Finance and Economic

U.S. stocks fell Monday, wiping out last week’s gains, after manufacturing showed a worsening economy that may hurt earnings at companies, including JPMorgan Chase & Co. and Apple Inc.

JPMorgan tumbled 7.5 percent on Merrill Lynch & Co.’s prediction that the biggest U.S. bank by assets may post a quarterly loss, while Apple slid 3.6 percent after the maker of iPods was downgraded to neutral at Goldman Sachs Group Inc.

Ingersoll-Rand Co. and Textron Inc. lost more than 3.1 percent as industrial production decreased for the third time in four months and the New York Federal Reserve’s regional economic index contracted the most on record.

"There’s a lot of uncertainty right now as we start the week," said John Wilson, co-director of equity strategy at Memphis, Tenn.-based Morgan Keegan, which manages $120 billion. "Right now, the concern is the depth and duration of the recession that we’re in."

The Standard & Poor’s 500 Index slipped 1.3 percent to 868.57 as financial and technology shares were the biggest drags on the gauge. The Dow Jones Industrial Average declined 65.15 points, or 0.8 percent, to 8,564.53. The Russell 2000 Index of small U.S. companies decreased 3.4 percent.

The first simultaneous recessions in the U.S., Europe and Japan since World War II have dragged the S&P 500 down almost 45 percent since its October 2007 record.

Apple slid $3.52 to $94.75 after being cut from buy at Goldman Sachs on concern that consumer spending will weaken further. David Bailey reduced his 12-month share-price estimate to $115 from $125 500 fast cash payday loan.

JPMorgan fell $2.31 to $28.63. The stock was cut to underperform from neutral at Merrill Lynch, which said it is increasingly clear that credit costs in the U.S. will get much worse. Merrill also slashed JPMorgan’s share-price target by 39 percent to $27. Merrill’s Guy Moszkowski is the only analyst tracked by Bloomberg to rate JPMorgan the equivalent of sell.

Financial companies in the S&P 500 lost 4 percent as a group, while computer-related shares retreated 1.7 percent.

Morgan Stanley and Goldman Sachs, which report earnings this week, both retreated. The firms, which have each lost more than 69 percent this year, probably will report fourth-quarter losses on shrinking asset values and a decline in fees for businesses such as merger advice, trading and money management, according to the average estimate of analysts surveyed by Bloomberg.

Morgan Stanley declined 1.5 percent to $13.64 after Deutsche Bank AG analyst Michael Mayo said earnings per share will drop 59 percent in 2009 as revenue declines to the same level as 2005.

Goldman Sachs fell 1.9 percent to $66.46. Bank of America Corp. slid 5.5 percent to $14.11, and Wachovia Corp. lost 3.4 percent to $5.11.

Telephone companies in the S&P 500 slid 3.1 percent as a group after AT&T Inc., the biggest U.S. phone company, was downgraded to neutral from buy at Goldman Sachs, which noted that the economic slowdown led to a drop in its employee pension fund. AT&T shares lost 3.7 percent to $27.13.

Source

WASHINGTON – U.S. sales of existing homes fell more than expected last month as economic fears made buyers leery even though prices plunged to the lowest levels in more than four years.

And the decline is expected to steepen because October's results reflect sales finalized before Wall Street's nosedive.

The National Association of Realtors said Monday that sales of existing homes fell 3.1 per cent to a seasonally adjusted annual rate of 4.98 million units in October.

That compared with a downwardly revised pace of 5.14 million in September. Sales had been expected to fall to a rate of 5.05 million, according to economists surveyed by Thomson Reuters.

The median price – half of homes sold for more, half for less – plunged 11.3 per cent from a year ago to $183,000.

That was the largest year-over-year drop on records going back to 1968, and the lowest median sales price since March 2004.

The realtors group is calling on Congress and president-elect Barack Obama to spend $50 billion to subsidize mortgage rates, projecting this would stimulate 500,000 more home sales.

"If home prices overshoot downward, than it can lead to collateral damage to the economy," said association economist Lawrence Yun. The cost, he added, would be "very reasonable" compared with the billions the government is spending to rescue major banks.

Since the October sales numbers reflect contracts signed in August and September, sales could fall further amid the fallout from the sinking economy.

Evelyn Krazer, sales manager with Johnson Realty in St. Louis, said activity has slowed to "practically nothing" in recent weeks.

"Everybody's afraid of losing their job," she said. "People who are thinking about moving are holding off."

Global Insight economist Patrick Newport said many Americans are moving in with relatives after losing their homes to foreclosure, while lenders "are trying to protect themselves by holding cash."

Still, other economists were encouraged that sales did not fall below June's sales rate of 4 business card.85 million, the lowest point to date in the current housing bust.

"The market is showing signs of bottoming out," said David Resler, chief economist with Nomura Securities.

Compared with last month, sales were down in much of the country. But in the West sales were up 40.5 per cent compared with October last year, as buyers in places like Las Vegas and Orange County, Calif., snapped up distressed properties at bargain prices.

Nationwide, the realtors group estimated distressed properties made up 45 per cent of all property sales in October.

There were 4.23 million unsold homes on the market in October, down slightly from a month earlier, but analysts say that until inventory falls substantially from ongoing historically high levels the housing slump is likely to persist.

"There are still way too many houses being offered and that is likely to stay that way for quite some time as we work through the foreclosure problem," said Joel Naroff, an economist and president of Naroff Economic Advisors in Holland, Pa.

Soaring foreclosures are a driving force behind the credit crisis that has upended Wall Street and caused the government to spend billions rescuing major banking institutions.

President George W. Bush argued Monday that the government's $20-billion-plus rescue of Citigroup, announced late Sunday, was necessary to "safeguard the financial system" and help the economy recover. Bush said there could be more such moves if other institutions need help.

Meanwhile, Obama pledged to honour the commitments the outgoing Bush administration has made, and urged the incoming Congress to immediately pass a major economic stimulus package.

He declined to specify how big a spending package he contemplates, but said: "It's going to be costly."

Source

North American stock markets fell sharply again today as investor confidence was eroded by bad economic data and pessimism over the prospects of a U.S. bailout for the Big Three automakers.

Wall Street stocks were slammed the hardest, hitting levels not seen since 2003. In Toronto, all of the sectors were lower, led by diversified metals and financials stocks.

The main S&P/TSX composite index fell by 345.17 points to 8,490.56, a drop of nearly four per cent.

On Wall Street, the Dow Jones industrial average shifted down 427.47 points to 7,997.28. The Nasdaq composite index lost 6.5 per cent, or 96.85 points to 1,386.42 and the S&P 500 tumbled 52.54 to 806.58, the lowest close for that index since March 2003.

TSX financials stocks took a beating, down 4.9 per cent, after the Bank of Nova Scotia (TSX: BNS) warned Tuesday of a bigger-than-expected $595-million hit to its quarterly earnings caused by financial-market upheaval.

The other banks are expected to suffer similarly to Scotiabank when they issue their fourth-quarter results, starting next week. Scotia’s shares were down $1.93 to $35.24.

The Canadian dollar was at 79.83 cents US, down 1.48 cents, and the TSX Venture Exchange lost 20.16 points to 730.09.

Top Senate Democrats said today that Congress is unlikely to reach a quick bailout for the Big Three Detroit automakers, who are pleading for $25 billion in cash to stave off bankruptcy.

Congressional Democrats have proposed using part of the $700 billion financial bailout package to pump into the ailing auto industry, but the White House opposes such an approach.

Investors are concerned at the repercussions should any of the three automakers collapse, an event that could ripple through an already battered North American economy.

"There’s a general malaise among investors right now," said James Cox, managing partner of Harris Financial Group. "Everybody is in wait-and-see mode of what is going to happen with these big three automakers."

Bank of Canada governor Mark Carney strongly indicated today that the central bank will cut interest rates further next month in an effort to stimulate the economy. Carney told a luncheon in London that the economy is slowing more than previously thought, and inflation is less of a concern cash advance in one hour.

The TSX diversified metals sector slid 11.5 per cent, and Teck Cominco Ltd. (TSX: TCK.B) slid 15 per cent to $5.22.

Energy stocks were down 3.8 per cent as crude oil lost 77 cents to close at US$53.62 a barrel on the New York Mercantile Exchange.

The gold sector trekked 2.8 per cent lower as gold futures ended ahead for the first session this week on U.S. dollar weakness.

The December bullion contract closed up $3.30 to US$736 an ounce.

In economic news, Statistics Canada’s composite leading index – an indicator of future activity – fell 0.4 per cent in October. It was the biggest decline since the early-1990s recession, after a 0.3 per cent drop in September.

New American data showed deepening weakness. Construction of new homes plunged 4.5 per cent last month to the lowest level on government records. The Commerce Department said residential construction fell to an annualized rate of 791,000 units.

U.S. consumer prices, meanwhile, fell by the largest amount in records dating back to 1947, down one per cent last month as gasoline prices receded sharply. Core prices, excluding volatile food and energy costs, were down 0.1 per cent – the first decline in more than a quarter-century.

In earnings news, supermarket operator Metro Inc. (TSX: MRU.A) rang up $72.3 million in summer-quarter profit, up 25.5 per cent from year-ago earnings that were reduced by the integration of A&P stores. Sales were up 1.8 per cent from a year ago. Metro shares were at $33.

The Resolve Business Outsourcing Income Fund (TSX: RBO.UN) is suspending distributions to investors. The trusts units plunged 55 per cent, or $1.94, to $1.56.

Norsemont Mining Inc. (TSX: NOM) says its board has set up a special committee to deal with "recent unsolicited expressions of interest to acquire the company" and shares were ahead 15 per cent, or 25 cents, to $1.95.

Forestry company Tembec Inc. (TSX: TMB) fell to a quarterly loss of $4 million from year-earlier profit of $22 million, as sales declined to $629 million from $675 million. Shares dropped a penny to $1.56.

Source

A global credit crisis that has felled large investment banks and prompted multi-billion dollar bailout packages is also hurting unlikely victims half a world away: small south Asian businesses dependent on microfinance.

Microfinance has helped poor women and farmers in Bangladesh and India set up businesses and grow crops since the 1970s.

But as credit tightens and largesse from corporations and socially-minded investors dries up, microfinance will be hit, impacting poor people who have no other access to finance.

“A liquidity crisis is the very worst-case scenario for microfinance institutions,” said Roy Jacobowitz, managing director of development and communications at ACCION International in Boston, which backs microfinance institutions.

“The demise of microfinance will be devastating. It will leave people that depend on it in a very, very bad situation: they could go from a level of success back to poverty.”

South Asia accounts for the most microfinance borrowers, making up more than half of global demand, according to Sa-Dhan, an association of community development finance institutions.

While ACCION hasn’t seen a “catastrophic impact” on MFIs there yet, Kashf Foundation, an MFI in Pakistan, whose economy is tanking, is now seeking international lines of credit, he said credit score.

In India and Bangladesh, microfinance has given hope to hundreds of thousands, especially women, who have built successful businesses that have changed their lives.

But these may now be under threat because of tighter credit.

“There’s less money out there, so there’s less money for MFIs,” said Siddhartha Chowdri, a manager for ACCION in India.

“For MFIs, the cost of their funds has gone up, and at the same time, they’re under pressure not to raise lending rates to their borrowers. At some point that becomes unsustainable.”

REGULAR INCOME

Microfinance shot into the spotlight in 2006 when the Nobel Peace Prize went to Bangladesh’s Muhammad Yunus and his Grameen Bank that pioneered giving small loans without collateral.

But today in Bangladesh, one of the poorest nations in the world, microfinance borrowers and workers are a worried lot.

Kulsum Bibi, a 45-year-old mother of three, set up a nursery with a loan of 3,000 taka ($44) from Bangladesh Rural Advancement Committee (BRAC), after her husband left her and their children. 

Read more

ALGIERS–OPEC's next meeting must confirm that members have made all the oil output reductions they promised before taking any more action on output levels to prop up sagging prices, OPEC President Chakib Khelil said on Saturday.

"We will discuss another cut, whatever happens, but will there be a consensus? I cannot tell you today," Khelil said at a seminar on oil, referring to cuts agreed at an Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna last month.

Oil fell below $60 a barrel for the first time since March 2007 on Thursday, depressed by dismal projections for the world economy next year, and OPEC ministers are due to meet formally next on Dec. 17 in Oran, Algeria.

"There will be a consensus in Oran, and this consensus will depend on the application of the reduction," Khelil said.

"If everyone has applied (the cuts) and everything in terms of prices stays at the levels we have today, it's of course clear that we will probably go towards a decision to reduce," he said, adding that if the cuts had not all been implemented it would be difficult to decide further action.

Taking further action at a time when previous cuts had not all been implemented would send a bad signal to the markets, which reacted to "the reality on the ground" rather than mere words, he said cash advance usa.

Khelil said he expected prices to rise shortly, adding: "If we apply the reductions totally the probability of another cut is weaker."

Arab members of the group could discuss market developments informally on Nov. 29 in Cairo on the sidelines of a meeting of the Organization of the Arab Petroleum Exporting Countries, he said.

Oil's steep slide from a peak of more than $147 a barrel in July has already spurred OPEC to rein in supply by 1.5 million barrels per day (bpd) from Nov. 1. Some members of OPEC want to cut more.

Khelil said that in addition to the 1.5 million bpd OPEC cut, Saudi Arabia, the world's biggest exporter, was expected by itself to cut another 300,000 bpd that he said it had added to its own supply in recent months.

Evidence of a worldwide economic downturn has mounted. The International Monetary Fund has predicted 2009 global economic growth of 2.2 per cent, down 0.8 percentage points from its October forecast.

Source

Shares of Hartford Financial Services Group Inc. plummeted more than 50% on Thursday after a handful of analysts downgraded and cut profit estimates for the insurance company on concerns of rating agency downgrades and a possible capital raise.

Late Wednesday, the Hartford, Conn.-based insurer reported a $2.6 billion loss for the third quarter and cut its full-year profit outlook. The company now expects 2008 earnings to range from $4.30 and $4.50 per share, less than half its estimate in July of $9.20 to $9.50 per share. The quarterly loss was in line with the company’s results which were preannounced earlier this month.

"The risk of a rating agency downgrade and the inability of management to provide comfort on the level of their capital cushion make it very difficult to assess the downside or to argue that there is significant upside in the near term," wrote Fox-Pitt Kelton analyst Gary Ransom in a research note to clients.

Ransom, who downgraded Hartford (HIG, Fortune 500) shares to "In-Line" from "Outperform" and reduced his 2008 profit estimate to $4.30 per share from $5 per share, added that it is difficult to rule out the possibility of an additional capital raise by the company due to "considerable uncertainty" in the financial markets.

Earlier this month, Hartford bolstered capital with a $2 freecreditreport.5 billion infusion from German insurer Allianz SE (AZ).

Insurers have been under pressure to maintain solid capital positions in order to avoid damaging downgrades by ratings agencies. Keeping high ratings is key for insurers because lower ratings can mean higher costs, and in some cases, even a loss of business.

Deutsche Bank analyst Darin Arita also lowered his yearly outlook to $4.45 per share from $5.40 per share, and said in a note to clients, "The life insurance business is suffering from capital strain."

Arita slashed his price target by $18 to $36, but maintained a "Buy" rating on the company’s shares.

Analyst Bijan Moazami of Friedman, Billings, Ramsey lowered his yearly outlook to $4.30 per share from $5.20 per share, and cut his price target on Hartford shared by $3 to $37.

On average, analysts surveyed by Thomson Reuters forecast an annual profit of $5.25 per share.

Shares fell $10.28, or 51.4%, to $9.38 in heavy afternoon trading and earlier bottomed at a multiyear low of $8.23. 

Source

KUWAIT CITY – Kuwait's Central Bank stepped in Sunday to prop up one of the country's biggest banks and said it was considering guaranteeing deposits in domestic banks – in one of the first concrete signs that the global financial crisis may next hit the oil-rich Gulf.

In Saudi Arabia, meanwhile, the government said it would deposit $2.7 billion into the Saudi Credit Bank to help lower-income citizens deal with financial difficulties, the country's Al-Ektisadiya newspaper reported.

The two moves came just a day after finance ministers from the six-nation Gulf Cooperation Council held an emergency meeting to echo assurances, which they have repeatedly voiced over the past few weeks, that the region's banks face no liquidity crisis.

Kuwait's decision to stop trading in shares of Gulf Bank sent a shock wave through the country's bourse, which closed down almost 3.5 per cent and brought its year-to-date losses to over 19 per cent.

"The halting of Gulf Bank shares spread panic in the bourse today, because the government has been saying banks are safe from (global financial crisis) losses," said investor Ahmed al-Fadhli in a telephone interview.

The central bank order said trading in Gulf Bank shares would be suspended pending an investigation into the derivatives deals that caused the losses. The bourse's statement said some investors had balked at covering their losses, but neither the central bank nor Gulf Bank indicated the scope or timeframe of the bank's losses.

But one banking official with access to the information estimated the bank's losses at up to $749 million. The official spoke on condition of anonymity because of the sensitivity of the issue.

Over the past few weeks, Kuwaiti investors have voiced clear concerns about the market. One stockbroker unsuccessfully sued to temporarily close the bourse while other traders last week stormed out of the exchange, demanding the government intervene to halt their near-daily losses.

Investor al-Fadhli said about 40 brokers walked Sunday from the exchange to the nearby seaside Seif Palace, demanding to see the prime minister, Sheik Nasser Al Mohammed Al Sabah, to ask for more government intervention.

The Gulf Bank news further fuelled market turbulence in the broader GCC, not just in Kuwait, a tiny country which is far more dependent on oil revenue than many of its other Gulf counterparts.

Oman's stock exchange was down about 8.29 per cent while Qatar's exchange was off almost 9 per cent. Saudi's benchmark Tadawul index was down a moderate 3.06 per cent, a day after plummeting over 8 per cent.

Sunday is a normal business day in the Arab Mideast, which usually observes Friday as the weekend no teletrack payday loans.

So far, the Gulf countries have been thought to be protected from the crisis, in part because of the cushion of oil money many of them have built up during years of high oil prices. However, because most of the region's banking sector is privately held, not much is known about the institutions' true risk exposure levels.

The Gulf Bank news also appeared to have pushed the Kuwaiti government to take a step it has so far resisted – guaranteeing deposits. The country currently makes no deposit guarantees.

The central bank said it would propose an urgent bill to guarantee bank deposits in an effort to "boost confidence in our banking sector and enhance its ability to compete with banks in countries where deposits were guaranteed by the state" but gave few details on specifics.

The guarantee would cover local Kuwaiti banks.

The various Gulf countries have taken a range of measures to maintain market confidence, including cutting interest rates and pumping billions into their economies.

In tandem, officials have repeatedly said the region is not exposed to the kind of toxic debt that has led to massive losses in the United States and spread to other global markets.

But the move to deposit funds in the Saudi Credit Bank, to be used interest-free by lower-income Saudis, showed the push many of the GCC countries were undertaking to ensure that their citizens are not affected by the current international crisis.

Much of that effort is funded by the countries' massive cash surpluses, accrued from oil wealth. But with crude prices falling, analysts say some spending may be curtailed.

The draft bill to guarantee deposits could prove to be the necessary catalyst for stability, analysts said.

But some, including independent financial analyst Ali al-Nimesh, have criticized demands to stop trading, arguing that such a step was counterproductive and unnecessary since the daily losses have not exceeded 4 per cent, compared to a more than 8 per cent drop in the benchmark Saudi Tadawul index on Saturday, for example.

"Unfortunately, Kuwaitis have been used to demanding help and getting it … and parliament has played a negative role in this," al-Nimesh said.

Legislators have passed pay hikes and set up a state fund to buy bad consumer debts despite strong Cabinet opposition.

The government believes oil revenues should be used for development instead of "popular" demands that do not take into consideration that oil prices might fall sharply, dragging down state revenues in tow.

Source

American International Group’s CEO said Monday that the troubled insurer should start selling off pieces of its sprawling global business by year end.

Some 15 to 20 buyers may each walk away with a unit of the troubled insurer, Chief Executive Edward Liddy told CNNMoney.com.

Liddy declined to comment on the prices the divisions are commanding, saying it is "too soon." But he expects to be able to repay the $85 billion government loan AIG (AIG, Fortune 500) received last month to keep it afloat as it unwinds its $1 trillion in assets.

"We were in a heck of a mess," Liddy said. "It’s solvable. We can work our way out of it."

Liddy took charge of the company after the Federal Reserve arranged the unusual financing to prevent further turmoil in the already strained financial markets. In return, the government took a 79.9% stake in the company and gave the AIG two years to repay the debt by selling its assets.

The company does not expect to need additional financing beyond the $85 billion to continue operating, Liddy said. It has already drawn down $69 billion of that loan.

The Federal Reserve of New York said Oct. 8 that it would lend AIG up to $37.8 billion in exchange for investment-grade, fixed-income collateral.

The second loan was needed because AIG couldn’t access the frozen credit markets to fund its daily operations, Liddy said. Depending on how the capital markets value its securities assets in the future, it might need more, he said payday advance lender.

Liddy has spent the last month deciding which parts of the company to sell. In early October, the beleaguered insurance giant announced it would hold onto its property and casualty insurance businesses and retain a majority stake in its foreign life insurance operations. The property and casualty lines bring in more than $40 billion in revenue annually.

Everything else is on the table, Liddy said. The businesses include its aircraft leasing unit, asset management division, retirement services and U.S. life insurance operations.

Liddy said he regrets the company threw a $440,000 one-week retreat at the St. Regis Resort in Monarch Beach near San Diego, Calif., just days after the bailout. He said he was not aware of the junket at the time, but would look into recouping the costs and disciplining those involved.

AIG agreed Thursday to curb such expenditures after heavy criticism from Congress and New York state Attorney General Andrew Cuomo. The company canceled 160 conferences and events - some that carried price tags of as much as $750,000. It also has put on hold a nearly $10 million severance payment to outgoing chief financial officer Steven Bensinger.

"I apologize to the American people for those things," Liddy said on CNN. "They were terribly insensitive."  

Source

The Dow ended its worst week ever Friday and capped a staggering eight-session selloff that has seen the blue-chip index fall 2,400 points.

Investors could be in for another rough ride as Citigroup (C, Fortune 500) and Merrill Lynch (MER, Fortune 500) are on tap to report results this week, giving another glimpse into just how deep their losses continue to be. And a slew of economic reports are also due out, including readings on consumer spending and housing.

Much of the Dow’s loss occurred over the most recent sessions as the global credit market crisis intensfied. In fact, last week the Dow fell just over 1,874 points, or 18%. The index has lost nearly 22% over the last eight sessions, as panicked investors ditched stocks across the board.

That panic also gripped the global markets, which have seen some brutal selloffs of their own.

"The magnitude of what’s going on is unprecedented and people are frightened," said Robert Philips, senior portfolio strategist at BLB&B Advisors.

Finance ministers from the Group of Seven nations said Friday that exceptional steps were needed to ease the global financial crisis and get money flowing again.

And early Saturday, the G-7 vowed to work together to stem the criris. Later in the day, the International Monetary Fund soundly endorsed the G-7 commiment, with IMF managing director Dominique Strauss-Kahn saying the crisis "had pushed the global financial system to the brink of systemic meltdown."

Wall Street lost roughly $2.4 trillion in market value during the week, according to losses in the Dow Jones Wilshire 5000, the broadest measure of the market.

And investor fear surged to record levels, with the CBOE Volatility (VIX) index, or the VIX, hitting a record just shy of 77 Friday, before closing a bit off those levels.

The Dow Jones industrial average (INDU) ended Friday’s session down just 128 points, after falling as much as 697 points in the morning. The Standard & Poor’s 500 (SPX) index also declined Friday and for eight sessions in a row. The Nasdaq composite (COMP) ended barely higher, following seven down sessions.

Paralyzing fear. Banks have clamped down on capital, with credit markets remaining frozen and several measures of bank nervousness hitting all-time highs. Treasury prices slumped, boosting the corresponding yields as investors no longer bet that government debt was necessarily so much safer than stocks. The dollar recovered versus other major currencies. And oil, gold and other commodities plunged on bets that slowing global demand will hurt oil usage.

"Investors are the most fearful they’ve ever been," said Phil Orlando, chief equity market strategist at Federated Investors.

The heightened volatility that has left investors seasick was evident in Friday’s market. In the first five minutes of trade Friday the Dow plunged 697 points, falling below 7,900 to the lowest point since March 17, 2003. The Nasdaq and S&P also hit more than five-year lows. But stocks recovered abruptly, with the Dow erasing losses. The afternoon saw the Dow make violent swings back and forth, toppling as much as 600 points and rising as much as 322 points.

Stocks have plunged despite a series of efforts on the part of the government to unfreeze the credit markets and get money flowing through the system again.

"Fear is feeding upon itself and nothing the officials have done to this point seems to stem the tide," said Ryan Atkinson, market analyst at Balestra Capital.

Last week, the Fed announced an emergency rate cut, coordinated with banks around the world. The central bank has also pumped billions into the system. But the moves have hardly made a dent in investor sentiment.

"Central banks of the world have been flooding the markets with liquidity, but banks are hoarding cash," Atkinson said. "This is the lynchpin of the entire financial system and as long as this is still going on, the markets will be driven by fear."

On Friday, President Bush said that the government will continue to work to resolve the economic crisis to return stability to the markets. Meanwhile, House Democrats are meeting Monday to discuss a potential second economic stimulus package, although House Republicans are reportedly skeptical of a second package, CNN reports.

Looking for a bottom: Stocks have been in a bear market for most of the year, but the selling began accelerating in September following a series of bank failures and mergers.

Since hitting all-time highs a year ago, the Dow has lost just over 40% and the S&P 500 has lost 43% bad credit payday advance. The Nasdaq has not come close to reclaiming its tech-bubble record, but it did hit multi-year highs last October. Since then, the Nasdaq has fallen just over 42%.

And investors across the board are pulling money out of equities, with $43.3 billion pulled out of stock mutual funds during the week ended Oct. 8, according to TrimTabs Research.

"To some extent, we are seeing a retail investor capitulation," said Kelli Hill, portfolio manager at Ashfield Capital Partners. "And when everyone is getting out, that suggests we’re getting closer to finding a bottom," she said.

Wall Street was last in a bear market between 2000 and 2002 amid the end of the tech bubble, a recession and the terrorist attacks on 9/11. But stocks bottomed in October 2002 and then again in March 2003, leading to a more than four-year bull market.

On Friday, the three major stock gauges fell to within shouting distance of that March 2003 bottom. Some market pros are wondering if that 2003 level could turn out to be the bottom for the 2008 bear market also. (Full story)

However, bottoms are often "retested," meaning stocks fall to a low, bounce for a few days or even months, then fall back to right around that low, before making a bigger, more sustained advance off the low.

That’s what happened in the last bear market. Stocks bottomed in early October 2002, bounced a little bit in the lead up to the start of the Iraq war and then retested those lows in March of 2003 before moving higher.

Either way, the analysts spoken with agree that when the market does finally put a bottom in place, it will lead to an extensive rally.

One comfort for investors is the knowledge that there are limits to how low the Dow can go, thanks to rules put in place in the aftermath of the crash of Oct. 19, 1987, when the Dow plunged 22.6%. The NYSE has rules to halt trading if the Dow loses 10%, 20% or 30% in a single day. Trading is halted for 30 minutes, an hour or two hours, depending on the time of day. Trading is over for the day if the Dow loses 30%.

The Dow’s 22% decline roughly compares with the two-day slide in the crash of 1929. On Oct. 28, 1929, the Dow fell 12.8% and it It fell an additional 11.7% the next day, according to Stock Trader’s Almanac.

Bear vs. Bull: Looking for a bottom

Credit markets frozen: Amid the ongoing crisis, lending has dried up, making it difficult for businesses to function on a daily basis and for consumers to get loans.

The TED spread, the difference between what banks pay to borrow from each other for three months and what the Treasury pays, spiked to an all-time high of 4.65% Friday before pulling back slightly.

The wider the spread, the more reluctant banks are to lend to each other, rather than from the federal government. When markets are fairly calm, banks charge each other premiums that are not much higher than the U.S. government.

Three-month Libor, or what banks charge each other to borrow for three months, rose to a 2008 high of 4.82% Friday.

The yield on the 3-month Treasury bill, seen by many as the safest place to put money in the short term, fell to 0.24% from 0.5% Thursday, with panicked investors willing to take a piddling return on their money rather than risk stocks. Last month, the yield on the 3-month bill skidded to a 68-year low around 0%.

But in a sign that banks were willing to take a chance on near-term lending, Libor, the overnight bank lending rate, eased to 2.47% Friday from 5.09% Thursday, according to Bloomberg.com. Libor was at 2.15% a month ago.

Treasury prices slipped at the end of the week, raising the yields. The benchmark 10-year note ended Friday’s shortened session at 3.88%. Treasury bond markets closed early Friday and are closed Monday for Columbus Day.

Other markets: Oil prices plunged $8.89 a barrel Friday, the second biggest decline ever, to settle at $77.70 a barrel on the New York Mercantile Exchange, a 13-month low.

Oil prices have tumbled on bets of slowing demand since the price of crude hit an all-time high of $147.27 a barrel on July 11.

Worried about your retirement? Tell us your story 

Source

The fate of the government’s $700 billion financial bailout plan was thrown into doubt Monday as the House rejected the controversial measure.

The next steps were unclear. The abrupt defeat left the Bush administration and congressional leaders scrambling to figure out whether to renegotiate the bill and introduce it again as soon as Thursday or to try other options.

Stock markets reacted violently. Investors who had been counting on the rescue plan’s passage sent the Dow Jones industrial average down well over 700 points. The stock gauge closed 778 points lower - nearly 7%. (Full coverage)

The measure, which is designed to get battered lending markets working normally again, needed 218 votes for passage. But it came up 13 votes short of that target, with a final vote of 228 to 205 against. Two-thirds of Democrats and one-third of Republicans voted for the measure.

President Bush, who earlier in the day said he was confident the bill would pass, said he was "very disappointed" by the House vote. Treasury Secretary Henry Paulson, speaking at the White House, said he will continue to "use all the tools available to protect" the economy.

Republican leaders, who had pushed their reluctant members to vote for the bill, pointed the finger for the failure at a speech given Monday by Speaker Nancy Pelosi, D-Calif.

Pelosi, speaking on the House floor, had blamed the nation’s economic problems on "failed Bush economic policies."

House minority leader John Boehner, R-Ohio, said after the vote that passage would have been possible if it had not been for Pelosi’s "partisan speech."

Rep. Barney Frank, D-Mass., one of the main congressional negotiators, dismissed the GOP claim that Pelosi’s speech was responsible for Republicans voting against the bill. "Because somebody hurt their feelings, they decided to hurt the country," Frank said. "That’s not plausible."

The four-hour debate that preceded Monday’s vote included impassioned pleas for and against the measure from Democrats and Republicans alike. Party leaders told members that the only way to protect the economy from a spreading credit crunch was to vote for the difficult-to-swallow measure.

"Our time has run out," said Rep. Spencer Bachus, R-Ala., the ranking Republican on the House Financial Services Committee. "We’re going make a decision. There are no other choices, no other alternatives."

Added Frank: "Today is the decision day. If we defeat this bill today, it will be a very bad day for the financial sector of the American economy."

Boehner told his members, many of whom objected to the measure, that they had to accept something he and many of them found distasteful.

"If I didn’t think we were on the brink of an economic disaster, it would be the easiest thing to say no to this," Boehner said. But he said lawmakers needed to do what was in the best interest of the country.

One lawmaker who voted against the bill, Rep. John Culberson, R-Texas, said the measure would leave a huge burden on taxpayers. "This legislation is giving us a choice between bankrupting our children and bankrupting a few of these big financial institutions on Wall Street that made bad decisions," he said. Culberson voted against the bill.

Other conservative Republicans who voted "no" argued the bill would be a blow against economic freedom.

Thaddeus McCotter, R-Mich., said the bill posed a choice between the loss of prosperity in the short term or economic freedom in the long term payday loans. He said once the federal government enters the financial marketplace, it will not leave. "The choice is stark," he said.

Some Democrats voted against the bill for not doing enough to help taxpayers facing foreclosure or unemployment and accused proponents of moving too fast.

"Like the Iraq war and Patriot Act, this bill is fueled by fear and haste," said Lloyd Doggett, D-Texas.

The debate followed a weekend of marathon negotiations between lawmakers and administration officials to hammer out legislation.

Leading House Republicans signed on to the proposal on Sunday after expressing earlier reservations.

The core of the bill is based on Paulson’s request for the authority to purchase troubled assets from financial institutions, so banks can resume lending and the credit markets, now virtually frozen, can begin to operate more normally.

Democrats and Republicans - concerned about the potential cost - added several conditions and restrictions to protect taxpayers on the downside and give them a chance at some of the potential upside if the companies benefit from the plan.

The turmoil in Washington comes amid great upheaval in the nation’s financial system.

Banks and Wall Street firms, worried about both their own needs for cash and the condition of other institutions, essentially stopped loaning money to one another in recent weeks. That choked off the money being made available on Main Street in the form of mortgage loans, business loans and other consumer borrowing.

The crisis stems from problems in mortgage-backed securities, which saw their value plunge as home prices have gone into their worst slide since the Great Depression and foreclosures have soared to record levels.

In turn, the market for trillion of dollars worth of those securities held by major firms evaporated, sending them down to fire-sale prices and raising the risk of widespread failures among the nation’s major financial firms.

On Monday, the Federal Deposit Insurance Corp., which insures deposits at failed banks, arranged for the sale of the banking assets of Wachovia (WB, Fortune 500), the nation’s No. 4 bank holding company, to Citigroup (C, Fortune 500) for $2.2 billion in stock.

That follows three weeks of other shocks: the Treasury Department’s seizure of mortgage finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500); Wall Street firm Lehman Brothers’ bankruptcy filing; rival Merrill Lynch (MER, Fortune 500) purchase by Bank of America (BAC, Fortune 500).

In addition, the Fed bailed out insurance giant American International Group (AIG, Fortune 500), loaning it $85 billion in return for a nearly 80% stake. Washington Mutual (WM, Fortune 500), the nation’s largest savings and loan, became the largest bank failure in history.

After months of attempts by regulators to fix the problems, the bailout was seen by many as the most comprehensive effort yet. Proponents vowed late Monday to keep trying.

Sen. Judd Gregg, R-N.H., a lead negotiator in the bailout bill negotiations said, "If we don’t act promptly and effectively, then many people are going to lose their jobs." 

Source