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Bonds Fall On Fannie, Freddie Deal Report

Report: Treasury Close To GSE Bailout Plan

U.S. Home Foreclosures Reach Record High

Nokia's Strong Warning Depresses Shares

Dell Announces Plan To Sell Factories

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'If you look at all the numbers, you have to say we have hell of a problem out there," said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.

'We have job losses that will continue, we have foreclosures increasing, a reduced demand for goods everywhere so you can make the dark case, no doubt about it. We're heading towards a global slowdown, that's my read of the tea leaves."

Stock markets around the globe also struggled as investors lost confidence in economic conditions, particularly after U.S. employment data further discouraged investors who had been hoping for a recovery.

The U.S. Labour Department reported the American economy shed a worse-than-expected 84,000 jobs and the unemployment rate jumped to 6.1 per cent from 5.7 per cent.

"This was an ugly number that pretty much confirms that our economy continues to trend downward," said Jack Ablin, chief investment officer of Harris Private Bank in New York.

"I had thought things were stabilizing, and this just knocks the legs out of any hope of seeing much economic improvement right now."


Investor fear understandable amid tumbling markets but far from panic:experts

Nervous investors have reason to be pessimistic after a week of steep losses on the Toronto stock market, experts say, but they warn people must keep the swings in perspective and remember that downturns provide buying opportunities for the brave and patient.

"Given the kind of the correction that we have had, I understand why people are fearful," said Fred Ketchen, manager of equity trading at Scotia Capital.

"The kind of activity that we have had in our stock market in the last little while is going to be frightening for some but to other who are patient, others who are brave, over time, this presents some very tempting opportunities."

Stock markets in Toronto and around the world struggled Friday amid weak economic reports, particularly in the U.S., where the unemployment rate jumped to 6.1 per cent from 5.7 per cent.

Toronto's S&P/TSX composite index eked out the slimmest of gains, rising 2.28 points to 12,816.42 after plunging over 200 points earlier Friday. A commodity stock-led retreat on the Toronto market has carved almost 1,000 points or 6.6 per cent from the main index this week alone.

But Ross Healy, president and CEO of Strategic Analysis Corp., said the recent declines shouldn't be misinterpreted as panic - no matter how widespread the losses.

"If anybody thinks that what's gone on in the last couple of days is panic they haven't got a clue," he said.

"So far, it's just a normal-course selloff. Panic? Absolutely not. We're going to get it, but not now."

http://ca.news.finance.yahoo.com/s/05092008/2/biz-finance-investor-fear-understandable-amid-tumbling-markets-far-panic.html

Two Forces Driving the Credit Crunch and this Is Bleeding Over to the Real Economy ...

The credit crunch. We all know it's here, and that it's impacting virtually every corner of the financial markets. But a lot of investors don't really understand how a crunch really works ... why it's so insidious ... and why the Feds' efforts to ease the logjam have been largely ineffective.

So let me try to get at the heart of the matter today. It boils down to two key forces ...



Force #1: Many lenders lack the DESIRE to lend.



Commercial and investment bankers aren't a brave bunch, by and large. They move like a herd.

When one bank or lender comes up with a new loan product that generates volume and profits, others quickly pile in and copy it.

When one lender gets more aggressive with its qualification standards, it doesn't take long for others to jump in and do the same thing.

When a fad takes over in the investment community — whether it's a love affair with risky residential mortgage-backed securities or the creation of newfangled debt instruments (CDOs, CLOs, and so on) — it sweeps through the industry like wildfire.

And when it all goes kerflooey? The bankers scurry back into their holes and hibernate.

That's exactly what is happening now. I've talked about the Fed's Senior Loan Officer Opinion Survey on Bank Lending Practices before, but the numbers bear repeating. After all, they show that the DESIRE to lend just isn't there ...

A net of roughly two-thirds of the banks surveyed said they were tightening standards on prime mortgages; 84.4% said they were cracking down on nontraditional financing; and 85.7% said they were tightening up on subprime loans. These figures are off the charts — by far the highest the Fed has ever found in the 18 years it has conducted its survey.


The tightening trend has spilled over into commercial real estate, where almost 81% of those polled said they were tightening standards. That's another record!


Two-thirds of respondents were tightening standards on credit card borrowers, more than double the level of just three months earlier, and the highest ever. Auto loans? Personal loans? Same story there — record-high tightening readings.
But that's not all. Another major contributing factor to the crunch is clear ...



Force #2: Banks that want to lend don't have the CAPACITY to do so.



Banks are required to maintain a minimum cushion of capital. Think of it as the last line of defense against bad loans and other problems. It also serves as a base upon which banks can build a book of loans and other assets.

When capital levels are healthy, banks have a huge capacity to lend. But when capital is being eroded — say, by the charging off of a huge pile of bad debts — banks have to react by cutting back on new lending.

Don't just take my word for it. Get a load of the comments out this week from the president of the Federal Reserve Bank of Boston, Eric Rosengren. I've highlighted a few key passages



"We see that mounting losses at financial institutions, and an increasing reluctance among investors to invest new capital while the economic outlook is unclear, are forcing financial institutions to 'shrink their balance sheets.



'"Allow me to explain that notion for the non-bankers here today. Recall that a loan is counted as an asset on a bank's balance sheet. Banks hold capital in part as a reserve against the possibility that a loan will default. Thus banks attempt to maintain a reasonable ratio of capital to assets. If a bank experiences a reduction in the value of its capital or an increase in its assets (for example as credit lines that were extended in better times are tapped), the bank must take steps to shrink the asset side of its balance sheet in order to restore its desired capital-to-asset ratio.



"In other words, the bank becomes more restrictive in its lending. This shrinkage in lending entails tighter underwriting standards, wider interest rate margins, and reduced credit availability."

In normal times, banks can replenish capital by generating and retaining earnings over time. That's the slow way. Or they can go out and sell common shares, preferred shares, or so-called hybrid securities that have characteristics of both equity and debt. That's the fast way.



But if investors don't want that kind of paper, lenders have to pay through the nose to raise money. Some institutions can be shut out of the market entirely. That's exactly what is happening now. The welcoming arms that banks and brokers found in 2007 and early 2008 have been replaced with cold shoulders.

Why? Potential investors can see the writing on the wall. They know that profits across the banking industry plunged 86.5% to just $5 billion in the second quarter, according to the FDIC. They know that we're going to see a big wave of bank failures in the next 12-24 months. And they don't want to get swept up in it.



More importantly, the sovereign wealth funds in Dubai, Singapore, and elsewhere ... and other private investors ... have seen their prior investments in U.S. banks sink dramatically in value. So they're increasingly reluctant to throw good money after bad.

Or as the Fed's Rosengren said:

"An alternative is to raise more capital, but this can be quite difficult in times like these, when investors are wary of putting more money into some seemingly fragile financial institutions. Witness the reliance, particularly by some large, well-known institutions, on foreign sources of capital like the sovereign wealth funds in recent months."

How This Is Bleeding Over to the Real Economy ...



If this were all just a financial crisis, you could arguably avoid the pain by just staying away from bank and broker stocks. But that is no longer the case!

The credit crisis that began in housing ... and then infected the financial sector ... is now spreading throughout the economy.

Credit is becoming harder and more costly to obtain across the board. That is making it more difficult for consumers to boost spending, and for businesses to borrow and invest in their operations. This is having a real, measurable, and severe impact on the overall economy.

Heck, the Federal Reserve's latest "Beige Book" report on the economy — just like the FDIC's QBP — read like a horror novel. A few excerpts ...

Consumer spending was reported to be slow in most Districts, with purchasing concentrated on necessary items and retrenchment in discretionary spending.


Reports from the twelve Federal Reserve Districts indicate that the pace of economic activity has been slow in most Districts. Many described business conditions as "weak," "soft," or "subdued."


Residential real estate conditions weakened or remained soft in all Districts, except Kansas City, which reported a modest increase in sales since the last report.


Commercial real estate activity moved down or remained weak in all Districts except Dallas. Boston, New York, Philadelphia, Atlanta, and Chicago reported signs of softening demand for commercial real estate, including declining leasing activity, rising vacancies, and decreasing construction.
So as far as I'm concerned, the downside risk to the economy and the stock market far outweighs the potential for upside moves. So stay defensive. Pare your market exposure. And consider using inverse ETFs and put options as potential profit vehicles unless and until the credit crunch abates.


http://www.moneyandmarkets.com/Issues.aspx?Two-Forces-Driving-the-Credit-Crunch-2186

Wall Street rocked by Lehman failure and Merrill sale

Global financial markets were shaken to their core on Monday after U.S. investment bank Lehman Brothers filed for bankruptcy protection and rival Merrill Lynch agreed to be taken over.

As a deepening crisis took new, bigger victims, The U.S. Federal Reserve said for the first time it would accept stocks in exchange for cash loans and 10 of the world's top banks agreed to establish a $70 billion emergency fund, with any one of them able to tap up to a third of that.

On a black Sunday for Wall Street, frantic attempts to find a rescuer for Lehman failed, and troubled insurer American International Group asked the Fed for a lifeline, according to news reports.

But Bank of America agreed to buy Merrill Lynch in an all-stock deal worth $50 billion, seeking a bargain as the world's largest retail brokerage sought refuge from fears it could be the next victim.

"It's a return to pure capitalism, the survival of the fittest -- the government can't and won't bail everybody out," said Justin Urquhart Stewart, investment director at 7 Investment Management in London.

"Investors will now retreat to the trustworthy banks, though that's not a phrase that trips off the tongue easily nowadays."

Asian and European stock markets tumbled as the worries about Lehman counterparty risk and further financial market turmoil sent investors scurrying for safe havens such as gold.

http://www.reuters.com/article/newsOne/idUSN0927996520080915

B of A bought Merill at a premium of 70%. They must have been pressurized.

Like a dowry was paid.

the saying out there is that Merill did saat pheri with B of A and Lehman was sent to the cremation pyre.

The equivalent on Bay Street is that Merrill goes to the altar and Lehman to the graveyard.

US STOCKS-Bank fears, AIG fallout drive Wall St sell-off

U.S. stocks dropped to a three-year low on Wednesday as the U.S. rescue of insurer AIG failed to calm a crisis of confidence in global markets and banks were scared to lend to each other.

The Dow fell almost 450 points and the Nasdaq fell nearly 5 percent in its worst day since the aftermath of the Sept. 11 attacks in 2001 as rattled investors worried about who could be the next victim of the global credit crisis.



Of the two remaining major investment banks, Goldman Sachs stock suffered its biggest one-day drop ever. Morgan Stanley stock had its worst day in at least 15 years as investors worried whether it would survive as an independent investment bank in the current environment, after Lehman Brothers Holdings went bankrupt and Merrill Lynch was forced to sell itself this weekend.



"The fear is, 'Who is next?'" said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. "It almost feels like people scour the books and say, 'Who is the next likely target that we can put a short on?' and that spreads continuous fear."



After the closing bell, reports on deal making among financial companies picked up pace. Morgan Stanley was discussing a merger with regional banking powerhouse Wachovia, the New York Times reported. And sources told Reuters that Washington Mutual the country's largest savings bank, put itself up for sale.



Strategists said the damage threatens to go beyond the financial services sector, hurting corporate profits and spreading panic among increasingly overstretched consumers.



"What does tomorrow bring? Will it start spilling over into consumers? Will there be runs on the banks? There's a million things going on," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets.



"Hopefully, we'll see a capitulation soon when everybody throws in the towel," he added.



"Every investor is now questioning each and every investment they have anywhere on the planet," said John Schloegel, vice president of investment strategies at Capital Cities Asset Management in Austin, Texas.



"It's leading them to sell anything that has any type of risk -- to sell first. It's an unusual situation we are in right now."



Banks frantically seeking dollar funds have been stonewalled by others increasingly reluctant to lend amid uncertainty and nervousness following the collapse of Lehman Brothers and the bailout of AIG.

US Dow and TSX in 'grizzly' territory.

Russian markets stopped trading yesterday as it plunged

World banks inject $180bn to prop up markets today. DAX , FTSE, CAC up so far, but far-east markets down.

http://uk.reuters.com/business/markets/all

Stop gap measure maybe. Dow futures up today. Also S&P and Nasdaq.

yesterday Oil up but energy stocks down. Gasoline down in GTA today. Oil continues to rise today trading above $100 again.

Unusual scenario.

Washington Mutual has hired Goldman Sachs to begin an auction process to sell the bank, according to reports. JPMorgan Chase, HSBC, and Wells Fargo are said to be among the potential bidders.

Watch List
Washington Mutual has hired Goldman Sachs to begin an auction process to sell the bank, according to reports. JPMorgan Chase, HSBC, and Wells Fargo are said to be among the potential bidders.

Constellation Energy has agreed to a takeover by MidAmerican Energy, which is 84.7% controlled by Warren Buffett's Berkshire Hathaway, at $26.50 a share, or $4.7 billion. Constellation agreed to the...

Kraft Foods will replace AIG on the Dow Jones industrial average, after the Fed's $85.0 billion bailout. More change may be coming as Robert Thomson, managing editor of the WSJ and the man...


http://www.forbes.com/markets/