the only assets that have no counterparty or credit risk. Gold prices first jumped on inflation fears after the Federal Reserve’s liquidity injections this morning. Having more than doubled swap limits from $290B to $620B, the Fed is trying to tell the market that it is serious about providing liquidity."

The FT reports Afghan President Hamid Karzai has made a call for peace to Taliban leader Mullah Omar and has asked the king of Saudi Arabia to help in talks with the militant group responsible for a surge in violence.

Bain Capital and Hellman & Friedman agreed to acquire Neuberger Berman, the crown jewel of Lehman Brothers Holdings, for $2.15bn. The deal comes weeks after a sale could have helped Lehman avoid collapse.The wealth management firm will become the centrepiece of a new company called Neuberger Investment Management, with more than $230bn in assets.

Rep. Dean Heller, R-Nev.: "I cannot with good conscience put Nevada's taxpayers on the hook for the foolish excesses of Wall Street," he said. "Congress should pass legislation that protects the taxpayer, assists with bad assets and allows the market to correct itself."

Nouriel Roubini: "This is not just a US financial crisis; it is a global financial crisis hitting institutions in the US, UK, Eurozone and other advanced economies (Iceland, Australia, New Zealand, Canada etc.).

And the strains in financial markets – especially short term interbank markets - are becoming more severe in spite of the Fed and other central banks having literally injected about $300 billion of liquidity in the financial system last week alone including massive liquidity lending to Morgan and Goldman. In a solvency crisis and credit crisis that goes well beyond illiquidity no one is lending to counterparties as no one trusts any counterparty (even the safest ones) and everyone is hoarding the liquidity that is injected by central banks. And since this liquidity goes only to banks and major broker dealers the rest of the shadow banking system has not access to this liquidity as the credit transmission mechanisms is blocked."

On Monday, the Reuters/Jefferies CRB Index of 19 commodities plunged 5.9 percent, the biggest drop since record-keeping began in 1956, on concern that a spreading financial crisis may slash demand for raw materials. The CRB has slumped 28 percent from a record on July 3 as tightening credit markets, failing financial institutions and slowing economic growth heightened demand concerns.

Platinum will swing from a deficit to the largest surplus in 10 years as demand declines amid an economic slowdown, said Paul Walker, CEO of London-based research company GFMS Ltd. “Supply has not fallen by as much as people expected,” he said. “Demand in auto catalysts and jewelry, especially in China , is really falling.”

According to the FT, Indian iron ore exporters on Monday warned that demand from steel mills in China had fallen sharply over the past month and that Chinese buyers were defaulting on contracts with suppliers.

With coal reportedly piling up in China's eastern ports, the news of steel defaults will fuel concerns about the likely impact on global commodity prices of a slowing Chinese economy.

Analysts say smaller Chinese steel mills are losing money on their output because of weak steel demand and the hefty prices they paid for ore and coal ahead of the Beijing Olympics in August.

Microsoft Chief Executive Steve Ballmer said on Tuesday no company was immune to the global financial crisis, which he expects to sap both consumer and business spending.

London was in shock Monday night after the apparent suicide of a millionaire financier haunted by the pressures of dealing with the credit crunch.

Kirk Stephenson, who was married with an eight-year-old son, died in the path of a 100mph express train at Taplow railway station, Berkshire.

Mr Stephenson is believed to have taken his own life after succumbing to mounting personal pressures as the world’s financial markets went into meltdown.

The Standard & Poor's/Case-Shiller 20-city housing index released Tuesday fell a record 16.3 percent in July from the year-ago period, the largest drop since its inception in 2000. The 10-city index plunged 17.5 percent, its biggest decline in its 21-year history.Home values in all 20 cities fell year-over-year, with Las Vegas prices plunging the most at nearly 30 percent.

The September consumer confidence index rose to 59.8 from an August reading of 58.5. The percentage of consumers who said current business conditions were bad rose to 34.2% from 32.7%, while those who saw conditions as good fell to 12.5% from 13.7%. The percentage of consumers who said jobs are "hard to get" rose to 32.8% in September from 31.7% in August. Meanwhile, the percentage of consumers expecting business conditions to worsen over the next six months fell to 21.3% from 25.2%.

The Chicago purchasing managers index inched lower to 56.7 in September from 57.9 in August but stayed well above the 53.0% expected by analysts.

Economists including Joseph Lavorgna of Deutsche Bank Securities and David Greenlaw of Morgan Stanley said it now appears the economy shrank in the third quarter as credit- crimped consumers cut spending for the first time since 1991. A further contraction is likely in the next two quarters, some economists predicted, which would make the recession the longest since 1981-82.

``This has been a body blow to consumer and business confidence,'' said Mark Zandi, chief economist at Moody's in West Chester, Pennsylvania. ``The next six months are going to be very difficult.''

Mexico's Treasury Secretary says the current financial crisis will "undoubtedly" affect Latin America, reducing demand for the commodity exports that have fueled the region's recent boom.

Secretary Agustin Carstens says continued volatility will deflate oil and other commodity prices, boosting investment risk.

"The time has come to save capitalism from the capitalists," writes Luigi Zingales of the University of Chicago.

Ireland guaranteed all bank deposits on Tuesday in a bid to improve the industry's access to international funds frozen by the global credit crunch.

Inflation is no longer as worrisome as the weak growth outlook from the financial market turmoil, Atlanta Federal Reserve Bank President Dennis Lockhart said Tuesday. "Overall, the outlook for inflation may have improved, but prospects for growth have weakened," Lockhart said in a luncheon speech in New Orleans.

Alcoa Inc. will curtail remaining production at its Rockdale, Texas aluminum smelter because of market conditions and onsite power supply issues that have exposed the plant to high power prices. Alcoa said it will lay off the smelter's remaining 660 workers.

November crude closed at $100.64 per barrel Tuesday on the New York Mercantile Exchange, up $4.27, or 4.4%, for the session. Prices are nearly 5% higher year to date. Gold for December delivery ended down $13.60, or 1.5%, at $880.80 an ounce on the Comex division of the New York Mercantile Exchange. The precious metal ended the month up 5.5% and the quarter down 6.1%. Gold has gained 1.7% this year.

TrimTabs Investment Research on Tuesday reported that for the month of September through last Friday, stock mutual funds have seen outflows of $41 billion, while $22 billion have been redeemed from bond funds. The data don't include Monday's market sell-off. TrimTabs said the September fund flows through Sept. 26 compare with outflows from equity funds of $75 billion and inflows of $95 billion into bond funds for the eight months of 2008 through August 31.

Allied Capital shares slumped 55% on Tuesday after the lender said Ciena Capital, one of its portfolio companies, filed for bankruptcy. Ciena, which used to be called Business Loan Express, has seen the value of its assets fall amid the deepening credit crunch. Those assets are now not worth enough for Ciena to repay its debts and meet other liabilites, Allied Capital explained. Allied guarantees Ciena's obligations under the unit's revolving credit facility. That means Allied will pay $320 million to the lenders behind that facility. To pay those lenders, Allied said it will dip into roughly $150 million of its cash resources and borrow $170 million from its own revolving line of credit. After that, Allied will have about $200 million in cash and roughly $170 million left on its line of credit. Allied Capital shares fell 50% to $6.25 during afternoon trading.

Brett Steenbarger: "Given the limits of what we know and what is ultimately unknowable, not all movement is opportunity. The key to trading success is finding the patience to capitalize on those things you do know and the wisdom to accept what is uncertain."

Rockwell Automation Inc. will cut about 3% of its global workforce in a restructuring move. The company employs about 20,000 worldwide.

The Dow Jones Industrial Average gained 485.21 points, or 4.7%, to end at 10,850.66, giving it a 6% loss for the month. The S&P 500 gained 58.34 points, or 5.3%, to 1,164.73, leaving it with a 9.2% drop for September. The Nasdaq Composite gained 98.6 points, or 5%, to finish at 2,082.33, leaving the tech-laden index with a monthly loss of 12%.

The jobless rate in the 15-nation euro zone rose to 7.5% in August from 7.4% in July, the statistical agency Eurostat reported Wednesday.

-BHP Billiton's $119 billion bid for rival Rio Tinto has been cleared by Australia's competition regulator. The Australian Competition and Consumer Commission said Wednesday it will not oppose the takeover on competition grounds.

Swiss bank UBS may announce another 1,900 job cuts in its investment banking, fixed income and equities business, according to a Bloomberg report citing people with knowledge of the matter. The cuts would represent around 10% of the total investment banking staff and could be announced at the bank's shareholder meeting Thursday, the report said. UBS has already announced around 7,000 job losses after becoming one of the worst hit European banks in the credit crisis.

The mood among Japanese firms turned negative for the first time in five years, the Bank of Japan's quarterly tankan survey of business sentiment showed Wednesday.

Large U.S. companies announced plans to eliminate 95,094 jobs in September, 33% more than a year earlier, according to a nonscientific tally released Wednesday by outplacement firm Challenger Gray & Christmas. For the third quarter, layoff announcements rose 48% from a year earlier to 287,142, the highest three-month total in nearly three years.


Monday, September 29, 2008

The Ugly Financial Crisis

9/30/08 The Ugly Financial Crisis

John Hussman: "The only way that buying the questionable assets will increase capital on the liability side of the balance sheet is if the Treasury overpays for them....A better approach would be for the government to provide capital directly, in the form of a “super-bond,” in an amount no greater than the debt to bondholders. The “super-bond” would be subordinate to customer liabilities, so it could be counted as capital for the purpose of capital requirements, and would be seen by customers as a legitimate cushion of protection. However, in the event of bankruptcy, it would have a senior claim in front of both stockholders and even senior bondholders. Do that, and you've actually got a mechanism to protect the financial system while at the same time protecting customers and taxpayers. Ideally, the super-bond accrues a relatively high rate of interest so that financials have an incentive to shift to private financing as soon as possible, but you would also defer the interest until the bank meets a minimal level of profitability to make sure that the financing doesn't strain the institution's liquidity... Instead, the government is taking on financially non-viable securities and warrants on common equity, while failing to improve the capital position of these financial companies at all (unless it overpays). Taxpayers will not make money here...This is not a good deal, because it will waste taxpayer money without addressing the fundamental solvency problems."

The governments of Belgium, the Netherlands and Luxembourg launched an 11.2 billion euro ($16.4 billion) rescue for Fortis late Sunday, acting after confidence in the banking and insurance group evaporated and potential bidders reportedly walked away from a deal.
The three governments agreed to inject capital to buy 49% interests in Fortis-owned banking subsidiaries operating in each of their jurisdictions, they announced in a joint press release

Pilgrim's Pride Corp.has obtained agreement with its creditors for temporarily relief through Oct. 28, via a waiver of the lenders' fixed-charge coverage ratio covenant. The poultry producer said its lenders also agreed to continue to provide liquidity under these credit facilities during this same 30-day period. Pilgrim's Pride said the waiver was granted after it told the lenders it expects to report "a significant loss" in the fourth quarter, ended Saturday, due to "high feed-ingredient costs, continued weak pricing and demand for breast meat, and the significant negative impact of hedged grain positions." The company also said it had hired Lazard to advise it on refinancing and recapitalization opportunities.

In pre-dawn Monday trading U.S. stock index futures fell, with financial turmoil in Europe overshadowing congressional agreement on a U.S. bailout plan designed to take toxic assets off of bank balance sheets. December S&P 500 futures were down 19.40 points, or 1.6%, to 1,195.10. Dow Jones futures fell 184.00 points, or 1.7%, to 10,963.0, and Nasdaq futures were off 27.00 points, or 1.6%, to 1,647.75.

Citigroup to acquire banking operations of Wachovia: FDIC. Citigroup to absorb up to $42B losses on a $312B loan pool. Citigroup to Buy Wachovia Banking Operations for $1 a Share. Citigroup has granted FDIC $12B in preferred stock, warrants. Citigroup also said it expects to raise $10 billion in common equity and cut its quarterly dividend to 16 cents a share, effective immediately.
The sale to Citigroup further concentrates Americans’ bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Citigroup would control more than 30 percent of the industry’s deposits.

Charlotte, N.C.-based Wachovia said it will remain a public company with two main subsidiaries: Wachovia Securities and Evergreen Asset Management.

Hong Kong stocks stumbled Monday on deep losses in property sector shares after HSBC raised mortgage rates on new loans by a half-point because of rising funding costs. The Hang Seng Index fell 4.3% to 17,880.68 and the Hang Seng China Enterprises Index, or H share index, skidded 6.6% to 8,955.26.

Congressional leaders released the text of a proposed bill to provide up to $700 billion to shore up the U.S. financial system. The bill, entitled the Emergency Economic Stabilization Act of 2008, allows the Treasury to buy "mortgages and other assets that are clogging the balance sheets of financial institutions," according to an official summary. It also has provisions to help families avoid foreclosure and to attempt to recover taxpayer money as possible. The summary also says that to participate in the rescue program, "companies will lose certain tax benefits and, in some cases, must limit executive pay." Senate Majority Leader Harry Reid said the bill was likely to go to a vote in the House on Monday and would then move to the Senate for approval.

George Ure: "I think of it as going to a place where people are dying - a hospice - and selling insurance to people who are going to die. It might play well to a few, but there's the ugly matter of the premiums haven't been paid."

24/7WallSt: "The package of salvation has been named the "Emergency Economic Stabilization Act of 2008." It may stabilize some big banks and a portion of the credit markets and may or may not cost taxpayers money over time. It almost certainly gives the troubled homeowner nothing."

Barry Ritholtz: "What the Fed, Treasury and SEC seems to fail to understand is that you CANNOT get a return to normalcy after a bubble -- not until prices are allowed to fall to levels that bring in aggressive buyers. That is true for stocks, houses, and even financial institutions.

The plan as it is currently constructed fails to recognize that Housing prices still remain elevated, more foreclosures are likely, and that another 10-20% downside in real estate is quite likely.

Instead of focusing on asset prices, we should be looking at recapitalizing the banking institutions, providing liquidity to those that need it, and managing insolvency via FDIC.

Its time to fix what's broken, and leave the assets pricing to the markets."

The Fed started the year with $800 billion in cash. That's now down to less than $200 billion. What happens, MSN Money's Jim Jubak asks, when the money runs out?

Taxpayers will lose money in the $700 billion government rescue plan for the nation's banking system, Oppenheimer analyst Meredith Whitney said.

Contrary to predictions from some supporters of the bailout plan, Whitney said on CNBC that the continued slump in housing prices will make a profit from the bailout unlikely. "I think you definitely lose money on this $700 billion structure," Whitney said. "There's no idea where house prices bottom, and as a result how can you make money on this transaction?"

The Oil Drum: "One of the major reasons for gas shortages is that fact that inventories were not very high going into the hurricanes. Then when not one, but two, hurricanes hit, inventories dropped to the level where there wasn't enough to go around. (In fact, the shortages started even before the second hurricane hit.) How could this happen? Isn't there anyone who cares about gasoline inventories?"

Over the past two weeks he's seen a small but steady rise in the polls. Immediately after the Republican Convention, the Illinois senator trailed his rival John McCain by three points in the various daily tracking polls. Senator Obama is now up by as many as six or seven points.

Pollsters say that's in part because the vital independent voters are now shifting his way.

"There are still a substantial number of independents that are undecided, principally independent women," says pollster John Zogby. "But as a group, they've begun to swing over to Obama, but not in large enough numbers yet to close the deal."

By midday in Europe, light, sweet crude for November delivery was down $3.50 to $103.39 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell Friday $1.13 to settle at $106.89. . Gold for December delivery gained $2, or 0.2%, to $890.50 an ounce in early electronic trading.

A USA Today/Gallup poll released Sunday also found that by a 52 percent to 35 percent margin, viewers thought Obama offered better proposals to solve the country’s problems.

“The economy is the issue that looks like it’s going to dictate this election,” says Darrell West, the director of governance studies at the Brookings Institution in Washington. “And Obama won those parts of the debate that he needed to win.”

McCain’s demeanor, particularly during the second part of the debate, may also have hurt him with some independent voters.

“There were times McCain came across as too angry,” says Mr. West. “That’s a style of delivery that’s going to scare some undecided voters, and it’s also a style that women don’t like, and there are more undecided women than men.”

Bank of China, the country's biggest forex lender, says it's open to taking stakes in distressed U.S. banks. Executives at other Chinese banks have been more cautious in exploring a move into America.

Circuit City said Monday that its quarterly loss widened to $239.2 million, or $1.45 a share, from $62.8 million, or 38 cents, a year earlier. Sales in the quarter ended Aug. 31 fell to $2.39 billion from $2.64 billion. The company also said it's undertaking a comprehensive review of its business and has identified key areas to bolster its holiday season performance.

NY Times: "A growing number of hedge funds are closing down. About 350 were liquidated in the first half of the year. While hedge funds come and go all the time, if the trend continues, the number of closures would be up 24 percent this year from 2007.

Many funds are bracing for trouble. The industry has set aside $600 billion in cash, according to Citigroup analysts, partly because of the uncertainty hanging over the markets but also because of possible redemptions. If redemptions do pour in, hedge funds can freeze the process by not paying investors for a certain period of time, slowing the pace of withdrawals.

One little-known hedge fund barometer is pointing to trouble, however. The alphabet soup of complex investments that Wall Street created in recent years — R.M.B.S.’s, C.D.O.’s and the like — includes C.F.O.’s, short for collateralized fund obligations. Virtually unknown outside the industry, these investments are the hedge fund equivalent of mortgage-backed securities: securities backed by hedge funds...Returns are not in yet for September, but hedge fund managers say this month is even worse than the summer. Some funds were hurt by new rules from the Securities and Exchange Commission on short-selling, a tactic for betting against stock prices. The commission made it more difficult to short all stocks and temporarily banned the strategy in more than 800 financial stocks. In particular, this hurt convertible-bond managers, who often buy bonds that can be converted into shares and short the underlying stocks."

The short-selling ban lasts until Thursday evening, but it is widely expected to be extended.

The concern is over the redemptions that are happening,” said Jenny Story, an analyst with Fitch Ratings. “The gates are being closed.”

Sept. 30 is the date investors notify hedge funds they wish to withdraw their capital by year's end. Brace for the waterfall.

Vishay Intertechnology Inc.said Monday that it commenced a tender offer to buy shares of International Rectifier Corp.for $23 in cash apiece. The tender offer is set to expire at midnight, Eastern time, on Oct. 27. International Rectifier's board of directors had rejected Vishay's earlier $21.22-a-share merger offer, calling it "inadequate" and "opportunistic."

President Hugo Chavez said Sunday that Russia will help Venezuela develop nuclear energy — a move likely to raise U.S. concerns over increasingly close cooperation between Caracas and Moscow.

Chavez said he accepted an offer from Russian Prime Minister Vladimir Putin for assistance in building a nuclear reactor.

Science Applications International Corp. said Monday that its subsidiary SAIC-Frederick Inc. has won a contract potentially valued at $5.2 billion to help operate and provide technical support to the National Cancer Institute's research and development center in Frederick, Md.

The award contract, which SAIC said is the largest single research contract awarded by the Department of Health and Human Services, has a three-year base period of performance, five one-year award-term options and one two-year option. The contract has an estimated value of $5.2 billion if all options are exercised.

The cost of borrowing in euros for three months rose to a record after government-led bank bailouts heightened concern that more will fail, prompting financial institutions to hoard cash.

The euro interbank offered rate, or Euribor, climbed 10 basis points to 5.24 percent, the European Banking Federation said today. That's the biggest jump since June. The London interbank offered rate, or Libor, for three-month dollar loans rose to 3.88 percent, the highest level since Jan. 18 and up from 2.81 percent a month ago. Singapore's benchmark rate for such loans increased to the highest level in eight months.

Consumer spending in August turned in the weakest performance in six months. The Commerce Department said consumer spending was flat in August after barely edging up by a revised 0.1 percent in July. Incomes from wages and salaries and all other sources rose by 0.5 percent in August, largely reversing July's revised 0.6 percent drop and well ahead of forecasts for a smaller 0.2 percent gain.

Incomes had been boosted early in the year by payments made under an economic stimulus program but that has largely worn off. "These payments are now winding down," the department said. Personal income increased $61.5 billion, or 0.5 percent, and disposable personal income (DPI)decreased $93.3 billion, or 0.9 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $3.9 billion, or less than 0.1 percent. In July, personal income decreased $69.0 billion, or 0.6 percent, DPI decreased $91.0 billion, or 0.8 percent, and PCE increased $14.2 billion, or 0.1 percent, based on revised estimates. The pattern of changes in income primarily reflects the pattern of payments associated with the Economic Stimulus Act of 2008

“How did things go so badly? The simple answer: greedy, fat cat investment bankers who used these complicated derivatives no one could understand to leverage themselves, make tons of money at the expense of the typical mortgage holder, and who will never experience any down side from their profligacy.”, 9-23-2008

Mitsubishi UFJ will acquire 9.9% of Morgan Stanley's common stock on a primary basis at a price of $25.25 a share, for a total of $3 billion, and $6 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of $31.25 a share.

Shares of National City Corp dropped more than half on Monday as investors wondered which regional bank might need a merger partner as the sector suffered what analysts called a deepening crisis of confidence.

The big Ohio bank slid $2, or 52 percent, at $1.70 on the New York Stock Exchange. The stock fell more than 25 percent on Friday.

Russian equities fell sharply Monday, joining a broad sell-off in emerging-market equities, as investors dumped risky assets on concerns that the U.S. government's bailout plan will not be enough to stem the financial crisis. In Moscow, the Micex stock index fell 5.5% in intraday trading and the RTS stock index dropped 7.1%.

In mid-morning crude dropped below the $100 level. Meanwhile, gold for December delivery rose $14.50, or 1.6%, to $903 an ounce on the Comex division of the New York Mercantile Exchange.

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

In addition, the Fed announced a new forward auction to provide lending to banks over the year-end. The Fed, in my view, is pushing the panic button much too late in the solvency game.

Apple shares fell $ 17 to $110 after Morgan Stanley cut its rating on the company to equal weight from overweight.

House Democrats are refusing to back down in their fight with the Senate on tax policy, increasing the odds that Congress will adjourn without acting to shield millions of people from the alternative minimum tax.

The House plans to adjourn for the year on Monday. Without a compromise, tax legislation to fix the AMT, provide tax credits to disaster victims and extend tax credits to businesses, individuals and developers of renewable energy resources would die.

India said Monday it will purchase 347 T-90 battle tanks from Russia and will consider a demand from Moscow that it pay an additional $1.2 billion because of delays in a deal for a Soviet-built aircraft carrier and 16 fighter jets.

In mid-morning, the VIX jumped 7.57 percent to 37.37, its highest level since Sept. 18.

Hypo Real Estate, Germany's second-biggest commercial-real estate lender, received a 35 billion euro loan guarantee to prevent its insolvency.

Iceland bought 75% of Glitnir Bank, the nation's third-largest bank.

The House on Monday defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry. Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

November crude traded at $95.39 per barrel on Globex Monday evening, down 98 cents from the New York Mercantile Exchange's closing level of $96.37. On Nymex, the contract's price had already dropped $10.52, or 9.8%, for the session. December gold traded at $916.20 an ounce in electronic trading on Globex Monday evening. The contract had gained $5.90 on the New York Mercantile Exchange to end that trading session at $894.40 so Globex prices are up more than $20 from that level. Prices climbed after the U.S. House of Representatives voted against the financial bailout plan. "The crucial thing is that gold was making gains as the U.S. dollar was rising too," said Sam Kirtley, editor of "Since they usually move in opposite directions, this is a sign of the tremendous strength building behind the yellow metal."

In the biggest tech-sector selloff in more than three years, the tech-heavy Nasdaq Composite Index plunged 199 points, or more than 9% to close at 1,983, the first time it closed below 2,000 since May 2005. The Dow Jones industrial average lost 777 points Monday, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks. The Dow Jones Wilshire 5000 Composite Index recorded a paper loss of $1 trillion across the market for the day, a first.

The Standard & Poor's 500 index declined 106.85, or nearly 9 percent, to 1,106.42. It was the S&P's largest-ever point drop and its biggest percentage loss since the week after the October 1987 crash.

Sunday, September 28, 2008

More Troubled Banks

9/29/08 More Troubled Banks

The bailout "will expand the range of firms that can sell troubled assets to the government to include pension plans, local governments and community banks serving "low- and middle-income families."

Fortis on Friday denied it was facing a liquidity crisis and pledged to speed up asset sales as the Belgo-Dutch bank became the latest focus of investor concerns about the fragility of Europe’s financial sector.

Democratic presidential nominee Obama reunited with running-mate Joe Biden in Greensboro, North Carolina, where they highlighted the fact that the Republican candidate didn't once use the term ``middle class'' during last night's debate, which focused on the economy and foreign policy.

``We talked about the economy for 40 minutes, and not once did Senator McCain talk about the struggles of middle-class families,'' Obama told the 20,000 person crowd at an outdoor rally. ``Senator McCain just doesn't get it.''

The total government commitment so far in its current and proposed bailouts: $1 trillion.

U.S. lending standards before the global credit crisis were "ridiculous," and the world can learn from China's more cautious system as it considers financial reforms, the top Chinese bank regulator said Saturday. "When U.S. regulators were reducing the down payment to zero, or they created so-called `reverse mortgages,' we thought that was ridiculous," Liu said at the World Economic Forum in this eastern Chinese city. He said debt in the United States and elsewhere rose to "dangerous and indefensible" levels.

"Fast food is convenient. This $700 billion package must ease the concerns and build up confidence. But if you only take this, it doesn't agree with your stomach. You should think about Chinese slow cooking and slow food," he said, prompting laughter from his audience.

A Berkshire Hathaway Inc. subsidiary agreed to buy 10% of BYD Co., a Chinese producer of rechargeable batteries, electric cars, and car parts, for US$230 million, the companies said late on Friday.

Israeli officials say the U.S. has provided Israel with an advanced radar system that will give early warning in case of an Iranian missile attack.

In 1994, swelling debt and a growing trade deficit led to a surprise currency devaluation in Mexico. The peso lost almost half its value, inflation soared and interest rates topped 100 percent — leading companies and families to default or withdraw savings. Banks suddenly stopped lending.

Previous financial crises had inspired Mexico to set up an emergency fund, known as Fobaproa, to keep banks afloat. The fund went to work in early 1995, buying up bad loans on the condition that banks would grant new credit to boost growth.

Over the next nine years, the government spent nearly 1.25 trillion pesos, about US$137 billion, to cleanse its financial system — an amount equal to 17 percent of GDP in 2004, according to a Mexican congressional audit of spending through that year. Some debts were restructured with inflation-adjusted units known as UDIS, to prevent more of the steep interest rate hikes that had caused so many Mexicans to default.

But bailout programs were piecemeal and repeatedly extended, dragging on years longer than originally planned.

Registered voters who watched the first presidential debate preferred Obama over McCain, 49% to 44%, a Los Angeles Times/Bloomberg survey shows.

The New York Times said Citigroup and Wells Fargo were locked in a bidding war for a possible takeover of Wachovia, citing people involved in the talks. The U.S. government, led by the Federal Reserve and the Treasury Department, is also involved in the talks, the newspaper said.

The troubled British mortgage lender Bradford & Bingley will be nationalized and sold off in parts, with Spanish banking giant Santander SA taking over its retail deposits and branch network, British media reported Monday.

Government Debt

9/28/08 Government Debt

Doug Noland: "The Financial Structure that fueled myriad Credit Bubbles, asset Bubbles, economic Bubbles and overliquefied the entire world is today no longer viable. Wall Street finance is at this point an unmitigated bust, with a few of the “holdout” sectors (i.e. the Credit default market and the hedge fund community) now succumbing. The great Financial Alchemy of transforming endless risky loans into perceived safe and liquid “money”-like instruments has run its historic course. And with risky loans – household, financial sector, business, municipal and speculator – having come to play such a prominent role in the nature of spending and “output”, the near elimination of risky lending will prove a momentous financial and economic development. The U.S. Bubble economy is today in dire straits...Unless some dramatic development reverses the current course, it will not be long before a self-reinforcing cycle of company payroll and spending cutbacks takes hold. At the same time, the municipal bond market is in disarray. The economic impact from major cutbacks in state and local government spending will be significant. Today’s finance-related economic headwinds are Cat-4 (and gaining) Hurricane Systemic Credit Seizure, compared to last year’s Tropical Storm Subprime. Federal Reserve-dictated interest rates are extremely low – and the Fed and global central bankers have injected unfathomable amounts of liquidity – yet Credit Conditions have turned the tightest they’ve been in decades...Basically, the Lehman collapse marked the end of “Wall Street” risk intermediation as a significant component of system financial intermediation. Going forward, Credit growth will be chiefly generated by the banking system, supported by various forms of government backing (Fed, FDIC, Washington bailouts/recapitalizations, etc.), the government-operated GSEs, and various forms of federal government debt issuance. Importantly, this new financial structure will ensure minimal risky lending as well as significantly reduced risk-taking. And from a global perspective, I believe newfound fears of lending to the American financial sector marks the beginning of the end of our economy’s capacity for trading new financial claims for imports of energy and goods...I’d bet this new financial structure will allocate much less finance to entrepreneurial activities, productive endeavors and the asset markets – while at the same time providing ample (government-directed) purchasing power to ensure stubborn consumer price inflation."

Nouriel Roubini: "The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."

"The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,’ said Kwag Dae Hwan, head of global investment… with South Korea’s $220 billion National Pension Fund… ‘A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me."

Bloomberg: “The cost to protect against a default by Wachovia Corp., the fourth-largest U.S. bank, soared to distressed levels after Washington Mutual Inc. was seized by regulators in the biggest U.S. bank failure. Credit-default swap sellers demanded 24.5 percentage points upfront and 5 percentage points a year to protect Wachovia bonds from default for five years… Wachovia’s $2.5 billion of 5.75% bonds due in 2018 plunged 22 cents today to 48 cents on the dollar…”

Floyd Norris: "The International Swaps and Derivatives Association, a trade group, reported that the amount of outstanding credit-default swaps declined in the first half of 2008, something that had never happened before.

The 12 percent decline, to $54.6 trillion, still left the market vastly larger than the total amount of debt that can be insured. The huge total reflects the way the market is structured, as well as the fact that someone does not need to actually be owed money by a company to be able to buy a credit-default swap. In that case, the buyer is betting that the company will go broke.

Within that huge market, many contracts offset one another — assuming that all parties honor their commitments. But if one major firm goes broke, the effect could snowball as others are unable to meet their commitments...The accompanying charts show the growth of the amount of credit-default swaps outstanding, and show how those totals compare with the total amount of outstanding loans from banks and others to corporations and foreign governments. Even with the decline, the swaps volume is more than three times the debt total."

About 2.4% of payments on credit cards are more than 90 days overdue, according to the Federal Deposit Insurance Corp., the highest level since 1991.

WaMu has over 2,200 branches. How many do you think will be closed?

NY Times: "Weighed down by a huge portfolio of troubled mortgage loans, the nation’s fourth-largest bank by assets entered into preliminary deal talks with Citigroup, and extended feelers to Wells Fargo and Banco Santander of Spain, people briefed on the matter said. The talks are early, and no deal may emerge from them. But it appeared Wachovia was seeking potential alternatives should the bailout plan being debated in Washington not pass quickly, or fail to provide enough help.

Wachovia has a $120 billion portfolio of mortgages loaded with adjustable interest-rate loans that allow borrowers to skip part of their monthly payments, much of which it inherited from its ill-timed acquisition of Golden West, the big California lender, at the end of the housing boom in 2006."

Peter Schiff: "The urgency for passing this bailout bill is based on the claim that the American economy will collapse if nothing is done. If the government were to stay out, and allow the market to function, there will certainly be a great deal of economic pain. Companies will go bankrupt, banks will fail, real estate and stock prices will keep falling, and many people will lose their jobs. However, government action will not prevent any of this. At best, it will merely delay the inevitable, but only at the cost of increasing the severity of the underlying problems, thus making their ultimate resolution that much more painful to endure.

The bottom line is that there is no way to resolve our economic problems without a severe recession, and our politicians need to level with the public. As a nation, we gambled on the alluring riches of real estate and we lost. The price must be paid. Contrary to the Bush Administration rhetoric, the fundamentals of our economy are not sound. If they were, we would not be in this mess. Recessions are meant to restore balance, purge excess, and liquidate mal-investments. On that score we have a lot of work to do."

Kathleen Parker, a writer for, reversed her initial support for the Republican vice-presidential nominee and said Ms. Palin should drop out. Put the country first, she basically advised, by saying you need to go take care of your family first.

Financial Times: "Banks are not to be trusted. This is not just the view of the public and policymakers, but that of the banks themselves."

The U.S. financial crisis will crimp consumption and spill over to the rest of the world including China, according to bankers and government officials meeting at the World Economic Forum in eastern China's Tianjin.

``We are in the worst crisis since the Great Depression,'' said Citigroup Inc.'s Senior Vice Chairman William Rhodes. ``We are in a period of a tremendous lack of confidence'' where financial institutions require fresh funds to restore consumer trust, he said.

Fewer orders for made-in-Asia goods are cooling industrial production in China, Singapore and Taiwan among others. Bank of Korea official Kang Myung Hun, who opposed a rate increase last month, said the nation's slowing economy is more of a concern than accelerating inflation.

Felix Zulauf: "Government debt is going to rise dramatically over the next five to 10 years. Government debt is at 300% of [gross domestic product] in most industrialized countries, if you calculate correctly. That can increase to 400% and 500%, but at some point the government-bond market will not take this without any consequences. That will lead to rising long-term interest rates. But because the economy is not on solid footing yet, short-term rates will stay low for a long time. So you will have a very steep yield curve for many, many years, and this is bearish for bonds since their prices keep falling."

Top U.S. policy makers emerged from hours of tense negotiations with a clear message just after midnight Sunday morning: A deal to bailout U.S. financial markets has been agreed on and all that remains to be done is to commit the legislation to paper.