Stocks Plunge, Dow down 777!!

This was one of the worst day in stock market history, it's difficult to figure out where to begin. At the close, Dow was down 777, decliners over advancers 16-1 (that disparity is rarely seen) & NAZ tumbled 200 in what was one of its worst days ever. S&P 500 dropped 106 to 1106, Campbell Soup was the only winner in this group! Volume was hefty, a sign technicians like to see hoping it signals flushing out all the sellers. This time, their rule book, as many others, has to be thrown out the window.

S&P 500 FINANCIALS INDEX was down 43 to 242 heading for 232, the July 15 yearly low. The Alerian MLP index dropped 15 (again, one of its biggest daily declines in 13 years) to 221, at its recent multi yearly low. The Dow Jones REIT Index dropped 13½ to 241, another whopper loss from the panic selling.

After rejection of the bailout package in the House, markets couldn't take it. Central banks stepped in to plug holes at the big bank level, but there was just so much good they could do for the stock markets.

• Treasury Vows to Protect Financial Markets- AP
• Crisis of Confidence Hits Regional Bank Shares- Reuters
• Fed makes billions available to battle crisis- AP
• European banks bailed out as crisis spreads- AP
• Wachovia Bites the Dust, Citigroup Cements 'Too Big to Fail' Status- Tech Ticker
• Fannie, Freddie disclose subpoenas, investigations- AP

New rules for the markets and gov behavior via regulation must be written. Today's rejection by the House of one new set of rules shows that this will be painful, stocks will suffer. Sadly Main Street USA doesn't seem to care about these issues because there are plenty of just plain economic problems they have to deal with (Wall Street vs us) .

Flight to safety was the keyword as T-bills & gold rallied on negative news in the stock markets. The annual interest rate for T-bills is approaching zero & might even go negative as it did a couple of weeks ago, some are that desperate when seeking safety.

There is not much to say. After a brutal day like today we all have a lot to think about. But painful process seems to be the theme going forward for the next few days/weeks/months. I'll be away tomorrow, hope everybody is well behaved. We'll pray for better times going forward!

Dow plunges 700 after failure to pass House bailout plan

This was to be a close vote, but it was supposed to pass in a nail biter. NOT SO!!! The House plan was shot down, Dow is down over 700 as decliners are ahead of advancers 20-1. NAZ is down 180 & S&P 500 slumped 100 in what is clearly a FINANCIAL CRISIS:

•S&P 500 Falls Most Since 1987, Commodities Plunge After Defeat of Bailout
•Financial Rescue Plan Backed by Bush, Democrats Collapses in 228-205 Vote
•Paulson Vows to Use `All Tools' to Protect Markets After Bailout Rejected
•Fed Injects Additional $630 Billion Into Financial System to Stoke Lending

Meanwhile oil is having one of its worst days ever while gold rallies on the flight to safety:

CLX08.NYM

Crude Oil ...Nov 08

... 96.42...

10.47 (9.8%)

GCV08.CMX

Gold ... Oct 08...

905.00...

22.10 (2.5%)

The flight to safely means money from stock sales is going into Treasury bills where the ANNUAL yield tumbled from 0.87% to 0.32%. Keep in mind, these are ANNUAL rates for T-bills:

Investors Swarm T-bills as House Rejects Bailout- AP

Let's see how markets close, I'll return.

Markets tumble after bailout package announced

Asian markets opened after the announcement from DC yesterday PM. Dow market futures were flattish while Asian markets had modest gains. In the first few hours Asian markets slipped, some even going into the red while Dow futures sank to the down 80 region. This AM negative thinking continued in NY trading. Dow is down 260, decliners over advancers 9-1 & NAS is down a whipping 84. The S&P 500 dropped 42 taking it near the 1170 line so many considered important earlier this year. S&P 500 FINANCIALS INDEX is down 14 to 271 & the Dow Jones REIT index is down 7 to 247. This headline from Bloomberg captures thinking today:

•Stocks Worldwide Sink Most Since 1997; Government Bonds Rise on Bailouts

It's difficult to keep track of all the collapsing bank problems around the world. Banks in Belgium, UK & Germany needed to be saved by the governments. Citigroup (C) is taking over Wachovia (WB) at a bargain basement price. All this confusion among the biggest banks in the world is just too much for the markets to take.


•Citigroup to Take Over Wachovia Bank Business, Absorb Losses With FDIC Aid
•Morgan Stanley Agrees to Sell 21% Stake to Mitsubishi UFJ for $9 Billion
•Fortis, Bradford & Bingley, Hypo Real Estate Rescued as Bank Crisis Widens
•Goldman, Merrill Get Billions After Federal Reserve's AIG Bailout Loans

• Fed takes fresh steps to battle credit crisis- AP

Economic reports keep coming, more are coming this week. Consumer spending was flat in Aug, worse than up 0.2% forecasted. Aug represents the back-to-school selling season (without the benefit of tax rebates), very dismal.

• Consumer spending weakens as stimulus fades- AP
• Oil falls to almost $101 on slowdown fears- AP

Oil is back down to 100 among all the confusion in the financial markets. If there is a reason, it is that economic slowdown will hurt demand for oil. Yesterday China said it was revising down its forecast for exports. They buy a lot of oil & much of their production is for export to the US. The Alerian MLP index dropped 11 to 225.

CLX08.NYM

Crude Oil Nov 08

.. 100.09

.. 6.80 (6.4%)

GCV08.CMX

Gold Oct 08

.. 895.40

.. 12.50 (1.4%)

In all this chaos, gold is back on the rise. Hate to give myself a plug, but my article at SeekingAlpha last week may be getting more attention as the flight to safety emotion kicks in:

http://seekingalpha.com/article/97160-buying-gold-what-is-high-and-what-is-low

Here's what it all comes down to, getting the package signed off by Congress & the President. One way or another it will happen, but agreeing to what is a fuzzy & confusing mess which can not solve all financial issues is not what markets want to see & hear.

•U.S. House Begins Debate on $700 Billion Financial Rescue; Close Vote Seen

Dow is starting the week below 11K, a level which had provided support in the past. This week, it may represent the ceiling.

Bailout talks leave markets in limbo

Dow was up 121 with a very strong close in the last hour, but decliners over advancers almost 3-1 & NAZ was little changed. Dow took a drubbing this week, down 245 (erasing much of the prior Friday's big gain). NYSE volume continues light as traders await news from DC. S&P 500 FINANCIALS INDEX took the uncertainty in DC pretty well, up 9 although some of the more fragile banks got hammered hard on nervousness about their futures. The 2 banks in my Yahoo badge on the right, BAC & USB, had nice gains. The Dow Jones REIT Index rose 5½, ending the week on a positive tone after a sharp sell-off on Mon.

S&P 500 FINANCIALS INDEX

Value...285.64__ Change...+9.04__ % Change...+3.3%

Market Snapshot: U.S. stocks poised for weekly losses on bailout uncertainty

Oil was down 1 to 106 & gold pulled back from earlier highs ended up only 5. It had been up 38 earlier on word that talks for the bailout plan had stalled.

Macro economic news keeps coming. The annualized growth rate in Q2 for GDP was revised down from 3.3% to 2.8% better reflecting the gloomy economics reported elsewhere.

2Q GDP growth revised down to 2.8% from 3.3%- Reuters

Not much else to say. The whole world is watching DC awaiting the outcome of the talks on the bailout package (hate to use the word plan). Chances are very good one will be hammered out by Sun evening before Asian markets open Mon trading. I have my doubts but am hoping for the best!

Stocks sink on DC chaos

Yahoo's headline: "Bush Scrambles to Save $700B Bailout Plan" pretty much tells the story. Last night talks in DC broke off a little before midnight. The Dow Jones futures were down 134 at that point, only to sink further in the next hour. Typically moves in pre-trading are only a couple points one way or the other. With all the confusion today, Dow is down only 35, decliners over advancers 5-1 & NAZ is down 29. 13 Dow stocks are up with JP Morgan having the biggest gain, up 1.17. S&P 500 FINANCIALS INDEX should receive much of the goodwill from the legislation, is down 5½ to 271 (not that bad all things considered). The Dow Jones REIT Index is down only 2 to 246. Both financial indicators are taking the delays fairly well. The concept of proposing an alternative rescue plan spells a very big "uh-oh" for me. Goodwill in DC has a half life of a few hours, it's long gone by now.

GOP Conservatives Present Rescue Alternative- AP


Adding to Wall Street woes is the failure of Washington Mutual (WM) last night, hardly a big surprise. JP Morgan (JPM) will take them over making JP Morgan the largest mortgage holder in the country. There have been about a dozen bank failures so far this year, but none have had the wide impact that this one will. I imagine millions of depositors are scrambling to check on the safety of their deposits. US Treasury bonds are higher, but the 3.8% yield on the 10 year Treasury is hefty considering the attention being given for a flight to safety. Maybe the US treasury bond is rated a little lower down the scale when considering flight to safety these days.

•WaMu Is Seized, JPMorgan Buys Deposits in Biggest Failure of a U.S. Bank
•Wachovia, National City Tumble, Leading Banks Lower, After WaMu Is Seized
•Government Bonds Climb as Bailout Plan Stalls, Washington Mutual Collapses


While not a a front-burner story, oil is back down almost 3 to the 105s. The Alerian MLP index is down 8 (a very big number for the index) to 231. With all the confusion about the status of the bailout package, there is a modest flight to safety so gold is having another good day:

GCU08.CMX

..Gold Sep 08...

890.20...

12.50 (1.4%)

I like graphs but they don't have much meaning when all the attention is on DC and what will come out of the current confusion. They have a self imposed deadline of Sun PM, prior to opening of Asian markets. I believe they will come up with a plan by then but the question returns, what good it will do? I keep thinking about the definition of a committee, a camel is a horse designed by a committee. When $B are being tossed around in a hurry, that thought is scary!

Markets rise on bailout hopes

Dow rose 197, advancers over decliners 5-2 (not so great for a big advance day) & NAZ was up 31. The gains came in the first hour of trading, afterwards the averages drifted sideways. NYSE volume was quiet (15% less than the 3 month moving average), not a lot of conviction behind the advance.

S&P 500 FINANCIALS INDEX rose nicely on the news about the proposed bailout back approval, remaining in the sideways trading band it has been in for 10 weeks (with an upper limit of 302):

Value 276.60 ___ Change +7.06 ___ % Change +2.6%

Oil had a good day along with stocks for the same reasons, bailout hopes. The Dow Jones REIT Index was up 5 to 248 & the Alerian MLP Index was up 6 to 239 (probably following the up day for oil).

CLX08.NYM

Crude Oil Nov 08

..108.02

.. 2.29 (2.2%)

The rescue package will be agreed to but the finally approval will probably have to wait until the last minute on Sun PM, prior to Asian markets opening. Both sides announced they had agreed in principle, it will be very embarrassing if they can not make it happen now after all that publicity. Optimism is running high that we may be near the end of the credit crisis. The idea is that things will settle down & business can get back to running as usual. I don't believe solving the problem is all that simple! After passage, probably in Mon trading, there will be a big pop, especially for financials. But then there will be a day 2 followed by day 3. Macro economic issues will keep coming plus nobody knows how much good the plan will do to solve massive financial problems in the system. Just one of those problems to be worked out is Washington Mutual (WM), largest S&L in the country, is up for sale. The stock dropped 25% today to 1.29. It's huge portfolio of mortgages is considered to be worth little, maybe the bailout package can bring life back to WM.


•U.S. Lawmakers Reach Agreement in Principle on $700 Billion Bailout Plan


I just had another article published at SeekingAlpha, this one on buying gold. The flight to safety concept is out of vogue this week, but there are always a few who would like to have some for diversification. Now it's easy because it can be done by buying stock.

http://seekingalpha.com/article/97160-buying-gold-what-is-high-and-what-is-low

Bailout hopes rally

Dow is up 209, advancers ahead of decliners 3-1 & NAZ is up 36. Leading the charge is S&P 500 FINANCIALS INDEX (although pulling back a little as I write):

Value_278.03.....Change_up 8.49.....% Change_up 3.2%

The Dow Junes REIT index is litle changed at 244 while the Alerian MLP index is up 2 to 235. Oil is down 1 to the 104s on reports about much of the oil capacity being shutdown following the hurricanes.

• Oil price down slightly on uncertainty- AP

General Electric (GE), Dow stock & prominent member of the S&P 500 Dividend Aristocrat list, is going though tough times. Their earnings guidance has been reduced and they will end their share buyback program as problems in the financial services divisions are giving them headaches. The stock had reached 60 years ago & only a year ago it was 42, but today it's at 24 near a 10 year low!

•GE Cuts Earnings Forecast, Suspends Buyback on Financial-Services Weakness


General Electric -- YTD




Problems in credit markets abound, with all kinds of ideas being tossed about. It looks like a package will be wrapped up this weekend prior to the opening of Asian markets on Sun evening. That's the target everybody is shooting for. Of course, nobody knows what will be in the package not to mention the big question, how much good it will do?


•U.S. Congress Moves Closer to Bailout Agreement as Bush Urges Swift Action
•McCain Calls for `Putting Politics Aside' to Reach Accord on U.S. Bailout

•Money-Market Rates Rise on Concern $700 Billion U.S. Bailout to Be Diluted
•Bernanke Moves Closer to Interest-Rate Cut as Risks to Economy Intensify
•Credit Derivatives Market Shrinks for First Time With Contract `Tear-Ups'

Meanwhile dreary economic news keep coming:

•U.S. New-Home Sales Declined 11.5% in August to Lowest Level in 17 Years

• Jobless claims pushed to 7-year high- AP

The post bailout package rally may not last long.

Stocks slip at day's end

Dow was down 29, decliners over advancers almost 3-2 while NAZ was up a couple. S&P 500 FINANCIALS INDEX declined only 4 to 270. NYSE volume was weak as eyes were watching DC, awaiting developments on the bailout package.

Oil was down 1.45 to the 105.16, nothing dramatic going on. They, like the stock markets, are watching events play out in DC. The Alerian MLP Index was even while the Dow Jones REIT Index was down 4. After its big run-up last week, it has pulled back over 25 from the high to present level of 242.


Alerian MLP Index - last month




I'll take a break from the big story in DC, since nobody knows how it will turn out, to talk about MLPs. The last month has been unusually wild for the index. The charts show a 60 point drop from the high to low followed by a quick 30 point recovery & retrenching since then. It has settled in the 230's, a multi year low level. It's important to keep in mind that these securities are low beta, difficult to recognize this month.

There has been a lot of liquidation which may be related to the Lehman story. They were big on MLPs. Unwinding those positions may require selling more units (not shares). The unwinding may take time, so the index could be on the defensive for a few weeks, even months, but that should subside when, hopefully, rationale will bring back buyers. Their fundamentals remain strong. The country needs more pipelines to move oil & gas & they need more investment to keep depreciation high so a large portion of the distributions will not be taxed in the current year. This is a good time to keep MLPs on your radar screen & learn more so they can be bought at coming bargain prices.

Many in the country are viewing this bailout package story as a battle between us and them (the rest of the country vs Wall Street). To a point I agree. That's creating problems passing legislation. The $700B recovery package was supposed to be fairly certain, the reason behind the 800 point rally. Now it looks like it's sputtering as Paulson has already conceded one key point. I am reminded of Allen Sherman's thought, a camel is a horse designed by a committee, he probably meant a congressional committee. Stay tuned.

•Bernanke Says U.S. Faces `Grave Threats' as Credit Crisis Hurts Households
•Paulson, Reversing Course, Says Bailout Should Address Excessive Salaries

It's an Outrage! From Main St. to Congress, Bailout Proposal Falls Flat- Tech Ticker

Markets mixed as they watch Congressional hearings

Last night the biggest news while watching trading in Asian markets was Warren Buffet's purchase of a $5B stake in Goldman Sachs (GS). Asian markets only had mixed results however Dow Jones futures were up 100+, a very strong showing compared to the usual numbers of up or down a couple points. Warren Buffet's vote of confidence in a major financial was seen as a solid plus, but today Congressional hearings take center stage again. And Congress is in a very grim mood.

•Goldman Raises $10 Billion From Common Stock Offering, Buffett Investment

•Congressional Leaders Push for Changes to Bailout Plan as Opposition Grows

Dow is down 23, decliners barely ahead of advancers & NAZ is up 17 as markets watch Congressional hearings. S&P 500 FINANCIALS INDEX is up pennies at 274. The Alerian MLP Index is even today while the Dow Jones REIT Index is down a couple points. All this week I've been skeptical about Congress accepting the rescue package & it looks like Bernanke & Paulson have a very tough sell. For what it's worth, Warren Buffet backs the bailout plan.

•Congressional Leaders Push for Changes to Bailout Plan as Opposition Grows

•Buffett Calls Credit Crisis an `Economic Pearl Harbor,' Backs Paulson Plan

Another story which caught my attention is the FBI was been brought into the meltdown of the Fannie Mae, Freddie Mac, American International Group, etc. That is very scary, if they find wrong doing there will be criminal charges (another kick in the head the markets don't need).

• FBI investigating companies at heart of meltdown- AP

Oil was up, trying to reach 110 as those traders also have their eyes on DC:

CLX08.NYM

Crude Oil Nov 08

...108.96

... 2.35 (2.20%)

• Oil rises above $108 as investors eye US bailout- AP

Macro economic news is being pushed aside this week, but it keeps coming. Around the corner from the bailout package is housing & it's still stuck in the mud. Not reported, but retail sales are also lousy.

•U.S. Existing Home Sales Drop 2.2%, More Than Forecast, as Slump Persists

Confusion continues in the markets. Until there is clarity, tough times can be expected for the markets. Sep has been the toughest month for stocks followed by Oct which is remembered for those brutal days. This year the markets may continue that tradition.

Congressional hearings send stocks lower

Dow was down 161, decliners over advancers 5-2 & NAZ was dropped 25. S&P 500 FINANCIALS INDEX was down 4 to 274 as financials markets are trying to figure out what today's testimony will mean for them. NYSE volume was mediocre.

Dow Jones Industrials has had one of the wildest 5 periods in some time. But after the initial reaction adding 800 points in 2 days, enthusiasm is dwindling rapidly:


DJI -- last 5 days




Oil pulled back on profit taking after the big gains yesterday:

CLX08.NYM

Crude Oil Nov 08__

..106.90__

.. 2.47--- (2.3%)

Gold pulled back 11 to 892, the 900 price didn't last very long. The Alerian MLP Index was down 6 to 233 (shown in the Yahoo badge on the right). Dow Jones REITs, rebounded only 2 (from being up 6 before the last hour of trading). Junk bond funds continue near the higher levels reached on Fri (with yields remaining a good 1000 basis points over the Treasury bond).

Testimony given in Congress is the main news story today. Below is a summary of what has been said already. I watched some & it looks like tough grilling but everybody realizes something has to be done to fix the mess.

•Bernanke Tells Congress U.S. Economy Will Contract If Bailout Isn't Passed

•Treasury Should Avoid Paying `Fire Sale' Prices for Assets, Bernanke Says

FDIC chief wants home loans part of bailout plan- AP

Below is what the testimony is all about & initial indications are that selling a $700B package is very tough, which it should be! Even among voters, there is only modest support for the concept of a bailout package. With all the confusion, supporters only have a modest majority. Dow sold off about 200 during the testimony in Congress, telling us how the markets are handicapping the hearings.

•U.S. House Leaders Struggle to Generate Support for $700 Billion Bailout

Higher markets despite worries about bailout package

Dow is up 88, advancers are only slightly ahead of decliners while NAZ is up 26 (note the NAZ graph from Bigcharts was added below the Dow graph in the button on the right). S&P 500 FINANCIALS INDEX was up 1 to 279, financials are still slugging it out in the trenches. The Dow Jones REIT Index rebounded 6 after the drubbing it took yesterday. Junk bond funds are up a little. Nibblers looking for very high yields are attracted to them.

The biggest news is on congressional hearings about the bailout package (hate to use the word plan). Years ago, Allen Sherman, famous songwriter, said a camel is horse designed by a committee. That thought may apply to the new legislation that eventually will be passed, making markets very nervous.

•Bernanke Says Failure to Pass Bank Bailout Would Threaten Markets, Economy

•Credit Default Swap Market Must Be Regulated `Immediately,' SEC's Cox Says


Meanwhile the economy continues to drag along. Early signals for the approaching holiday selling season are not good. Asian markets are off 25+% this year (much worse in China) largely on expectations of weaker sales to the US & to a lesser extent Europe, their top customers.

•Holiday Sales in U.S. May Rise 2.2%, Slowest Pace in Six Years, Group Says

Retail trade group offers weak holiday forecast- A


High oil prices continue to be a problem for the economy. The new contract for oil (now Nov oil) is down pennies in the 108s. The big spike in oil prices for Oct oil yesterday is being investigated although it looks like there was a short squeeze as the contract closed. Bigger picture, oil is off the lows in the 90s, probably resulting from tighter inventories after the hurricanes. The national average price was 3.73 yesterday, but there are spotty shortages with resulting higher prices. The Alerian MLP index is down 3 to 236 on what may be a quiet day for oil prices.

• Oil falls toward $108 as traders mull bailout plan- AP

Congressional hearings begin today & it looks like Bernanke & Paulson will have their work cut out for them. In this election year, Congress wants to put its footprint on the package (always dangerous). This package, because of its very large size, is getting attention in financial markets around the world, creating nervousness everywhere. There is also an increasing awareness that any bailout package will not cure economic ails in the US economy.

Friday's gains lost!

A sense of reality taking over investors gave sellers the upper hand today. Dow was down 373, decliners over advancers 4-1 and NAZ was down 95 with stocks ending at the lows for the day. Banks sold off big time on doubts about the new rules for financials & strength of the dollar.

S&P 500 FINANCIALS INDEX

Value..277.82 --- Change..(25.75) ---- % Change..(8.4)%

Meanwhile, oil & gold had enormous gains:

CLV08.NYM

Crude Oil Oct 08 --

122.77---

18.22 (17.4%)

ZGU08.CBT

Gold 100 oz. Sep 08---

904.00---

46.40 (5.4%)

• Oil spikes with record $25 jump on bailout anxiety- A

Bailout anxiety is a new term which overhangs all markets. That is the thought that the extra debt Treasury will be taking on will depreciate the dollar. There has even been talk of it causing a reduction in the supreme quality rating of US debt. One additional item of confusion for stock markets to absorb!

The Alerian MLP index settled back 2 after the strong day on Fri. But the Dow Jones REIT Index retreated a very large 23 to 245 on gloominess with the financials. Much of the strength in commodities came from sharp sell-off in the dollar. The Euro is back up to $1.49 (up about 12¢ in just the last couple of weeks):

•Dollar Slides Most Since Euro's 1999 Debut on U.S. Budget Deficit Concern

Congress is trying to work out differences with Treasury on the $700B (whatever?) new debt the Treasury will be taking on. They have to arrive at a compromise, but details are still being worked out:

•Paulson, Lawmakers Narrow Differences on $700 Billion Bailout, Frank Says

Once again we're back it a situation where confusion rules. That'll take the wind out of any sails. There is a lot of talk about the "blank check" or the idea that hundreds of $B will be used without proper controls. Being in the middle of a close presidential is not helping. These scary thoughts permeate markets & will continue dragging down stocks until there is clarity. Dow gains 800+ in just a little over 1 day of trading followed by ½ the gains lost on the next day says the market have a lot to work out. The VIX (volatility index) was up 2 to almost 34, in very, very high territory.

Nervous stocks on proposed changes for financials

Dow dropped 199, decliners over advancers 3-1 and NAZ is down 48. Proposed changes to the financial system is causing many to have second thoughts about where these changes will take us. S&P 500 FINANCIALS INDEX is taking a beating as investors assess what's ahead for financials. On Fri, they closed at the top of their 2 month range but now are back in the middle of the sideways trading band.

S&P 500 FINANCIALS INDEX

Value 284.68.....Change down 18.89 ...... down 6.2%


The big investment banks agreed to become regular banks allowing them to be regulated by the Federal Reserve. This didn't happen by accident in this new world with new rules. FED Chairman Paulson probably told them to switch or else. Huge bonuses for investment banks are now history. But this change has become necessary for these businesses to remain whole.

•Goldman Sachs, Morgan Stanley Become Banks, Ending an Era for Wall Street


My financials had a volatile time last week. The junk bond funds took a pounding sending yields & yield spreads over the Treasury to some of the highest levels they have ever been. Even after the rebound on Fri, they got clobbered last week leaving extraordinary yields for the brave to ponder. Meanwhile the REITs were flying, probably in sympathy with the banks. The DJ Index rose 40 points in a couple of days only to give back 12 in today's first couple of hours. The gains in REITs helped offset most of the losses in junk bonds funds, diversifying is back in style.


Dow Jones REIT Index




Oil is flying once again.

CLV08.NYM

Crude Oil Oct 08

---108.33

--- 3.78 (3.62%)

The Alerian MLP Index is down only a couple after the big run-up on Fri, not bad all considered. I have a feeling the pop in oil prices is helping them today.

The old play book for financials has been thrown out the window. Adding $700B to the debt of the gov is making investors nervous. The gov will hold mortgages until maturity (maybe 7 years for an average mortgage). This is a new business for them & nobody is sure where it's may lead. In addition, Congress has to approve changes. In a year with a close presidential election, depending on Congress to do the right thing becomes iffy. Markets are watching Congress more closely then have have in some time. All this uncertainty is sinking the markets.

High yield bond funds

Now that markets have calmed down, we have time to evaluate what happened last week plus try to figure out where the markets are going. Last week near the market's bottom I put out an article at SeekingAlpha on junk bond funds, giving quick thoughts about them. It has gotten good reception, but during these calmer times more might be interested in reading it:


Why Buy High Yield Bond Funds?

Many are very thankful for the Dow's rebound back to 13.3K. Of course it was just a couple of months ago many were cursing that Dow had fallen all the way down to 12½K. What a difference a couple of months make!

Money meets Congress

The Wall Street rally faded a little off the highs but ended with strong gains. After being up 460, Dow pulled back to up only 368. Of course, the witches were out today, so anything was possible near day's end. Advancers were over decliners almost 7-1 & NAZ is up 74. S&P 500 FINANCIALS INDEX has been leading the charge upward with a very strong finish at the end, up 29 to almost 303 essentially on the high of its recent trading range.

I get a sense that reality is starting to sink in. Chairman Bernanke met with Congress last night & sort of scared them about the consequences of what would happen if they did not pass new legislation. Now they've had a day to think things over. I suppose everybody is looking at the political implications in everything. After all, an important election approaches to select the next president of the US. Reality tells me that politics will play a big part of the massive changes coming to financial markets.

Meanwhile oil had a pretty good day (as the inflation threat rears its ugly head):

CLV08.NYM

Crude Oil Oct 08

__104.55

__ 6.67 (6.8%)

With markets up big-time, gold pulled back 33 to 860 (that money went to buy stocks). The Alerinan MLP index rose 19 to 241, normally that might be a decent YEAR! Of course, it was coming off a 3 year low & still yields near 9%, for those interested in yields. The DOW JONES EQUITY REIT INDEX rose 3 to 267 after a very strong close. Generally they have followed the lead of banks, but not as impressive today. This may come as a shock, but junk bond funds rebounded 10-15% from overly depressed levels with yields over 15%. For this group, a 10¢ move (maybe 2-3%) is a very big deal.

My article on REITs was just published at SeekingAlpha, check it out.

Why Buy Real Estate Investment Trusts?

Not much is happening in the business world over the weekend. But Congress will be working on legislation which will shape financial markets going forward. Follow events, nobody knows how that will come out.

Wild, Wild West on Wall Street

There may be no need to put restrictions on shorts, the enormous rally in the last 2 days should have wiped them out! Markets in Asia, Australia & Europe rose dramatically, typically 5+% following the big rally in NY yesterday. Today Dow roared up 381 (continuing strong), advancers ahead of decliners 5-1 (could have been a little better) and NAZ was up 63. This is also option expiration day, adding to the wild quality. Financials led the charge, S&P 500 FINANCIALS INDEX was up 21 to 294 (although off its high of 307 in this crazy stock market). Marginal financial/banks are flying. For example at midday yesterday Wachovia (WB) was 10, now it's 19. That's what I call spinning on a dime!

No surprise this an outstanding day. Last night Asian/Australian markets followed through on the big gains in US markets. Those markets rose 3-6% with many banks bid up 6-10% or more. Of course, these gains were coming off heavily hammered markets selling at 2-3 (if not more) year lows. Dow futures were trading up a couple hundred in anticipation of another strong market on Fri.

Seat of the pants and gut instincts have taken control of the markets. There is a lot to absorb here. Last night Congress presented a united front backing a bold action plan. Now they will have to pass legislation which will require $B & $B. One estimate puts the cost to tax payers over $500B which would compete with the cost for the war in Iraq.


My favorite MLP story:

Constellation Energy Partners (CEP) is a small MLP I've been following for a year which has been hammered down below 10 (but rebounded above 12 today) even though their distribution was increased to the present level of $2.25. That's right $2.25. Their senior partner is Constellation Energy (CEG), a big energy company, which has gone over big bumps (very volatile) this year especially in recent weeks. Warren Buffett just announced that CEG will be merged into his company Mid America Corp.

CEP reaffirmed their intention to pay the declared distribution. That yield is eye popping. While there is a lot of uncertainty, having Warren Buffett in the background seems to provide a certain level of comfort for an investor. Being an MLP means less than 20% of the distribution should be taxable. Also, they will send out a K-1 tax form on March 15 using terms like depletion & amortization plus profits for various states where they do business. The brave who are looking for a very high yield might want to check out CEP to determine if it's a good investment

Constellation Energy Partners Reaffirms Third Quarter Distribution Guidance

•Buffett in deal to buy Constellation Energy Group at a discount

Oil is back over 100, even if it's being overlooked. The Alerian MLP Index is up 15 to 236, has to be its biggest daily gain ever.

CLV08.NYM

Crude Oil Oct 08

__101.29 __

3.41 (3.48%)

The US economy still needs a lot of help. This AM on Bloomberg TV, a housing executive said the slump in housing will last into next year. Autos should track that performance. After the financial mess, the fundamental problem is housing (maybe autos should be added) which still has to be addressed!

Earlier this week, I pointed out that it was too early to get Chicken Little's phone number. I was right. But over optimism & enthusiasm may have gotten the better of many today. Try to remain cool while enjoying the gains.

Stocks have biggest gain in 6 years

Plans for the US gov to shore up financial markets plus UK officials changed rules barring short-selling on financials brought back buyers in droves to markets in NY. Stocks rose sharply in the last hour. Dow was up 410, advancers over decliners better than 2-1 while NAZ popped 100. Financials in NY liked that news, the S&P 500 FINANCIALS INDEX had a 28 point gain to 273 ending its short term bear market. Oversold markets have a way of spinning on a dime when its time to rebound. The marginal banks benefited the most as Wachovia (WB) rebounded 5½ to 14½.

•U.S. Stocks Soar Most in Six Years on Government Plan to Shore Up Markets

UK Regulator Bars Short-selling on Financials- AP


Volatility has exploded in securities markets. Today it reached 42 before settling back, down 2½ to "only" 33. Above 20 is considered very high, 30 is much higher & 40 is astronomical. The last time it reached the 40s was 6 years ago.


Gold has had a wild couple of days as many went overboard searching for safety. Stocks were sold to buy commodities, especially gold (note the price collapse in the PM when stock markets took off). That market should quiet down but there are still gold bulls who see much higher prices in this new financial world we're entering:

Gold





General Electric, a Dow stock, AAA rated debt, a S&P 500 Dividend Aristocrat, has had a rough time, especially in the last year as shown on its graph (today GE popped 1.85, contributing to the Dow rally):

General Electric (GE)





Recently it was the biggest company in the world in terms of market value but has dropped out of investor favor, down 50% from its high last year. Worries about its health, particularly its large financial businesses, cost it many old friends. Some are even questioning its AAA credit rating, only about a dozen companies remain with this elite credit status. GE is a crude proxy for the market, when it ails markets are hurting.

Back to economic news, oil ended essentially flat in the 97s after reaching 100 earlier in the day. The Alerian MLP index calmed down, recovering from a 10 point loss to end at break even (in 3 year low territory).

Despite the good news lifting markets in the PM, fundamentals remain entrenched. Financials still have whopper size problems. Late news is that Morgan Stanley is taking a hard look at Wachovia. Even if they merge, plenty of financial problems remain. In addition the economy is limping along with high unemployment & inflation problems. I just got a couple of extra bottles of Diet Coke & Sprite Zero to help get me through this period.

• Morgan Stanley seeks deal with Wachovia- AP

A bounce in oversold markets

Markets rebounded, largely on rumors flying around. Last night Asian markets sold off 3% or more (led by big losses at banks) following US markets. Oil futures were higher last night following gains in the US. Morgan Stanley (MS) was rumored to be combining with Wachovia (WB). Then they were trying to get a major investment from a Chinese bank which was denied (check on latest updates below). Today a trader said because shorts are hammering Morgan Stanley (down another 8% today), it may be forced to combine with a bank to remain alive. Confusion continues in full force as authorities have to make up the rules as they go along. Here are latest thoughts about Morgan Stanley along with a long term graph showing how far they've fallen in recent days & weeks:

•Morgan Stanley Said to Be in Talks to Sell Stake to China Investment Corp.


Morgan Stanley (MS)





Today Dow is up only 54 & dropping as I write, advancers over decliners less than 2-1 (rather quiet all considered) and NAZ is up 4 on worries the banking recession will bleed through to techs. S&P 500 FINANCIALS INDEX is 244, flattish & down 5 since I began writing. The Alerian MLP Index is even, drifting at 221, a 3 year low (matching the major indices at 3 year lows). Yesterday it had an 11 point drop aggravated by Jim Cramer comments. He said with $90 oil, MLPs were not good investments, naming some of the biggies I follow on the right. However, they do not sell oil & gas, just move it along their pipelines so they should not be affected greatly by swings in commodity prices.

Oil continues on a roll, just another confusing situation to keep track of:

CLV08.NYM

Crude Oil Oct 08

...100.28

... 3.12 (3.21%)

Reserve banks AROUND THE WORLD, this is not just a US problem, are going overboard adding reserves trying to prop up financial markets. Little noticed among all the confusion is the dollar after a very big short term rally is now weak in recent days. The Euro after sliding to about 1.38 is up to 1.44 in just a few days.

•U.S. Stocks Rise on Central Banks' Fund Injections, Short-Sale Crackdown
•Fed, ECB, Bank of Japan Lead Global Plan to Pump $247 Billion Into Markets

Macro economic news continues to come, but is getting overlooked. Jobless claims rose 10K to 455K in the aftermath of the hurricane.

• Jobless claims rise due to Hurricane Gustav- AP

As I'm writing, markets are selling off. The PM may see more selling helping to make for one of the market's worst weeks in some time!

Financial chaos continues

In the panic to sell financial, the flight to quality is going extremes. The US Treasury 90 day bill rate is under 1%, the lowest price since 1954. The Treasury 10-year bond rate is at 3.4%, again - very, very low. By way of comparison. High yield bonds yield over 14%, many REITs yield above 10%, the MLP Alerian index is 9% (double digit yields are available on individual issues), not to mention very high yields on securities issues. Bank of America (BAC) has a dividend yield of 9% (although all banks are suspicious these days).

All investment banks are under a very black cloud. Goldman Sachs (GS) is down 26 after being down more than 30 earlier & Morgan Stanley (MS) is almost 9 after being down 13 earlier. They each had their worst day on very ugly credit crisis worries. Suspicious investors are imagining the worst. The entire securities business is going through a wrenching experience, later on we will call this "history." Meanwhile gold is having a stellar day, rising 70 to 850 after reaching an earlier high of up 90. Not a bad day to own gold! Oil was up sharply after it had fallen almost 50 from its peak a couple of months ago.

CLV08.NYM

Crude Oil Oct 08

__97.21

__ 6.06 (6.7%)

In this kind of environment stocks sold off big time (as shown in the Bigcharts widget). Dow tumbled 217, decliners over advancers 9-1 and NAZ was down 65. The S&P 500 support level of 1200 gave way, it's now 1157, down 56.
Leading the decline was:

S&P 500 FINANCIALS INDEX

Value__244.54 ...Down__(23.89).... Down__(8.9%)

It is now at headed for the 232 Jul 15, the more than 5 year low!


S&P 500 -- 2008 YTD





The Alerian MLP index dropped (shown on the right) to another multi year low, down 11 to 221 (this is a low beta index!).

There may be a lot who are trying to Chicken Little's phone number. Try to relax. Congress will begin hearings in a couple of days. That does not sound promising. Hopefully the markets will adapt to new legislation that is coming. These are unusually brutal times, but reason will win out. It's best to hunker down & prepare for outstanding buying opportunities which will come.

Controlled bankruptcy for AIG

These are historic times for financial markets. AIG had been one of the few (about 12) companies with AAA rated debt (probably downgraded one notch in the last few months) & a Dow stock. Their bonds are now a touch above default & their Dow history should only last for another day or 2. The gov assessed that letting them fail would do brutal damage to the world economies, so they stepped in to save them.

Gov involvement in financial markets has EXPLODED this year. The FED is actively providing credit to investment banks, etc. when they think it's in the national interest. Their lending is backed by collateral they would not have dreamed of accepting just a year ago. A band aid approach to monumental problems is about all that can be done, but it is unclear how long run implications will play out. Need evidence of active FED involvement with the financials:

•Treasury Plans Special Auctions of Debt to Help Fed Manage Balance Sheet

Below is a tiny glimpse based on the first news release of how this will play out:

• MetLife says Lehman, AIG investments total $800M- AP

Dow is down 253, decliners over advancers 7-1 & NAZ declined 61. The closely watched S&P 500 is back below the important 1200 line in the sand:

S&P 500

... 1,181.00

...-32.59

...-2.7%

S&P 500 FINANCIALS INDEX is down 15 to 253, nearing the 252 low reached a couple of days ago & not far from 232 low on July 15. Not too bad a performance considering how the ugly the news has been!

Let's not forget about oil. After dropping 10 in 2 days (an eye popping decline), it's back on the rebound amidst all the confusion in financial markets. The Alerian MLP index after pulling back to lows last seen over 3 years ago is down 4 today to 288.

CLV08.NYM

Crude Oil Oct 08

__ 93.66

__ 2.51 (2.75%)

I'm a big fan of the long run. Below is S&P 500 since the 70s:

S&P 500




10 years ago it went through 1K, today's it's less than 20% higher. That's one rough decade.

By way of contrast, the MLP index is about double the value 10 years ago (not to mention getting through the awful 2000 era decline in much better shape):

Alerian MLP index





At times like these it's easy to think that Chicken Little got it right, The Sky is Falling. The long run track records reminded us that there have been big bumps along the way (i.e. 2000 era was an enormous one), but the economy & stock markets persevered, and, eventually, went up. This is the time for dull homework to plan for purchases at attractive, depressed prices.

Markets higher on hope for saving AIG

After starting out down more than 100 on the opening, Dow recovered & ended with a gain of 141 taking it over 11K. Buyers may have been brought out by encouraging words about the FED coming up with a rescue package for AIG. NAZ was up 28 despite a dreary forecast by Dell (DELL). However decliners led advancers 3-2. This qualifies as a recovery, but limited in effect. The financials led the way:

S&P 500 FINANCIALS INDEX recovered nicely from the sharp fall on Mon:

Value _268.55 --- Change_up 15.73 --- % Change_up 6.2%

They had been down on the opening, then buyers snapped up bargains. The FED did not cave into trader's desires and left rates alone at their meeting. Good for them! The sick economy needs help in other forms. Instead their attention wandered over to save AIG:

•AIG Loan Package Under Consideration by Federal Reserve, Reversing Course

American International Group (AIG), still a Dow stock at only $4, is struggling to come up with a rescue package. Now the FED may get involved, uh-oh. Without a FED rate cut, the markets will take a rescue for AIG which sent stocks higher:

•AIG Loan Package Under Consideration by Federal Reserve, Reversing Course

The future for Washington Mutual (WM) is still a whopper size unknown & there are more financials that may need help. Last night Asian markets fell 5% (most were off for a holiday on Mon), financials led the way down with declines of at least 5%. They were all issuing statement about their exposure to Lehman & other loans such as sub prime mortgages. Again, these are Asian banks, the credit crisis is global!

News on oil's price decline has been little noticed. Oil dropped again to the lowest price in months:

CLV08.NYM

Crude Oil Oct 08

__91.15

_ 4.56 (4.76%)

Oil dropped 10 in the last 2 days, but gas at the pump has spiked up to 3.85 on worries about future supplies at gas stations. The Alerian MLP index dropped 4 to 232, but recovered 9 points from the severe drop early in the morning. They remain in 3 year low territory.

Dell (DELL) got hammered, down more than 10% on a very dreary announcement. This is very important, they are a huge global company & reinforces the idea about a slowdown in the US bleeding to other countries.

Dell Drops to Lowest Level in 7 Years After Predicting Slowdown ...

REITs had a great day following the lead of the financials. However, junk bond funds sold off again. Their 2 day delcine must be over 10%, but no fundamentals have changed. They invest in company bonds with below investment (BBB) ratings. These funds sold off sharply in line with the recent decline in financials & have gotten hammered in the last 2 days. Those boring bonds should work out, 14-15% yields are available for the brave who want higher income. Check out yesterday's article on high yield (junk) bonds:

http://seekingalpha.com/article/95533-why-buy-high-yield-bond-funds

Another article on: MLPs - part II should come out in the next few hours.

My computer is back working again, thanx. Cleaning out the registry & then CCleaner did wonders.

Oversold markets rebound

After some brutal days, buyers are returning. Dow is up 83, but decliners are 2-1 over advancers and NAZ is down. The important S&P 500 FINANCIALS INDEX rebounded 7 to 260, still dreary but better. Oil is down in the 92s. The Alerian MLP index is down 10 to 226, a new 3 year low.

My computer is giving me a hard time today, so this will be a shorter post. But economic new continues grim (sorry, very rushed & didn't have time to get more bad news from Dell down 1.73).

• Goldman Sachs 3Q Net Plunges- Reuters
• AIG Shares Plummet as Cash Crisis Mounts- Reuters
• Dell sees further signs of weak tech spending- Reuters
• Oil plunges to $92 in Asia on US credit fears- AP

But here is a ray of hope on this gloomy day.

• Barclays confirms interest in Lehman Bros. assets- AP

The possibility some salvage value for Lehman is always encouraging. Soon we'll find out if the FED cuts the interest rate by 25 or 50 basis points. Given confused markets, that should be good for a 200 point pop at least. However big problems remain.

My article at Seekingalpha was just posted:

Why Buy High Yield Bond Funds? by Avi Morris

Hope my computer is better very soon!

Stocks plunge on confusion & chaos!!

Dow sold off big, down 504 to close at 10917, below the July 15 low. S&P 500 was down 59 to 1192. Can you spell "uh-oh?" 1200 was a critical support line which gave way with selling at the close. All 30 Dow stocks declined, led by American International Group (AIG), Bank of America (BAC), Citigroup (C) & General Motors (GM). Decliners were ahead of advancers 15-1. NYSE volume was 1.9B, very good but short of exceptional. For the bulls, this was supposed to show climactic selling aimed at washing out all the sellers. This volume level does not tell us that story! The very large volume for AIG, now a low priced stock even though it's in the Dow, contributed to the high volume. This was one of those days when it's hard to find a winner. The Yahoo finance badge on the right shows all red!

S&P 500 FINANCIALS INDEX is down 29 to 253 below the post July 15 low of 267 as financials got hammered. This has to be one their largest declines in its history. The next test for the index is the July 15 low of 232. AIG closed at 4.76 on a volume over 737MM shares leading the way down. Bank of America was down 7 (20%) on 273MM shares. Confusion and chaos carried the day as stocks plunged on confusion & chaos, especially for financials!!

Oil was down 5½ to the 95s, first close below 100 in 7 months. Following oil down was the Alerian MLP index (shown on the right) down 13 (one of its biggest daily declines in history) to 236, back to price levels 3 years ago.

What's there to say? Words fail on a day like today. Most Asian markets were closed yesterday for a holiday. The Australian market was open, suffering a big decline. Tonight Asian markets are expected to continue selling off with this very negative tone.

With the FED meeting approaching, a rate cut of 25 points is widely expected (that's called spinning on a dime). However, financials need a lot more than a rate cut. After a day like today, it may seem like the world is coming to an end. Not so!! But we are in very tough times where new rules for financial markets have to be made up on the fly! This is time for research to prepare for buying opportunities as securities sell off to attractive values. Dividends and yields are important to me, helping me get through these tough times.

One ugly day for financials

Last night, Bloomberg.Asia TV was all about Lehman going under & Merrilll Lynch being bought out. All kinds of experts gave lots of opinions, but they are just guesses. New rules are being written which will change markets & nobody knows how this will play out. Very scary!

Pre-trading Dow was down 300 overnight. This morning in pre-markets, Dow was down about 350 & S&P was down over over 40. Maybe that's not so bad given all the confusion in the markets. After the initial plunge, there has been some recovery (as noted on my widget from Bigcharts on the right). Indices have halved their losses, but Dow is still down 270 as the recovery suffered a setback. Decliners are over advancers 7-1, one rough market. The S&P 500 FINANCIALS INDEX is down 14 to 284, near the morning lows. A big drag is Bank of America down 5 on the Merrill Lynch buyout.

From Bloomberg, here are a ton of articles, this is a very bad day for news, all grim:

•Lehman Files for Record Bankruptcy, Victim of Meltdown Firm Helped Create
•Stocks in U.S. Drop as Lehman Bankruptcy Deepens Turmoil in Credit Markets
•AIG Slumps After Insurer Rejects Buyout Offers, Seeks $40 Billion Fed Loan
•Bank of America Will Buy Merrill for $50 Billion as Credit Crisis Broadens
•Oil, Gasoline Tumble as Lehman Fails, Hurricane Ike Spares U.S. Refineries
•Pimco, Vanguard, Franklin Are Biggest Bond Fund Losers in Lehman Collapse
•Emerging-Market `Panic' Masks Record Profits, May End With 20% Stock Rally
•Houston Struggles to Recover From Hurricane Ike as Midwest Hit by Flooding

The financials continue in center stage as Lehman is history & Merrill Lynch is being bought out by Bank of America (BAC). American International Group (AIG), Dow stock, is officially shaky as its stock plunged into the 6s. They used to be the largest insurance company in the world. Insurance companies own stocks, chances are they may be selling a lot to raise cash. Washington Mutual (WM) is also shaky, heading back down to the low 2's.

Oil is getting clobbered (down 4 to 97 after falling to 95) despite the infrastructure damage in east Texas. Prices at the pumps around the country are spiking up on ugly thoughts about their supplies. That's a punch the economy does not need. The Alerian MLP index, in sympathy to lower oil prices, sold off 5 remaining near levels last seen 3 years ago.

The S&P 500 at 1225, is holding above 1200, a key support level (the July 15 low). If that floor does not hold, look out below! At the FED meeting this week, all of a sudden it is now assumed that they will cut rates again. That's a short term reaction, but may haunt the economy in the longer term. Amidst the chaos, it is best to try to stay cool. Use these trying times to prepare for buying opportunities in oversold stocks.

S&P 500 continues to hold

The irresistible force is meeting the immovable object, one will have to blink. The continuing force is the constant stream of negative news about the financial biggies. The immovable object is the S&P 500 which has held pretty well around 1250 as show in the chart below:

S&P 500 -- one year





This week may be the breaking point with the apparent breakup of Lehman. Upon a break up, there may be a relief rally in the markets, however more dreary from other major financial players will not stop coming.

•Banks, Brokerages Prepare for Possible Lehman Bankruptcy Before Midnight

The S&P 500 FINANCIALS INDEX has been in a fairly narrow sideways channel for a couple of months, taking all the negative news very well. After dropping early last week, it remained flat near 280. The Alerian MLP index had a very tough week, with a relief rally on Fri. REITs, also beaten up a lot in recent times with some yielding in double digits, was up a little last week. The junk bond funds still, can't get no respect. They fell back again last week sending yields towards 13%, a whopping 900 basis point premium over the Treasury bond.

We are in Sep, toughest month for the markets followed by Oct which is known for the most memorable market days.



Last night while working on my friend's computer, she was away working, the very fraidy cat came out to see me. He was only about 8 feet away, generally he hides under the futon. His mother is in the background, is also a fraidy cat but has learned to accept me. Maybe all this brave behavior by both cats should be inspiring. However, they're not involved in trying to figure out what should be done with Lehman. After that is Washington Mutual (WM). Then maybe American International Group (AIG). And Merrill Lynch (MER) doesn't seem far behind.

I'm a little afraid at these times, preferring to continue to keep my powder dry. If I had to bet, I would bet the immovable object (S&P 500 line) will move downward.

Markets little changed on a very confusing day

Dow is down only 11, advancers are slightly ahead of decliners & NAZ is essentially even. NYSE volume was low at 1.1B. The 4 biggies in trouble, AIG, MER, WM & LEH, traded 700MM in total volume. S&P 500 FINANCIALS INDEX is soggy, down 3 to 282 as financials try to make sense out of the financial mess out there. Merrill Lynch (MER) & American International Group (AIG), are off sharply again to new multi year lows (MER is at a 12 year low). Washington Mutual (WM) was even at 2.80. AIG is under pressure to announce their turnaround plan prior to Sep 25. With their stock heading for zero, that announcement is desperately needed.

•AIG May Announce Turnaround Plan Before Sept. 25 Deadline as Shares Slump

In this unusually confusing world of big finance, here's more thoughts about LEH & its future:

•Bank of America Leads Talks for Lehman as Paulson Opposes Providing Funds
•Greenspan Says Sale of Lehman Should Be Resolved Without Government Help
•Paulson, Fed Stand Against Lehman Funding Signals Attempt to Draw the Line
•Lehman Is No Bear Stearns as Money Markets Show Little Panic Amid Meltdown

It's amazing all the confusion surrounding LEH & how relatively well the markets are taking it.

Oil was about even (although it dropped one penny below 100 during the day) as IKE approaches the Texas coast. This is quite a change form a couple of months ago when this threat could be worth at least 5 points. The Alerian MLP index is having a relief rally. After being greatly oversold, it's up 5 points to 250. Many of the big name players are up 1+ from oversold conditions. However, this is the region it traded at 3 years ago.

I just returned from a meeting with top financials execs. They were guessing about what will happen to LEH, down to 3½, probably this weekend. Their stock is probably history & preferred may also lose out. The problem is making the bond holders whole. Hopefully the gov can stay on the sidelines. A takeover or bailout should bring a stock market relief rally, but bigger problems with financials are not going away soon. Just ask stockholders of AIG, MER & WM.

Fannie Mae & Freddie Mac stories are not over. They still have trillions in debts which have to be be made whole. That's where gov help may be needed, costing taxpayers billions.

Markets weak but hanging in there

Lehman (LEH), Merrill Lynch (MER), Washington Mutual (WM) & American International Group (AIG), all huge financials in various degrees of shakiness, have not been able to rattle markets seriously. The aftermath of the gov bailout for Fannie Mae/Freddie Mac is still not clear, but, again, markets are digesting this fairly well. Dow is down 67, decliners over advancers 2-1 and NAZ is down 14. The S&P 500 FINANCIALS INDEX is down only 3 to 283 in what qualifies as a very mild reaction to what is going on in the financial world.

Oil is up pennies in the 101s, again not too bad considering a couple of months ago hurricane fears could have sent oil up 5+. The Alerian MLP index which lately tags along with movements in oil prices even though they have little influence on their business, is up 4 to 248. This is probably an oversold rally, the index remains near its 3 year low.

Lehman still is on the front burner. Last night in Asian markets, they were discussing about how LEH might be bailed out & if the Federal Reserve should get involved. The truth is nobody knows but there was a feeling that an announcement might be made over the weekend. After all, they're running out of time. There was a general agreement that gov involvement should be minimal, preferably none. Today LEH stock sunk below 4. All kinds of speculation is going on about LEH, but nobody really knows what's going on, including those on the inside.

• Lehman Shares Fall Amid Race to Find Buyer- AP

•Lehman's Fuld Pursues Talks Amid Signals Fed, Treasury Won't Fund Takeover

Speaking of the shaky group, AIG is down again, this time 3+ to 14. Much of yesterday's late day rally which recovered morning losses, evaporated today. AIG, a Dow stock & the largest insurer in the world, has clearly gotten in over its head, and, looks like it may need its own bailout. Meanwhile Merill Lynch (MER) is down 1½ on more wild speculation.

•AIG Slides, Bond Risk Rises to Record on Speculation Insurer Lacks Capital

Washington Mutual (WM) will need to sell off assets to stay alive, down fractionally to 2.74.

•Washington Mutual May Be Forced to Sell Deposits, Branches to Stay Afloat

Macro economic news continues & it's generally not pretty:

• Wholesale Prices Plunge 0.9 Percent in August- AP
• Retail Sales Unexpectedly Drop in August- AP
• Consumer Mood Hits 8-month High in September- Reuters
• Foreclosure Filings Increase, but at Slower Rate- AP

The decline in wholesale prices was double the rate expected. Retail sales in Aug were disappointing. Excluding autos, sales declined 0.7% as back-to-school season was dreary. Consumer sentiment rose again due to lower fuel prices & expectations of more moderate inflation for the next year. The news on lower foreclosure filings was welcome but the inventory of unsold home will continue to be a drag on the housing industry

For the bullish argument, markets are taking ugly news & thoughts very well.

Markets up after late day rally

General Motors (GM), Caterpillar (CAT), JP Morgan Chase (JPM) & Microsoft (MSFT) led the Dow higher, up 164. Also helping, American International Group (AIG) recovered its almost 4 point loss earlier in the day, fighting its way back to a tiny gain. NYSE volume was a decent 1½B. But decliners were ahead of advancers 5-4 and NAZ was up 29. S&P 500 FINANCIALS INDEX rose 4 to 286 (up 16 from the low earlier in the day). Hope springs eternal for Lehman (LEH), however financials were selling off in after hours trading:

Bankers Say Lehman Approaching Rivals for Lifeline- AP

Congress is getting into the act of saving Fannie Mae (FNM)/Freddie Mac (FRE). Maybe that's why financials are selling off after hours:

•Fannie Mae, Freddie Mac Should Freeze Mortgage Foreclosures, Senators Say

Even though financials recovered, Merrill Lynch (MER) dropped almost 4 on nervousness. Washington Mutual (WM) was up about 50¢ to 2.83 (more than a point above its earlier low) as buyers rushed back into the stock, but, after hours, that gain vanished.

Financials Hit As Worries Spread Beyond Lehman

Confusion reigns in financials. Enormous mistakes & bad investments have been made, now they're coming home to roost. Try not to panic, it's better to remain cool on the sidelines & let day traders sort out the current mess.

Oil fell almost 2 to just over 100, even on worries about Ike hitting Texas. This is oil's lowest price in about 5 months as it continues playing defense. The Alerian MLP index is in its own bear market falling another 5 to 244 (shown in the Yahoo widget on the right). This brings it 98 points below the peak reached in the middle of last year (after a very pretty 9 month run).

A story just breaking, will leave today's post on an optimistic note:

BofA in Talks to Buy Lehman: WSJ Citing Source- Reuters

Stay tuned!

Financial worries continue to drag down markets

Dow is down 83, decliners over advancers a big 5-1 & NAX is down a more mild 9. Financials are leading the way down on more worries about Lehman (LEH), now at $4, & its ability to survive. The vultures keep circling:

•Lehman Plummets as Goldman, Merrill, Citigroup Analysts Cite Credit Risks

S&P 500 FINANCIALS INDEX

Value...273.00___Change.. (8.39)___ %Change ... (3.0%)

Washington Mutual (WM), the largest S&L in the country is down to 1.90, fearing they may need to raise a lot more capital to help cover $19B in losses from mortgage writedowns.

•WaMu Plunges on Concern It May Have to Raise Capital; Short Positions Rise

Do you want more headaches? American International Group (AIG), a Dow stock & until recently the largest insurer in the world, is down over 3 to 14 (a 15 year low). The stock's decline has been reviewed here & it looks like their financial condition is going from bad to worse. They get credit for knowing the insurance business, but wandered far afield which has brought them billions in losses. Now there are increasing doubts about their ability to recovery.

American International Group



The US is not alone in stock market suffering. Markets are falling around the world. Asian markets are taking big beatings. They worry about weaker demand from customers, with the US being their biggest customer. Strength in the dollar is making matters worse bringing up more talk about demand destruction.

Back to routine economic news, while jobless claims fell slightly to 445K last week, the number on jobless rolls climbed to 3½MM, highest number in 5 years. Times remain tough.

•Jobless Benefit Rolls in U.S. Reach 3.52 Million, Highest Level Since 2003

A back-burner news story is oil, down pennies to the 102s as the hurricane approaches Texas. Once again, demand destruction is reducing demand for oil & related fuel products limiting worries about potential storm damage.

S&P 500 declines are becoming very serious. Earlier this year, many were talking about 1270 being a key support level. It's been living under that for a few months. Now they are watching the Jul 15 low, 1200. We're just inches away at 1223 (as with Dow retesting the 10,962 closing low). Markets are all playing defense & it looks like dreary results will continue.