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.