MARKET ALERT
from The Wall Street Journal.


Sept. 30, 2008

Asian markets tumbled Tuesday, with shares plunging across the board on
fears about the global credit crisis.

In Tokyo, the Nikkei 225 Average ended the morning trading session down
4.6% at 11199.07. Earlier in the day, the benchmark fell as low as 11160.83, a
level it hasn't seen since June 2005. The Topix index skidded 4.6% to 1076.57. 

In Hong Kong, the Hang Seng Index tumbled 5.3% to 16927.75 in the early
minutes.

http://online.wsj.com/article/SB122273331874288373.html?mod=djemalertMARKET

 

Kyoto, Japan (Platts)--29Sep2008

The Chairman of the London Bullion Market Association, Jeremy Charles,

said that due to chaotic market conditions over the past two weeks, investors

are returning to gold, "in a major way."

     The chairman, who is also Global Head of Metals at HSBC, was addressing

delegates in Kyoto, Japan, at the LBMA/London Platinum and Palladium Market

Precious Metals Conference 2008. The markets have been rocked in recent months

by the ongoing global credit fiasco which has seen big name banks collapse and

unite in a bid to stem the bloodletting born from dire money management in the

USA.

     Charles noted that, "with confidence in the dollar and other investment

classes decidedly shaky," investors are piling back in to the yellow metal.

Gold hit a high of $1,030.70/oz March 17, coinciding with the collapse of

securities firm, and household name in the US, Bear Stearns. Since then gold

has been on a roller coaster journey largely spurred by investor in and out

flows and the US dollar. Generally, and historically, the yellow metal is seen

as a safe haven in times of political and financial instability or

uncertainty.

     SELLOFF PROMPTS RENEWED PHYSICAL DEMAND

     The recent sell off in gold, which the metal has now significantly

bounced back from, was orchestrated by renewed investor sentiment in the green

back. "This sell off, which was primarily due to the improved outlook for the

dollar, coupled with lower oil and commodity prices, created an enormous pick

up in physical demand from across the globe," said Charles. 

     He added, "This demand was in fact so great that the global refining and

manufacturing industry simply could not produce gold bars in sufficient

quantity to satisfy this pent up demand." The demand put upward pressure on

the price of gold as consumers stockpiled the precious metal. Traditionally

physical buyers tend to sit on the sidelines at times of increased price

volatility. After the sell off, which saw gold fall to the mid $700s, physical

purchases managed to lend support and give the metal a base around $800/oz. In

recent weeks fresh money, and some major short-covering, has seen the metal

break the $900/oz barrier, yet not manage to hold that level. Pundits are

mixed on where the market will go next, one analyst told Platts: "It's just

too hard to call." 

     HIGHLY UNUSUAL MOVES NOT ONLY STIMULUS FOR GOLD

     "These highly unusual moves do of course reflect the current woes in the

global financial markets, but it is my opinion that even when this crisis

draws to an end, gold will be looked on in a very different light going

forward," said Charles. He added: "Those who have traditionally shied away

from gold as part of an investment portfolio can no longer afford to ignore

this unique asset."

     The LBMA chairman also predicted that as less money is pumped in to

investment in the production side of gold, and Central Banks ease sales of the

yellow metal, coupled with increasing investor interest, "despite many

comments to the contrary, higher gold prices are likely to be the norm."

--Ben Kilbey 

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SEPTEMBER 29, 2008, 3:26 P.M. ET

Stocks Plunge as Rescue Plan
Fails to Gain House Approval

Stocks plunged Monday as the U.S. House of Representatives voted down a $700 billion rescue plan for Wall Street, leaving the teetering financial industry and perhaps the broader U.S. economy in renewed jeopardy.

The Dow Jones Industrial Average was off more than 700 points immediately following the House's mid-afternoon vote. It recently traded down almost 584 points, off 5.2%, at 10559.31, down 7.6% since since crisis erupted a few weeks ago on Wall Street following the meltdown of Lehman Brothers Holdings.

If the Dow's losses hold through the close – which veteran traders believe could see a particularly heavy flurry of orders – it would mark the biggest one-day point drop since Lehman's bankruptcy. All 30 of the blue-chip indicator's components were lower in recent action.

The bailout's failure throws into limbo the prospects for an unprecendented federal intervention that the White House and many financial-industry veterans believe is necessary to alleviate the burden of soured credit bets lingering on many banks' books. Those instruments have clogged Wall Street's usual financing activities for months and, in a worst case scenario, could lead to an even more intractable freeze-up that would represent a severe blow to the broader economy.

"There is a panic mentality afoot today," said Bruce Bittles, chief investment strategist at Robert W. Baird.

The S&P 500 was recently down 6.7% to 1132.15. All of the broad measure's sectors traded lower, led by a nearly 11% slide in its financial category.

The small-stock Russell 2000 was down 5.5%, trading at 666.20. The technology-focused Nasdaq Composite Index fell 7% to 2031.43.

The prospect of a bailout package for Wall Street has dominated trading for more than a week, with proponents of an intervention arguing that government action is necessary to keep banks willing and able to extend credit to an array of businesses in other sectors that drive economic growth.

Of course, whether those companies will feel confident enough about the demand outlook for their goods and services to want to expand their operations is a separate matter. Concerns that many companies, at best, will remain on pause in the months ahead hampered stock indexes across the board early in Monday's session.

The glum realization that the U.S. financial industry and the broader economy were likely to continue struggling even if the bailout bill passed dominated the early going of Monday's session. The lingering risks for investors were underscored as four European institutions sought rescue plans from their local governments and Wachovia became the latest struggling U.S. bank to sell itself off in order to survive.

But without a rescue plan in place for Wall Street, the way ahead is even murkier, traders said.

"We're stunned right now, just trying to figure out what comes next," said one broker at the New York Stock Exchange

Members of the House voted 220 to 198 Monday morning to move the bill forward. But around 1:45 p.m. Washington time, it became clear that the bill might not pass a final vote, prompting a marked pickup in stock selling on the NYSE floor.

The bailout bill that failed to win passage in the House on Monday was hammered out over the weekend by the Bush administration and senior congressional leaders. It called for $250 billion upfront to be given to the U.S. Treasury to buy troubled assets, which then, subject to Congressional disapproval, could rise to as high as $700 billion.

Investors flocked to U.S. government debt looking for safety. The yield on the 3-month Treasury bill, considered the safest short-term investment, fell near 0.70% from 0.87% late Friday. The price of the benchmark 10-year note jumped 1-8/32, pushing the yield down to 3.701%, compared to 3.827% late Friday.

The troubles in Europe sent the dollar rallying against the euro and the British pound. The U.S. Dollar Index, which measures the greenback's value against a basket of six overseas denominations, rose 0.7%.

Oil futures dropped slid almost $8, trading under $100 a barrel in New York as fears about slowing demand due to global economic weakness gripped the commodity markets. The broad Dow Jones-AIG Commodity Index slid more than 4%.

Analysts said the flurry of developments around the world is confirming fears that the global financial contagion is likely to spread further before any recovery. "There's an increasing realization that the cleanup and the mending of all that's gone wrong is going to take an extended period to work through, and we're going to see an extended recovery period," said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.

SEPTEMBER 29, 2008, 3:56 P.M. ET

Bailout Bill Fails in House Vote
Amid Defections in Both Parties

WASHINGTON -- The House of Representatives delivered a stunning defeat to legislation designed to rescue the nation's troubled financial system, sweeping aside a call from President Bush to "send a strong signal" of confidence to markets at home and abroad.

The 228-205 vote Monday exposed deep unease among rank-and-file lawmakers in both parties with what would be an unprecedented intervention in the private sector. The vote came as turmoil in financial markets widened, prompting the Federal Reserve to inject new capital into credit markets and forcing the government-arranged sale of Wachovia Corp. to Citigroup.

The Bush-backed package now faces an uncertain future, though party leaders on both sides of the aisle are sure to consider revising the initiative, which Mr. Bush said Monday is needed to "keep the crisis in our financial system from spreading throughout our economy."

After the vote, House Minority Leader John Boehner (R., Ohio) said there would be an effort to bring back another bill, with further changes. "We've got to find a true middle ground," he said. "We need everybody to calm down and relax and get back to work."

Lawmakers on both sides of the aisle suggested the legislation is not dead. House Speaker Nancy Pelosi (D., Calif.) said at a press conference that the "lines of communication" remain open between policymakers and that Congress needs to take another "bite at the apple" on the market rescue plan legislation.

"It is difficult for me to imagine we would leave the market to its own devices and fears until Friday," said Rep. Adam Putnam (R., Fla.), the third-highest ranking Republican in the House. "We're encouraging members to understand the consequences to doing nothing, but I think members have strong convictions about this bill."

Ahead of the vote, Republican and Democratic leaders closed ranks around the White House, in a display of bipartisanship that further underscored the challenges facing the nation.

Mr. Boehner -- who last week quash an agreement between other congressional leaders -- urged lawmakers in advance of the roll call to set aside "what's in the best interest of our party," to instead consider the interest of the nation. "These are the votes that separate the men from the boys, and the girls from the women," said Mr. Boehner, who choked up as he spoke. Mr. Boehner also made clear the vote was going to be close, saying it "is in serious doubt."

Ahead of the vote, Mr. Bush and Vice President Richard Cheney, along with Treasury Secretary Henry Paulson, joined in lobbying for the bill, telephoning wavering rank-and file Republicans. A wide range of business groups, including the National Federation of Independent Businesses and the Business Roundtable, also pressed lawmakers in an effort to shore up support.

The measure would give Treasury a $700 billion line of credit and wide authority to buy the toxic mortgages, securities and financial assets that are undermining market confidence and threatening to tilt the U.S. into recession.

Under the bill, the money would be released in installments, with $250 billion being made available to Treasury immediately, followed shortly by another $100 billion. The final installment would be released after the president submits a plan detailing use of the funds, and lawmakers are given a 15 days to consider a resolution of disapproval. Alongside the basic bailout, the bill would require Treasury to establish an insurance-based program to buy up bad assets, under which participating institutions would be charged a premium and given access to a fund that would also be used to help finance bailout.

The Bush administration is hoping financial markets will stabilize, as bad assets are pulled under the government's wing. Under the legislation, troubled banks and investment firms would qualify for government assistance, as would pension plans, local governments, and small banks.

The measure was brought to the House floor after several days of sometimes testy negotiations, and a marathon series of talks over the weekend. The effort was spurred by Mr. Bush's surprise declaration more than 10 days ago that the financial architectural of the country was faltering, and in need of immediate repair.

For rank and file lawmakers, the vote forced upon them produced anger and soul-searching about the economic and political costs of the bailout, and a difficult choice: whether to safely vote no on an issue unpopular with voters or swing behind a measure the nation's top economic leaders insist is needed to avoid a recession.

And across the Capitol, there was an overwhelming sense that decisions made on the plan would be career defining. There is no extra courage to go around," said Rep. Jim Cooper (D., Tenn.).

Many lawmakers said they weren't willing to go out on a limb. Rep. Lynn Woolsey (D., Calif.) said there still were "major questions unanswered" about the need for bailout. She said Wall Street isn't being asked to pony up enough to fund the rescue, and voiced doubts about whether the Bush administration—which engineered a series of earlier market interventions, including the takeover of Fannie Mae and Freddie Mac – should be trusted this go-around.

"President Bush and Secretary Paulson have been wrong from the start about just about everything," she said.

Concern about the package was deepest among House Republicans, especially conservatives troubled with the cost and scope of the powers that would be granted Treasury. Negotiators tried to accommodate those concerns, adding in the insurance proposal, as a way to bring a more free-market patina to the bill.

But many Republicans still found the measure difficult to support. Rep. Jeb Hensarling (R., Texas) said he understands the "grave situation that every American will face should our credit markets freeze," but warned the bailout would fundamentally change the role of government in the economy. "I cannot in good conscience support this legislation," he said.

 

 

Wed., Sept. 27, 2008

BEIJING (Reuters) - Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.

The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc  "may augur an even larger impending global 'financial tsunami'."

The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper.

Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai's Tongji University suggested considerable official alarm at the strains buckling world financial markets.

China's central bank earlier this week cut its lending rate for the first time in six years, a move analysts said was aimed at bolstering the economy and the battered stock market.

"The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States' financial oversight and supervision," writes the commentator, Shi Jianxun.

"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."

But Vice Premier Wang Qishan, on a visit to the United States, told U.S. trade officials in a meeting on Tuesday that China and the United States needed to maintain close economic ties with global markets going through such turbulence.

"The Chinese government is well aware of the fact that the United States, which is the world's largest developed country, and China, which is the world's largest developing country, should have constructive and cooperative economic and trade relations," he said.

China is a major buyer of U.S. Treasury bonds, and through its sovereign wealth fund it has taken stakes in two large U.S. financial institutions.

In July 2005, China revalued the yuan and freed it from a dollar peg to float within managed bands. But the yuan and China's trade remains tightly linked to the fortunes of the dollar.

The commentary suggested China must brace for grave economic fallout and look to alternatives, saying the crisis brings to mind the Great Depression of the 1930s.

"Lehman Brothers announced bankruptcy will not only have a domino effect on the global financial world, it will bring a shock to the world economy," the front-page comment stated.

(Reporting by Chris Buckley; Editing by Ken Wills)

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NASDAQ.COM

9/26/08

Gold Prices Back Off Highs But Remain Sharply Higher

(RTTNews) - Gold prices surged higher again as the government continues to discuss a rescue plan for struggling financials. December gold climbed to $893.20, up $11.00 on the session. Gold touched as high as $920.10 as traders turned to the precious metal as a safety outlet.

Trading took place as lawmakers and the president wrangled over a $700-billion financial relief bill that is aimed at averting what some have described as an economic "catastrophe." Leading lawmakers and the Bush administration seemed close to an agreement on a bill designed to unclog the financial system and stabilize financial markets. However, talks broke down later in the day, and negotiations are scheduled to begin again Friday.

Washington Mutual (WM) became the latest U.S. banker to plunge after JPMorgan Chase (JPM) acquired the company's assets for $1.9 billion after a FDIC seizure. . . .

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J.P. Morgan to Take Over Faltering WaMu

U.S. Government Helps Broker a Deal to Dispose of Huge Thrift; Banking Giant Expected to Get Deposits, Branches

By ROBIN SIDEL, DAVID ENRICH and DAMIAN PALETTA

J.P. Morgan Chase & Co. was expected to announce as early as Thursday night a deal to acquire the bulk of Washington Mutual Inc.'s operations in a deal that would mark the end of independence for what once was the largest U.S. thrift.

Federal regulators have been heavily involved in orchestrating the transaction, which comes as WaMu was besieged by a mountain of bad mortgage loans. Seattle-based WaMu has been scrambling to find a solution and put itself on the auction block last week. A number of interested parties have been poring over WaMu's books, but the bank didn't receive any offers.

While the exact structure of the transaction wasn't immediately known, J.P. Morgan is expected to acquire Washington Mutual's deposits and branches, as well as other operations. The deal isn't expected to result in any hit to the bank-insurance fund, according to a person familiar with the arrangement. But it's likely that another arm of government would have to pick up the tab. Some analysts have worried that a WaMu failure could cost more than $20 billion.

Federal regulators have been heavily involved in orchestrating the transaction, which comes as WaMu grapples with its bad mortgage loans. Regulators were hoping to fend off a collapse of WaMu, which, with more than $300 billion in assets, would mark by far the largest banking failure in U.S. history.

The exact structure of J.P. Morgan's acquisition of WaMu's deposits wasn't immediately known, except that the New York bank, which has long coveted WaMu as a way to secure a footprint on the West Coast, will assume most of the thrift's deposits and branches, as well as some other operations.

Unlike many of the 12 bank failures that the Federal Deposit Insurance Corp. has overseen this year, the J.P. Morgan-WaMu transaction isn't expected to impact the agency's national deposit-insurance fund. It wasn't immediately clear how the transaction would be structured to avoid the insurance fund taking a hit.

With mortgage losses mounting, and its stock price plunging, WaMu has been scrambling over the past month to find a solution; last week it put itself on the auction block. A number of banks -- including Citigroup Inc., Wells Fargo & Co. and Banco Santander SA -- pored over WaMu's books, but the bank didn't receive any offers. This week, WaMu's outside bankers approached a group of private-equity funds to gauge their interest in a deal.

Also this week, the FDIC took the step of reaching out to banks, asking them to express interest in taking over some or all of WaMu, according to people familiar with the matter. Those bids were due at 6 p.m. Wednesday. J.P. Morgan's takeover of WaMu's deposits represents a huge blow for private-equity firm TPG, which injected $7 billion into the thrift this spring. The transaction is expected to wipe out WaMu stockholders and holders of the company's senior debt, one person said. A key unknown: the fate of WaMu's bad assets, which include mortgage loans that have soured as housing markets tanked.

Arranging the deal in a way that doesn't cost the FDIC's deposit insurance fund any money would be an achievement for Chairman Sheila Bair, who has had a hawkish view about the state of many financial institutions. Federal regulators faced criticism from many after the July failure of IndyMac Bank, which the FDIC estimated might have cost the deposit insurance fund close to $9 billion.

This is the second time the government has gone to J.P. Morgan as a buyer of last resort. In March, the government agreed to backstop J.P. Morgan's takeover of Bear Stearns. This will likely prompt criticism from rivals about preferential treatment. BofA, for instance, didn't receive government assistance in its recently announced purchase of Merrill Lynch. Of course, in the case of WaMu, there were presumably other bidders who simply wouldn't offer that much for the deposits and branches. Before the deal, J.P. Morgan ranked as the fourth-largest bank as measured by branches, ranking below Bank of America Corp., Wachovia Corp. and Wells Fargo & Co. Its network of more than 3,100 branches stretches across 17 states with deep penetration in New York, Illinois, Texas, Michigan and Ohio.

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HOPES TO PASS THE HOUSE, PASS THE SENATE, AND BE SIGNED BY THE PRESIDENT

Lawmakers Agree on `Principles' of Rescue Deal 

By James Rowley and Alison Vekshin

Sept. 25 (Bloomberg) -- Congressional negotiators said they reached a bipartisan agreement on a ``set of principles'' for a $700 billion financial-rescue package to inject fresh capital into the paralyzed credit markets.

Lawmakers agreed that legislation should include provisions on oversight of the Treasury-run program, limits on executive pay and a section on homeownership preservation, Senate Banking Committee Chairman Christopher Dodd said.

Still unresolved is whether the bill will include a provision allowing bankruptcy judges to change mortgage terms. The Treasury would have $250 billion available immediately, said a Senate aide, who requested anonymity.

``We believe that we're prepared to act expeditiously on a package'' that will ``send a message to the markets,'' Dodd said after emerging from a negotiating session.

The agreement must still be passed by the House and Senate, and signed into law by the president. House Financial Services Committee Chairman Barney Frank said it wasn't clear how many House Republicans would support the measure. Senator Robert Bennett, a Utah Republican, predicted it would pass both chambers.

Approval of a measure would address what President George W. Bush warned was a crisis that could cause widespread economic turmoil. In an address to the nation last night Bush said that ``without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold.''

Bill By Day's End

Bennett said lawmakers would have legislative language by the end of the day.

``I now expect we will indeed have a plan that can pass the House, pass the Senate, be signed by the president and bring a sense of certainty to this crisis that is still roiling in the markets,'' Bennett said. ``That is our primary responsibility and I think we are now prepared to meet it.''

Bush will meet this afternoon with congressional leaders as well as Republican presidential candidate John McCain and his Democratic rival, Barack Obama on the rescue plan.

In addition to the first $250 billion allocated to Treasury, another $100 billion would also be available for the bailout program, the Senate aide said. The remaining $350 billion could be used unless Congress prohibits it, the aide said.

Frank said a Democratic provision to let judges rewrite mortgage terms for homeowners in bankruptcy proceedings is the ``most controversial'' and remains an ``outstanding issue.''

``We pushed very strongly for it,'' Frank said. ``We haven't resolved it yet.''

``Bankruptcy is the one issue where our Republican colleagues told us they thought that would blow up the whole thing,'' Frank told reporters. ``So it hasn't been finally resolved, but that's on the table.''

Spencer Bachus, the top Republican on the House Financial Services Committee, said he was urged to ``see that the taxpayer and that the Treasury is reimbursed for their expenditures. I think that was an important step that we all took and we're committed to the taxpayer being protected.''

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By Roger Runningen and Catherine Dodge

Sept. 24 (Bloomberg) -- President George W. Bush, in a prime time address to the nation, said the unprecedented intervention his administration has proposed to stabilize U.S. financial markets is urgently needed to avoid the prospect of a ``long and painful recession.''

``We're in the midst of a serious financial crisis,'' Bush said in a speech from the White House. ``Our entire economy is in danger.''

Bush addressed the nation after he invited presidential candidates John McCain and Barack Obama and a bipartisan group of House and Senate leaders to the White House tomorrow to hasten an agreement on the bailout package.

The invitation came after Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson faced another day of questioning on the plan from skeptical lawmakers.

Bush explained the crisis, recounting how easier credit brought on ``negative consequences'' in the economy, including people getting home mortgages they couldn't afford. The decline in the housing market ``set off a domino effect'' throughout the economy, he said.

``The gears in the financial system began grinding to a halt,'' Bush said.

Resistance in Congress has led the administration to retreat on its opposition to limits on executive compensation for companies taking part in the rescue plan and for more oversight of the plan's implementation.

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By Stanley White and Ron Harui

Sept. 24 (Bloomberg) -- The dollar fell against the euro as the U.S. Congress studies the government's $700 billion rescue proposal, with Federal Reserve Chairman Ben S. Bernanke saying a delay in passing the plan would hurt the economy.

The greenback also approached a one-month low versus the British pound before a report that economists forecast will show U.S. home sales dropped, bolstering the case for a Fed interest- rate cut. The Australian and New Zealand dollars weakened as prices for commodities the countries export declined.

``The dollar will face a lot of pressure to go lower,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Uncertainty about when the U.S. rescue package will pass and how much of a burden it will place on future generations is damaging confidence in the dollar.''

The currency dropped to $1.4684 per euro at 12:38 p.m. in Tokyo from $1.4648 late yesterday in New York. It was at 105.66 yen from 105.56 yen. Against the pound, the dollar traded at $1.8544 from $1.8522. It reached a one-month low of $1.8642 on Sept. 22. The euro bought 155.16 yen from 154.63 yen. The dollar may decline to $1.4710 per euro today, Soma forecast.

The Australian dollar fell to 83.43 U.S. cents from 84.40 cents late in Asia yesterday. New Zealand's dollar weakened 1.4 percent to 68.06 U.S. cents.

Gold, Australia's third most-valuable raw material export, fell $3.80 to $887.40 an ounce. Crude oil, its fourth most- valuable export, was little changed at $107.07 a barrel after falling for the first time in a week. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.

Illiquid Assets

U.S. lawmakers have balked at rubber-stamping the Treasury's plan to remove illiquid assets from the banking system, with Democrats demanding it include support for homeowners and limits on executive pay. Republicans are also resisting the plan, which economists predict would push the budget deficit to an all-time high next year.

Bernanke gives congressional testimony on the U.S. economy at 10 a.m. in Washington today. He and Treasury Secretary Henry Paulson said yesterday the bailout is needed to avert a recession in the world's biggest economy.

Gains in the euro may be limited by speculation weakening German business confidence will add to evidence that growth is slowing in the 15 countries that share the currency.

The Ifo institute's business climate index declined to 94.3 in September from 94.8 in August, according to the median of 41 forecasts in a Bloomberg News survey. That would be the weakest reading since June 2005. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today.

European Recession?

``The Ifo may be an ugly number, showing there are still concerns whether the euro zone will fall into a recession,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``You will see some euro selling again.''

The euro may fall to $1.4580 and 154.00 yen today, he said.

The U.S. currency has lost about 5.5 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its 1999 debut.

The U.S. National Association of Realtors will say today that house purchases declined to a 4.94 million annual pace from 5 million in July, according to a Bloomberg survey. The report is due at 10 a.m. New York time. Sales reached a 4.85 million pace in June, the fewest since comparable records began in 1999.

Home Sales Slide

The Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 510,000 from 515,000 in July, according to a separate survey before tomorrow's data. Sales of existing and new homes are down 35 percent from their July 2005 peak.

``A large amount of wealth has truly been lost, and these are losses that have not been offset by gains,'' Robert Merton, the Nobel Prize-winning economist and co-founder of Long-Term Capital Management, said yesterday during a panel discussion at Harvard Business School in Boston. ``Like it or not, those losses have to be borne by house-owners, by those who financed them and by the general population.''

The chance of the Fed cutting its 2 percent benchmark rate by a quarter-percentage point at its Oct. 29 policy meeting was 58 percent yesterday, compared with zero a month ago, futures contracts on the Chicago Board of Trade showed.

Weaker Dollar

The U.S. Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six major trading partners, reached 75.890 on Sept. 22, the lowest since Aug. 13. It was at 76.618 from 76.468 yesterday.

``The housing market is still slowing and the poor state of the economy is likely to continue,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest bank by assets. ``Sentiment is bad toward the dollar,'' which may weaken to 105 yen today, he said.

The U.S. dollar may extend its decline to parity with the Canadian dollar, according to charts that predict price movements, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London. The greenback last traded at C$1.0347 from C$1.0384.

Daily and weekly momentum indicators such as the stochastic oscillator and Goldman's ``Trend Strength'' charts are both ``bearish,'' Edgeley wrote in a research note yesterday. ``There is scope for further extension toward the potential trend line support from February around C$1.0000.''

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By Craig Torres

Sept. 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing ``grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.

``Economic activity appears to have decelerated broadly,'' Bernanke said today to a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. ``Stabilization of our financial system is an essential precondition for economic recovery.''

Bernanke's comments, his most dire about the economy since he became central bank chief in 2006, may stoke investors' expectations the Fed will lower interest rates by year-end to alleviate the credit crisis. He reiterated his call for Congress to pass Treasury Secretary Henry Paulson's plan for a $700 billion fund to remove devalued assets from the banking system.

Without the bailout, ``credit will be restricted further for homeownership, for small business, for individual consumers and so on, but that is not just an inconvenience,'' Bernanke said. ``What that is going to do is affect spending and economic activity and it will cause the economy as a whole to decline and be much weaker than it otherwise would be.''

The Federal Open Market Committee left its benchmark rate unchanged at 2 percent this month for a third straight meeting after seven cuts since September 2007. Policy makers next gather Oct. 28-29, when traders see a 78 percent chance of a reduction, futures prices show.

`Downside Risks'

``The downside risks'' to economic growth ``remain a significant concern,'' Bernanke said.

Lawmakers including Representative Paul Kanjorski, the second highest-ranking Democrat on the House Financial Services Committee, said taxpayers don't want to rescue mortgage lenders and other financial institutions viewed as responsible for the credit crisis.

Taxpayer interests ``must trump those of corporate fat cats and cowboy capitalists,'' Kanjorski of Pennsylvania told Bernanke at an afternoon hearing by the House panel. ``Americans are tired of enabling corporate excess.''

The Fed chairman's testimony today signaled that restrictive credit has now slowed the economy from its 3.3 percent annualized pace in the second quarter to a pace ``appreciably below its potential rate.'

Bernanke is ``very much leaning to seeing downside risks to growth as much greater,'' said James o'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``If we don't get credit market relief, the risks tilt overwhelmingly to growth rather than inflation.''

Waning Credit

Tumbling housing prices and waning mortgage credit have pushed up borrowing costs for both banks and consumers, and will probably slow the expansion to a 1.7 percent annual rate in 2008, according to the median forecast of 80 economists in a Bloomberg News survey.

Unemployment rose in August to a five-year high of 6.1 percent and payrolls have fallen for eight straight months.

``The weakness in fundamentals underlying consumer spending suggest that household expenditures will be sluggish, at best, in the near term,'' the Fed chairman said. ``The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions.''

Bernanke said construction of commercial office buildings and business spending on equipment and software are likely to slow. Declining growth abroad could reduce the lift the U.S. economy received from exports in the first half, he said.

`Quite Adverse'

``If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,'' Bernanke said.

Bernanke also said slowing growth should help moderate inflation pressures. The consumer price index rose 5.4 percent for the year ending in August.

``The inflation outlook remains highly uncertain,'' he said. ``The upside risks to inflation remain a significant concern.''

Responding to questions from lawmakers, Bernanke said that should the rescue succeed and spur an economic recovery, the Fed may raise interest rates sooner than it otherwise would. For the plan itself, ``I don't expect any effect on inflation,'' he said.

Bernanke yesterday told the Senate Banking Committee in a joint appearance with Paulson that lawmakers should pass the rescue plan quickly.

Worsening Crisis

In a worsening credit crisis, ``people cannot borrow to buy a car, to send a student to college, to buy a house,'' Bernanke told the House committee today. Scant lending harms ``people at the lunch bucket level.''

Fed officials have so far failed to stem the credit crisis even after the steepest rate cuts in two decades and interventions in Bear Stears Cos. and American International Group Inc. this year.

The Fed has also pumped billions of dollars into banks to try to restore liquidity, while invoking extraordinary powers to loan to securities firms.

The Treasury this month took over Fannie Mae and Freddie Mac as the turmoil engulfed the two largest mortgage finance companies.

Lawmakers have balked at approving the Treasury's proposal to buy illiquid assets from financial institutions without changes. Republicans resisted the plan's size and scope and Democrats demanded support for homeowners and limits on executive pay.

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Eveillard Says Gold May Surge as Investors Seek `Insurance'

By Stewart Bailey

Sept. 23 (Bloomberg) -- Jean-Marie Eveillard says he has stashed $1 billion in gold in a vault near Times Square as insurance against ``extreme outcomes,'' like a market collapse or unintended consequences of the U.S. plan to avert one.

Eveillard keeps as much as 8 percent of his $22 billion First Eagle Global Fund in bullion or gold-mining stocks. He occasionally visits the vault in a building about 12 blocks from his Midtown Manhattan office, he said.

``Gold is insurance,'' Eveillard said in an interview yesterday. ``In most of those instances where things would get bad enough so you would get into equity bear markets, where economic and financial circumstances would be bad for a year or two or three,'' gold prices will rise.

Gold futures traded on the Comex division of the New York Mercantile Exchange have surged 19 percent since Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed for bankruptcy protection. The metal has gained for seven straight years, more than tripling in price, as the dollar declined.

Bullion rose $44.30, or 5.1 percent, to $909 an ounce yesterday.

Eveillard, a 68-year-old Frenchman, came out of retirement in March 2007 to resume managing the First Eagle fund after his successor, Charles de Vaulx, abruptly resigned. With Wall Street's turmoil forcing the U.S. toward a $700 billion plan to prop up the financial system, the dollar may plunge and inflation accelerate, Eveillard said.

Annual Returns

The First Eagle Global Fund, which he managed for 24 years before his first retirement, has returned 13 percent annually in the past five years, placing it in the 95th percentile of similar funds, according to Bloomberg data. The fund has dropped 8.2 percent this year.

U.S. officials led by Treasury Secretary Henry Paulson offered proposals during the weekend to avoid a credit freeze that could cripple the financial system and halt economic growth. The plan follows last week's bankruptcy of Lehman Brothers and the government's takeover of insurer American International Group Inc.

``I'm not expecting a disaster, and I acknowledge that the steps they took are probably helpful,'' Eveillard said. ``What I'm saying is, to the extent a price has to be paid, there will be unintended consequences, including the dollar looking shaky or inflation related to the ballooning budget deficit.''

`Creative Destruction'

The U.S. is unwilling to endure ``creative destruction'' that would rectify the market excesses caused by its debt-fueled boom, Eveillard said. Asian economies were forced by the U.S. and the International Monetary Fund to take their ``medicine'' after their market crises in the late 1990s, he said. The Japanese endured a decade of economic stagnation after the country's 1980s asset bubble burst, he said.

``The Asian solution would mean you correct the excesses and it's very painful for a year or two or three, or the Japanese solution is stagnation '' Eveillard said. ``They don't want the South Korean solution or the Japanese solution, so they come up with their own reflation.''

Financing the larger deficit by ``printing more money'' will drive inflation higher, increasing gold's appeal as a safe-haven asset and an alternative currency, Eveillard said.

Investors are buying treasuries as a haven in the debt crisis, he said. The Fed is likely to succeed in keeping companies able to borrow, which will prompt investors to switch from bonds to gold, he said.

Central banks and large investors would need to move a small portion of their money into gold to drastically boost the price because the bullion market is smaller than those for derivatives and currencies. He gave no exact target for gold's price.

``It's a small market, the market for gold bullion, so it could go very high, I presume,'' Eveillard said.

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Dollar, Stocks, Bonds Fall on Concern Bailout to Boost Deficit

By Ye Xie and Daniel Kruger

Sept. 22 (Bloomberg) -- The dollar fell the most against the euro since January 2001, while U.S. stocks and bonds tumbled, on concern the U.S. proposal to rescue banks from the subprime-mortgage crisis will inflate the budget deficit.

The greenback dropped 2.1 percent against the euro. The Standard & Poor's 500 Index decreased 2.3 percent, retreating after the biggest two-day rally since 1987. Yields on 10-year Treasuries rose 0.6 percentage point to 3.87 percent, and oil prices jumped 10 percent.

``Selling is feeding on itself,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``There's just a growing appreciation that the scale of obligations the U.S. government is taking on board is stretching the limit of what's credible and is badly damaging to U.S. debt and the U.S. dollar.''

The dollar fell to $1.4789 per euro at 1:33 p.m. in New York, from $1.4466 on Sept. 19. It touched $1.4797, the weakest level since Aug. 28.

The S&P 500 retreated 22.36, or 1.8 percent, to 1,232.72, led by regional banks that may get hurt by the bailout. The price of the 4 percent Treasury note due in August 2018 fell 11/32, or $3.44 per $1,000 face amount, to 100 30/32, according to BGCantor Market data. Crude oil for October delivery rose $10.70, or 10 percent, to $115.25 a barrel on the New York Mercantile Exchange. Futures climbed as much as $11.12 to $115.67 a barrel, the highest since Sept. 2.

The dollar has lost more than 5 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency's 1999 debut.

No Dollar `Support'

``Fundamentally speaking, nothing is supporting the dollar,'' Tom Sowanick, who helps manage $10 billion as chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey. ``Why should foreign investors continue to support the U.S. financial system?''

The bailout plan, sent to Congress Sept. 20, would mark unprecedented government participation in markets and increase the nation's debt ceiling by 6.6 percent to $11.315 trillion. Officials may also provide $400 billion of guarantees for money- market funds.

The dollar will get ``crushed,'' as the extra spending reduces the allure of U.S. assets to foreign investors, said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund firm, which manages about $15 billion.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke began plotting the rescue last week after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy, the government seized control of American International Group Inc., and Merrill Lynch & Co. was forced into the arms of Bank of America Corp. Paulson and Bernanke are due to testify before the Senate tomorrow on the banking crisis.

Stronger Yen

The yen rose 1 percent to 73.30 versus the New Zealand dollar and 59.31 against the Brazilian real on reduced demand for carry trades, in which traders get funds in a country with low borrowing costs and invest where returns are higher. The Bank of Japan's target lending rate of 0.5 percent compares with 4.25 percent in Europe, 7.5 percent in New Zealand and 13.75 percent in Brazil.

``Even with a plan, the likelihood there will be a very severe slowdown in the U.S. and elsewhere has increased,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``I don't think people will return to the same old risk-taking world.''

The rand weakened 0.8 percent to 8.0233 per dollar as South African President Thabo Mbeki's resignation increased speculation foreign investors will sell the country's assets on extended global financial turmoil. The currency dropped 2 percent to 11.6860 against the euro.

The chance of the Fed cutting its benchmark 2 percent rate by a quarter-percentage point at an Oct. 29 policy meeting was 38 percent, compared with zero a month ago, futures contracts on the Chicago Board of Trade showed. The European Central Bank's main refinancing rate is 4.25 percent.

Economic Data

Home resales declined to 4.94 million last month from 5 million in July, according to the median forecast of 70 economists surveyed by Bloomberg News. The National Association of Realtors' report is scheduled for release Sept. 24. The Commerce Department is forecast to report the next day that sales of new houses dropped to 510,000 from 515,000 and that durable goods orders fell 1.8 percent.

``We look for the dollar to reflect the weakness in the U.S. economy,'' said David Powell, a currency strategist at Bank of America in London. ``The dollar is not yet receiving the yield support that would normally be acquired in order to support a sustained rally.''

The yield advantage of two-year German bund over the comparable-maturity U.S. notes widened to 1.81 percentage points, from 1.66 at the beginning of the month, making the U.S. assets less attractive.

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Goldman, Morgan Stanley Bring Down Curtain on an Era 

By Christine Harper and Craig Torres

Sept. 22 (Bloomberg) -- The Wall Street that shaped the financial world for two decades ended last night, when Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken.

The Federal Reserve's approval of their bid to become banks ends the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and caps weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.

``The decision marks the end of Wall Street as we have known it,'' said William Isaac, a former chairman of the Federal Deposit Insurance Corp. ``It's too bad.''

Goldman, whose alumni include Henry Paulson, the Treasury secretary presiding over a $700 billion bank bailout, and Morgan Stanley, a product of the 1933 Glass-Steagall Act that cleaved investment and commercial banks, insisted they didn't need to change course, even as their shares plunged and their borrowing costs soared last week.

By then, it was too late. As financial markets gyrated -- the Dow Jones Industrial Average whipsawed 1,000 points in the week's last two days -- and clients defected, executives at the two firms concluded they had no choice. The Federal Reserve Board met at 9 p.m. yesterday and considered applications delivered that day, said Michelle Smith, a spokeswoman for the central bank. The decision was unanimous, she said.

`Blood in Water'

``There's blood in the water in the industry and the sharks are circling,'' Peter Kovalski, who helps oversee about $10 billion at Alpine Woods Capital Investors LLC, said at the end of last week. ``It all comes down to perception and the current trust within the community.''

Morgan Stanley rose $2.58, or 9.5 percent, to $29.79 as of 12:25 p.m. in New York Stock Exchange composite trading. Goldman advanced 10 cents to $129.90.

Wall Street hasn't had such a shakeup since the 1980s, when firms including Morgan Stanley and Bear Stearns Cos. went public and London's financial markets were altered forever with the so- called Big Bang reforms implemented in 1986. Bear Stearns disappeared in March, when it was bought by JPMorgan Chase & Co.

The announcement paves the way for the two New York-based firms, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using money borrowed in the bond market -- the leverage that led to the undoing of Bear Stearns and Lehman.

Depositors Rule

Morgan Stanley has taken $15.7 billion of writedowns and losses on mortgage-related securities and other types of loans since the credit crunch started last year. Goldman's tally stands at about $4.9 billion. While both companies have remained profitable and avoided money-losing quarters suffered by Lehman and Merrill Lynch, their revenue from sales and trading and investment banking has been declining this year.

``Deposit-banking is king right now,'' said David Hendler, an analyst at CreditSights Inc. in New York. ``It's the only meaningful critical-mass way to make money.''

Mitsubishi UFJ Financial Group Inc., Japan's largest bank, said today it will pay up to 900 billion yen ($8.4 billion) for as much as a fifth of Morgan Stanley. The deal would mark the biggest overseas acquisition by a Japanese financial company, according to data compiled by Bloomberg.

Building Deposit Base

The Japanese bank will become ``a valuable partner as we transition to a bank holding company and build our bank services and deposit base,'' Morgan Stanley Chief Executive Officer John Mack said in a statement today.

The deal announced today came after Morgan Stanley held talks last week to pursue a merger with Wachovia Corp. That deal became less likely now that Morgan Stanley is becoming a bank holding company, said Tony Plath, a finance professor at the University of North Carolina at Charlotte.

Morgan Stanley, the second-biggest securities firm until this week, had $36 billion of deposits and 3 million retail accounts at the end of August. The company plans to convert its Utah-based industrial bank into a national bank.

``This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position,'' Chairman and CEO Mack, 63, said in a statement last night. ``It also offers the marketplace certainty about the strength of our financial position and our access to funding.''

Citigroup, JPMorgan

Goldman, the largest and most profitable of the U.S. securities firms, will become the fourth-largest bank holding company. The firm already has more than $20 billion in customer deposits in two subsidiaries and is creating a new one, GS Bank USA, that will have more than $150 billion of assets, making it one of the 10 largest banks in the U.S., the firm said in a statement last night. The firm will increase its deposit base ``through acquisitions and organically,'' Goldman said.

``Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources,'' Lloyd Blankfein, 54, Goldman's chairman and CEO, said in the statement.

The Washington-based Fed is the primary regulator of bank- holding companies, which are firms that own or control banks. Citigroup Inc., Bank of America Corp. and JPMorgan are bank- holding companies regulated by the Fed. Goldman and Morgan Stanley will be able to become bank holding companies immediately, without submitting to a five-day antitrust waiting period, the Fed said today, after consulting with the Department of Justice.

Less Risky

Securities firms, by contrast, had been regulated by the Securities and Exchange Commission. The SEC's future becomes dimmer with the change in Goldman and Morgan Stanley's structures.

``You can't kiss goodbye to the last two important investment banks without noting that the house is empty,'' said David Becker, a former SEC general counsel who is now a partner at Cleary Gottlieb Steen & Hamilton in Washington. ``It's a downward spiral where the less significant the population you regulate, the less your available resources.''

The change is also likely to lead to less risk-taking by the companies and possibly lower pay for their employees. Both Goldman and Morgan Stanley held more than $20 of assets for every $1 of shareholder equity, making them dependent on market funding to operate.

Goldman, in particular, has been remarkable for the high bonuses it pays to its employees. Goldman's CEO and two co- presidents were each paid more than $67 million last year.

``They're going to have to protect their deposit bases by law, and the days of high leverage are gone,'' said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, who wrote ``Wall Street: A History.'' ``The days of the big bonuses are gone.''

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GOLD OVER $900/OZ

OIL UP $24/BARREL - MOST IN ONE DAY EVER



 

Dollar May Get "Crushed" as Traders Weigh $1Trillion Cost of Bailout Plan

Last Big Investment Banks Change Status

By Jan Harvey

LONDON (Reuters) - Gold rose more than 2 percent on Friday, recovering from earlier losses, as the dollar slipped sharply versus the euro and oil rallied more than $5 a barrel.

Gold slipped more than 3 percent earlier in the session after the U.S. government said it was considering a plan to deal with toxic banking assets, potentially stabilizing the markets.

However, a turnaround in the foreign exchange markets that sent the euro to session highs against the dollar, coupled with a sharp rise in the oil price, helped the metal rally to a day high of $868.65 per ounce.

At 1404 GMT, spot gold was at $868.55/870.55, against $847.25 an ounce at the nominal New York close on Thursday.

The euro gained ground against the dollar and crude prices rallied as investors digested the implications of a mooted U.S. government plan to deal with toxic bank assets.

Officials say they are considering a taxpayer-funded mop-up of mortgage-related debt.

"The impact of the plan has been for the dollar to weaken, and essentially that has been the catalyst for a move up in all markets," said Calyon analyst Robin Bhar.

"Equities are exploding, base metals are higher and gold as well has taken part."

A weaker dollar typically benefits gold, which is often bought as a currency hedge.

Gold has benefited from a wave of risk aversion that has hit the markets this week after U.S. investment bank Lehman Brothers filed for bankruptcy protection on Monday.

Prices soared nearly $140 an ounce from last Friday's nominal New York close to this week's high, while Wednesday saw the largest one-day dollar gold price rise in history.

The metal rallied above $900 an ounce in late Thursday trade as investors fled rocky equity markets for safer assets such as bullion.

POTENTIAL REMAINS

Analysts say gold in the longer term may benefit from continued uncertainty surrounding the financial sector, as well as tight underlying fundamentals.

Investment demand remains firm, with the world's largest bullion-backed exchange-traded fund, the SPDR Gold Trust, reporting a further 4.5 tonne inflow on Thursday. Its holdings have risen nearly 7 percent since Monday.

Demand for gold jewellery, coins and bars is also expected to pick up as the festival season gets underway in major consumer India, although high prices may curb buying.

Among other precious metals, silver rallied 5 percent in gold's wake to a session high of $12.53, before settling back to $12.39/12.44 from $11.84.

Platinum also rose sharply, tracking gold higher. Spot platinum was at $1,151.00/1,158.00 in early afternoon trading against $1,089.00 at the nominal New York close on Thursday.

Spot palladium was at $233.00/241.00 against $230.00, up from a session low of $221.00.

"We see value emerging again in the PGMs, especially in palladium which is near range lows amidst a market that is running down its above-ground inventory and talk of mine stress continues to build in Russia," said JP Morgan analyst Michael Jansen in a note.

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9/18/07 - Source:  Blooomberg Television:  The massive movement into gold today as investors and institutions move away from anything equity-based is set to push gold back over the $900 barrier.   

NEW YORK (AP) -- Gold prices spiked near $900 an ounce Thursday as unnerved investors poured money into safe-haven assets for a second day on fears that a U.S. recession is all but unavoidable.

Gold is up about $100 in a frenzied two-day rally, including the largest ever one-day price advance on Wednesday.

The metal's latest push came as the Federal Reserve stepped up efforts to stem the worst financial crisis since the Great Depression. The central bank pumped $55 billion into temporary reserves in the United States to free up the strained financial system. Hours earlier, the Fed joined other central banks to flood world markets with dollars, hoping to stave off a collapse of international credit markets.

The emergency moves helped boost the stock market a day after a massive decline, but many investors, fearing more turbulence in coming days, continued to shift funds out of riskier investments like stocks and into the relative safety of precious metals and U.S. Treasury bills.

The influx of money marked a sharp turnaround for gold, which had seemed to be frozen in a monthslong lull since shooting above $1,000 for the first time ever in March.

"This is a very scary time and everyone is asking one thing: 'Where is the safest place to put my money?' Right now, gold looks like a good place," said Kevin Grady, a gold trader at MF Global in New York.

Gold for December delivery jumped to $897.40 an ounce on the New York Mercantile Exchange before easing back to $878.10, up $27.60. On Wednesday, gold rose as much as $90 before settling $70 higher at $850.50 an ounce, the biggest one-day jump ever.

Other precious metals also shot up Thursday. December silver jumped 67 cents to $12.345 an ounce on the Nymex, after earlier rising to $13.065. December copper rose 5.95 cents to $3.102 a pound, while October platinum gained $33.70 to $1,120 an ounce.

A weaker dollar also boosted gold Thursday. When the greenback falls, investors often buy gold, silver and other hard assets to hedge against inflation and weakness in the U.S. currency.

But gold is most attractive during times of economic crisis. The metal has long been considered a safe, alternative investment, primarily because it's known for holdings its value over time.

"Even during the depression, a kilogram of gold bought you a new Ford, Chevy or Plymouth. And even now a kilogram of gold still buys you a new Ford, Chevy or Plymouth, said George Gero, vice president at RBC Capital Markets Global Futures in New York.

Still, gold's trading pattern has been marked by extreme volatility, and analysts noted that prices could fall as quickly as they popped up. Thursday's rally was already being limited by investors who were unloading positions to cash in on the previous day's advance.

"Perhaps we've had a little too much, too soon on this spike up," Gero said.

Other market watchers say gold has been due to break out after its long slump. Demand for gold jewelry and other items usually picks up around the U.S. holiday period and also the traditional wedding season in India, a major gold buyer.

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By Stewart Bailey and Millie Munshi

Sept. 18 (Bloomberg) -- While TV camera crews staked out AIG's Wall Street headquarters following its takeover by the U.S. government, Jules Karp was quietly trading gold coins in ``unbelievable'' numbers from his basement dealership across the street.

Karp, 61, has traded physical gold since 1974. Demand has ``hit a crescendo,'' he said yesterday while an assistant prepared the special packages used to send gold coins to a growing list of customers.

Investors are being driven to the relative safety of gold as global equities plummet following the federal takeover of AIG, the largest U.S. insurer by assets, and the bankruptcy of  Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Amid the fallout yesterday, Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. securities firms, plunged the most ever in New York trading.

``People are panicking right now,'' said Karp, who also sources coins for the clients of Wall Street's largest banks. ``They're afraid for their money.''

 ``People want to protect their wealth and their assets, and gold is the best way for them to do that.''

Gold Skyrockets

The purchases by retail investors mirrored trading yesterday on the New York Mercantile Exchange's Comex division, where gold gained the most in almost nine years. Suppliers of coins and bullion have been struggling to keep pace with the surge in demand from investors.

``We're having a hard time'' making enough coins, Michael White, a spokesman for the U.S. Mint in Washington, said yesterday in an interview. ``There's very high demand across the market for gold.''

Gold futures for December delivery gained $70, or 9 percent, to $850.50 an ounce yesterday on the Comex, the biggest percentage gain for a most-active contract since September 1999.

Hard Assets

Depositors fearing bank collapses are turning cash into hard assets, said Richard Smith, president of a Phoenix-based online bullion dealership. Many don't want their savings in any one bank to exceed the $100,000 threshold guaranteed by the Federal Deposit Insurance Corp., he said.

``I've been selling gold for eight years and I've never seen anything like what I've seen in the last seven business days,'' Smith said yesterday in a telephone interview. ``It's just been gangbusters for us.''

Since 2003, the value of gold purchases jumped almost fourfold, representing the strongest source of growth in demand, the World Gold Council said on its Web site. Investment attracted net inflows of about $15 billion last year, the industry body said.

``There is no doubt that identifiable investment demand in gold has increased considerably in recent years,'' the World Gold Council said.

Record in March

The precious metal reached a record $1,033.90 an ounce in March after the Federal Reserve slashed interest rates, sending the dollar to an all-time low against the euro. Gold subsequently dropped as the dollar strengthened and commodity indexes liquidated their positions. Newmont Chief Executive Officer Richard T. O'Brien said last month the price will probably top its March record in the next year.

``You don't want to go to bed on Friday evening and come back on Monday and have your investments worth zero.'

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Sept. 17, 2008

Washington Mutual received a critical financial concession from its largest investor, TPG, setting the stage for the beleaguered thrift to raise more capital, divest branches or sell the entire thrift, according to people familiar with the situation. Seattle-based WaMu, weighed down by a deteriorating balance sheet tied to its vast mortgage portfolio, has received interest from Wells Fargo and Citigroup.

Morgan Stanley has held preliminary merger talks with Wachovia and at least one other bank, a person familiar with the matter said. The investment bank, pursuing alternatives to shore up its falling stock price, has also reached out to regulators and large pension funds in an effort to stop short sellers from betting on the stock's decline.

After Morgan Stanley's precipitous decline in the last few days, its market value is only slightly above Wachovia's, so the likeliest combination would be a merger of equals.  

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Its daily gain is the biggest in dollar terms since at least 1980

By Pham-Duy Nguyen

Sept. 17 (Bloomberg) -- Gold surged the most in nine years as investors sought the safety of precious metals on concern that the credit crisis will deepen, leading more financial institutions to fail. Silver soared the most since 1979.

Equities tumbled after the Federal Reserve took over the biggest U.S. insurer. The cost of borrowing dollars for three months jumped the most since 1999 as banks hoarded cash. Central banks in the Phillipines and Venezuela said they may buy gold. In March, the metal reached a record as the government steered JPMorgan Chase & Co. to buy Bear Stearns Cos.

``People are worried about money being safe in a bank,'' said Ron Goodis, the futures trading director at Equidex Brokerage Inc. in Closter, New Jersey. ``With paper assets in question, gold represents the textbook storehouse of value.''

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By Claudia Carpenter

Sept. 17 (Bloomberg) -- Gold may rise to $950 an ounce by the end of year as central banks and miners hold back sales and investors buy the metal as a haven against falling stock prices, London-based researcher GFMS Ltd. said.

Central bank sales will drop 46 percent in 2008, while mine supply will decline for a third year, a GFMS report showed today. Demand from investors worldwide will soar 38 percent to 778 metric tons, with purchases in east Asia more than doubling.

``We're expecting gold to stage a powerful rally in the fourth quarter,'' GFMS Chairman Philip Klapwijk said at a conference in London today. There will be ``significant declines in stocks, which compete with gold.''

Gold for immediate delivery rose 0.3 percent to $782.25 an ounce as of 2 p.m. in London.

Prices have dropped 6.2 percent this year, heading for the first annual drop in eight as dollar gains erode demand for the metal as an alternative to the U.S. currency and investors sell commodities to raise cash and cover losses in other markets.

``People are liquidating assets and trying to raise cash,'' Klapwijk said. ``Once the dust settles, we will see some allocation back into gold, and gold will benefit.''

The metal rose 5.4 percent on Sept. 12 and Sept. 15 as investors sought a haven from market turmoil after Lehman Brothers Holdings Inc. filed for bankruptcy protection.

Vietnam's net investment demand was 71 tons in the first half, surpassing India as the world's largest market. Investors in Vietnam sought gold to hedge against inflation, falling equities and a drop in the value of their currency, GFMS said.

Mine Output

Global mine production will drop 2.3 percent this year to 2,422 tons, the lowest since 1996. Recycled metal output will rise 9.3 percent, it said. South Africa, the world's second- biggest gold producer, reported a 16 percent decline in production in July from a year earlier.

Gold purchases by jewelers will rebound in the second half this year, rising 6 percent from a year earlier to 1,184 tons and accounting for 64 percent of total demand, GFMS said.

Annual jewelry demand will fall 9.9 percent to 2,164 tons, led by a 16 percent drop in North America and 15 percent decline in the Indian subcontinent, according to the report. The only market to show growth will be in the former Soviet states.

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Gold Soars Most Since 1999 as Investors Seek Haven From Turmoil

By Pham-Duy Nguyen

Sept. 17 (Bloomberg) -- Gold surged the most in nine years as investors sought the safety of precious metals on concern that the credit crisis will deepen, leading more financial institutions to fail. Silver soared the most since 1995.

Equities tumbled even after the Federal Reserve took over the biggest U.S. insurer. The cost of borrowing dollars for three months jumped the most since 1999 as banks hoarded cash. Central banks in the Phillipines and Venezuela said they may buy gold. In March, the metal reached a record as the government steered JPMorgan Chase & Co. to buy Bear Stearns Cos.

``With paper assets in question, gold represents the textbook storehouse of value,'' said Ron Goodis, the futures trading director at Equidex Brokerage Inc. in Closter, New Jersey.

Gold futures for December delivery gained $66.10, or 8.5 percent, to $846.60 an ounce at 1:17 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain for a most-active contract since Sept. 28, 1999. Gold reached a record $1,033.90 on March 17.

Silver futures for December delivery rose 96.3 cents, or 9.2 percent, to $11.48 an ounce. A close at that price would mark the biggest gain since March 30, 1995.

Before today, gold fell 6.9 percent this year, while silver tumbled 30 percent.

About $2.8 trillion of market value was erased from global stocks this week as Lehman Brothers Holdings Inc. filed for bankruptcy, Bank of America Corp. purchased Merrill Lynch & Co. for $50 billion, and the U.S. government took control of American International Group Inc. in an $85 billion takeover to prevent the biggest financial collapse ever.

Russian Banks

Russia halted stock trading for a second day and poured $44 billion into its three biggest banks in a bid to halt the worst financial crisis in a decade.

``You're sorting out, by process of elimination, that gold is the asset you'd rather own,'' said Greg Orrell, who manages the OCM Mutual Fund at Orrell Capital Management Inc. in Livermore, California. ``It's the currency you'd prefer.''

U.S. Treasury three-month bill rates dropped to the lowest since at least 1954. Investors pushed the rate as low as 0.0304 percent.

``It's not even worth it to keep money in the bank,'' said John Licata, the chief investment strategist at Blue Phoenix Inc. in New York. ``Gold is going to be the beneficiary of a global move toward a safe haven.''

Reserve Primary Fund, the oldest U.S. money-market fund, yesterday became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman.

`Systemically Scary'

``That's systemically scary,'' said Frank McGhee, the head dealer of Integrated Brokerage Services LLC in Chicago. ``Unless you put gold in your backyard, you have to trust your money to an institution.''

Gold's gains accelerated after prices topped $800, analysts said.

``There are going to be more banks that will fail,'' said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. ``This is the time when people want to buy gold.''

London-based researcher GFMS Ltd. said gold may rise to $950 by the end of the year as central banks and mining companies hold back sales and investors buy the metal as a haven against falling equities.

Since the second quarter of 2007, banks worldwide have posted $515.5 billion in losses and writedowns related to investments in subprime mortgages. The Fed has also engineered $200 billion in takeovers for Fannie Mae and Freddie Mac, the biggest providers of financing for U.S. homes.

Central Bank Buyers

The world's central banks, already the biggest holders of gold, may look to the metal as an alternative reserve asset to the dollar, said Dennis Gartman, an economist and the editor of the Gartman Letter in Suffolk, Virginia. Until today, Gartman had been bearish in his outlook for gold.

Venezuela said today it may buy 15 metric tons of gold a year to develop investment products, including coins. At a conference in London, Maria Ramona Gertrudes Santiago, the managing director of the treasury at the Phillipines Central Bank, called gold a ``perfect hedge.''

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By Elizabeth Stanton and Lynn Thomasson

Sept. 17 (Bloomberg) -- U.S. stocks tumbled as bank lending seized up in the wake of the government's takeover of American International Group Inc., raising concern that more of the nation's biggest financial companies will fail.

Goldman Sachs Group Inc. and Morgan Stanley, the two remaining independent U.S. securities firms after Lehman Brothers Holdings Inc. collapsed and Merrill Lynch & Co. was taken over, plunged the most ever. General Electric Co., the world's third- biggest company, fell 7.7 percent and U.S. Steel Corp. slid 11 percent. Yields on three-month Treasury bills sank to a 54-year low as investors sought the relative safety of government debt, and a measure of corporate borrowing costs surged to the highest since the crash of 1987.

``It's ugly,'' said Michael Mullaney, a Boston-based money manager for Fiduciary Trust Co., which oversees $10 billion in stocks and bonds. ``It's about the worst I've seen it in 25 years. You have to have free-flowing credit to lubricate the system. That's not happening right now.''

The S&P 500 lost 48.01, or 4 percent, to 1,165.58 at 12:30 p.m. in New York, its lowest level in almost three years as all 10 of the main industry groups declined. The Dow Jones Industrial Average decreased 355.56, or 3.2 percent, to 10,703.46 with three of its 30 companies gaining. The Nasdaq Composite Index sank 78.11, or 3.5 percent, to 2,129.79, falling below its previous low for the year on March 10. More than 10 stocks retreated for each that rose on the New York Stock Exchange. 

Value Erased

About $2.8 trillion of market value has been erased from global stocks this week, triggered by the largest-ever bankruptcy filing by Lehman Brothers, once the fourth-largest U.S. securities firm. Russia halted stock trading for a second day and poured $44 billion into its three biggest banks in a bid to halt the worst financial crisis in a decade.

Gold and silver surged as investors turned to precious metals as a store of value.  Newmont Mining Co., the largest U.S. gold producer, rose 7.3 percent to $42.43 for the second- biggest gain in the S&P 500.

Investors paid up for protection from further losses. The Chicago Board Options Exchange Volatility Index jumped 13 percent to 34.27, which would be the highest closing level since February 2003. The VIX measures the cost of using options as insurance against declines in the S&P 500.

`Protracted' Battle

Morgan Stanley slid $9.61, or 33 percent, to $19.09 after Oppenheimer & Co. analyst Meredith Whitney and Merrill Lynch & Co.'s Guy Moszkowski reduced their fourth-quarter profit estimates, citing higher funding costs. The lowered forecasts come a day after Morgan Stanley's profit beat estimates.

``We believe Morgan Stanley, along with its peers, will battle a protracted period of negative operating leverage,'' Whitney wrote in a note to clients.

Goldman slid $28.59, or 21 percent, to $104.42. Oppenheimer cut its fourth-quarter earnings estimate to $2.60 a share from $3.45.

The three-month London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent, the British Bankers' Association said.

U.S. Treasury three-month bill rates dropped to as low as 0.15 percent and the so-called TED spread, the difference between what the Treasury pays to borrow for three months and the amount banks charge each other for loans, widened by 0.73 percentage point to 2.91.

AIG Takeover

AIG, the largest U.S. insurer by assets, lost $1.69, or 45 percent, to $2.06 and extended its decline over the past year to 97 percent, after the government said it will receive a 79.9 percent stake in return for an $85 billion loan that analysts said will be repaid by liquidating the company.

``A disorderly failure of AIG could add to already significant levels of financial market fragility,'' according to a central bank statement yesterday.

The S&P Financials Index slumped 8.7 percent as 85 of its 86 companies retreated.

Banks and brokerages also fell after the Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman. Investor redemptions will be delayed as long as seven days, the fund said.

``There's just a massive retrenchment in risk appetite,'' said Robert Stimpson, a money manager at Oak Associates Ltd. in Akron, Ohio, which oversees $1.1 billion. ``We've seen three cornerstones of Wall Street fall by the wayside in the last six months. Is anyone safe? It's a legitimate question.''

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Customers are wondering if the insurer's woes will affect them. Here's why you should care - even if you aren't a customer.

NEW YORK (CNNMoney.com) -- American International Group is the world's largest insurer and at the moment, Wall Street's biggest worry.

The insurer is struggling to raise cash while economists and investors debate whether or not it should get a government bailout. Despite the company's importance, the average American is probably not sure how, or why, its problems will affect them.

Here are five key questions and answers about AIG's current woes and what they mean to you.

I have insurance through AIG. How worried should I be about the problems at the company?

At least in the short term, you probably don't need to be worried at all. The problems are with the AIG holding company, not the individual insurance company subsidiaries that you do business with, according to a source with New York State's insurance regulator.

Even if AIG's holding company is forced to file for bankruptcy court protection, there's a good chance that the subsidiaries will continue to operate normally with no disruption in claims payments. That has happened in the case of other insurance holding companies bankruptcies in the past, such as Conseco.

What guarantees are there that my claims will be paid?

Typically, if an insurance company falls into financial distress and is at risk of having claims that exceed the assets it holds to make those payments, the insurance regulator in its home state will take control of the firm and make payments.

The state regulator will not only use the firm's own assets to make those payments but if necessary can also make payments out of a state fund into which all insurers in the state are required to pay.

This guarantee applies not just to traditional insurance policies but also to retirement products that have a promised payout, such as annuities.

But there are limits to the payments that will be made to customers that vary depending on which state a particular AIG subsidiary is based, according to Joseph Belth, professor emeritus of insurance at Indiana University and editor of The Insurance Forum, a newsletter often critical of the industry.

Should I be thinking about changing my policy away from AIG to another insurer?

While credit rating agencies downgraded debt held by AIG on Monday, AIG's ratings are still considered investment grade and the company's insurance subsidiaries are considered to be secure, at least for now.

Belth said changing insurers is not a simple decision.

"A lot depends on what kind of insurance you talk about," he said. "If you're talking about life insurance, you have to think about whether you can qualify with a new insurer, if your health has changed. But it's something you have to consider if the ratings decline into the vulnerable range."

Why should I care about problems at AIG if I'm not a customer?

AIG is by far the world's largest insurer and its stock is found in many mutual funds, including any S&P 500 index fund. It is also a component of the Dow Jones industrial average. All by itself, it's been responsible for dragging the Dow down more than 400 points so far this year.

AIG is also active in the business of credit default swaps, complicated financial instruments used by investors to protect themselves from bond defaults. Lehman Brothers was another major player in that field. If both go away, it would create a tighter credit market for consumers and businesses trying to get loans.

For this reason, there is a debate about whether the Federal Reserve will agree to lend the company the tens of billions of dollars it needs to cover its short-term funding needs or if the Fed will try and get private firms to assist AIG instead.

AIG is an insurer, not a lender. Why do I keep hearing about its problems with subprime mortgages?

All insurers take money they collect in premiums and invest them in different forms of assets. The idea is to make money on those investments so that the insurer can keep their premiums low and attract more clients.

But AIG made a bigger investment into securities that were backed by subprime mortgages than most other insurers. As defaults and foreclosures of those loans rose, the value of those securities fell, creating big problems for the firm.

In the past nine months, AIG has reported net losses of more than $18 billion, largely due to its exposure to bad mortgages.

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Capital Gold Group clients seeking to liquidate annuities in attempts to preserve long term savings and retirements for conversion into physical gold got "voicemail" today in attempting to initiation liquidations.  No calls were being returned, leaving investors chained to this potentially sinking ship.

Breaking News:  2:55 EDT
The Fed is currently reconsidering helping AIG, and AIG may get a loan package from the Federal Reserve.

AIG Plunges as Downgrades Threaten Quest for Capital

By Hugh Son

Sept. 16 (Bloomberg) -- American International Group Inc. fell 34 percent in New York trading after the insurer's credit ratings were cut, threatening efforts to raise funds to keep the company afloat and roiling global financial markets.

S&P lowered AIG's long-term counterparty rating three grades to A- because of losses tied to home loans and concerns whether the insurer can raise enough money to meet obligations to investors who purchased credit-default swaps from the company.

The downgrade of AIG is the latest tremor to shake the global financial industry, less than a day after Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection and Merrill Lynch & Co. sold itself to Bank of America Corp. for about $50 billion. Stock markets from Tokyo to London tumbled as investors weighed the impact of a potential collapse of the largest U.S. insurer by assets.

``There's a systemic risk if AIG isn't saved,'' Benoit de Broissia, an equity analyst at Richelieu Finance in Paris, said in a Bloomberg Television interview. Richelieu has about $6.2 billion under management.

Investors led by former Chief Executive Officer Maurice ``Hank'' Greenberg are considering taking control of the insurer through a proxy fight or buyout, they said today in a regulatory filing. The group is reviewing options ``in light of current circumstances'' at the insurer, the filing said.

Collateral Damage

AIG may be overwhelmed by protection it sold investors on $441 billion of fixed-income investments, including $57.8 billion in securities tied to subprime mortgages. The swaps already forced $25 billion in writedowns over nine months.

The rating cuts may trigger more than $13 billion in collateral calls from debt investors who bought swaps, according to an Aug. 6 filing from New York-based AIG, intensifying pressure on CEO Robert Willumstad to raise cash.

The swaps provided profits when the housing market prospered ``for what has now turned out to be a much greater amount of risk than anybody anticipated,'' Willumstad, 63, said during an Aug. 7 conference call.

AIG fell $1.62 to $3.14 at 1:23 p.m. in New York Stock Exchange composite trading, paring losses from earlier in the day when the shares declined 74 percent. AIG's market value has shrunk more than 90 percent since peaking at almost $190 billion at the end of 2006, when it ranked among the world's five biggest financial companies.

`Much Bigger Problem'

Wall Street's largest firms were to meet at the New York Federal Reserve for a fifth day today, discussing AIG, said a spokesman for the New York Fed.

``I don't know of a major bank that doesn't have some significant exposure to AIG,'' said Kenneth Lewis, chief executive officer of Bank of America, in a CNBC interview. An AIG collapse would ``be a much bigger problem than most that we've looked at,'' he said.

S&P also lowered AIG's short-term counterparty credit rating by two grades to A-2 from the top A-1+ rating, and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries by three grades to A+ from AA+. The ratings remain on watch for a possible further downgrade, S&P said.

Moody's cut AIG's senior unsecured debt two grades to A2. Fitch Ratings lowered its assessment to A from AA-.

`Continuing Deterioration'

Moody's said in a statement that its decision was made ``in light of the continuing deterioration in the U.S. housing market and the consequent impact on the group's liquidity and capital position due to its related investment and derivative exposures.'' Moody's placed AIG's long-term and Prime-1 short- term ratings on review for possible downgrades.

AIG piled up net losses totaling $18.5 billion in the past three quarters on writedowns tied to the collapse of the U.S. subprime mortgage market. The insurer has units that originate, guarantee and invest in home loans.

``AIG poses a systemic risk because it's a large counterparty in the financial system,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It's too big to be allowed to fail.''

In the Aug. 6 filing, AIG outlined the implications of credit rating downgrades. A cut in its long-term senior debt ratings to A1 by Moody's and A+ by S&P would permit counterparties to make additional calls for as much as $13.3 billion of collateral, while a downgrade to A2 by Moody's, and to A by S&P would permit counterparties to call for approximately $1.2 billion of additional collateral, the company said in the filing.

`Immediate Need'

AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps with $4.6 billion in payments, AIG had said.

The round of credit-rating cuts ``further accentuates the immediate need for AIG to secure short-term funding and quickly execute sales of several of its subsidiaries,'' said Morgan Stanley analyst Nigel Dally in a note to investors today. ``Whether this is possible in a short time frame remains questionable.''

The Fed yesterday urged AIG to seek private capital, according to two people with knowledge of the discussions. Goldman Sachs Group Inc. and JPMorgan Chase & Co. were working with AIG to determine how much the New York-based insurer needs, said two more people, all of whom declined to be identified because negotiations are private.

Bridge Loan

The loan would involve temporary financing, a so-called bridge loan, through a syndicate of banks, and there's no assurance a deal will be worked out, one of the people said.

The insurer has issued no official statements on its capital-raising plans this week, frustrating investors.

``We expected the company to make a statement yesterday and they didn't,'' said Cliff Gallant, an insurance analyst at KBW Inc., in an interview with Bloomberg Television. ``They are waiting to have something concrete to say.'' Willumstad had previously said he'd present a turnaround plan Sept. 25.

AIG spokesman Nicholas Ashooh had no comment today on the credit downgrades.

``We're still working on a number of alternatives,'' Ashooh said yesterday. JPMorgan's Brian Marchiony and Goldman's Lucas van Praag declined to comment.

AIG was given special permission to access $20 billion of capital in its subsidiaries to free liquidity, New York Governor David Paterson said yesterday. The insurer has one day to raise $75 billion to $80 billion, Paterson told CNBC today. The insurer may file bankruptcy tomorrow, the network said, citing unnamed people close to the company.

State Regulation

When an insurance company stumbles or fails, its operations including obligations to policyholders are handled by state regulators. The holding company that owes money to stockholders and lenders may go through bankruptcy court procedures. That was the route followed by the units of Conseco Inc. after it filed for bankruptcy in 2002.

AIG hadn't gotten access to the New York lifeline as of about 10:30 a.m., said David Neustadt, a spokesman for state Insurance Superintendent Eric Dinallo.

``It would be part of a broader deal,'' Neustadt said. ``If there's no broader deal, then it doesn't happen.'' The regulators didn't say yesterday that access to the cash would require such conditions.

``We have seen some of the companies that serve as the bedrock of our financial system unraveling before our eyes,'' Paterson said in a news conference yesterday.

Hedge Funds

The $1 trillion-asset company has about $48.7 billion in hard-to-value holdings, and had 116,000 employees as of Dec. 31, compared with 97,000 two years earlier. In addition to selling life insurance and protecting property, AIG owns or manages about $25.7 billion of real estate including residential, industrial and retail properties. The company had private equity and hedge fund holdings of about $30 billion as of June 30.

AIG's $2.5 billion of 5.85 percent notes due in 2018 plunged 14.5 cents to 38 cents on the dollar as of 1:22 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The debt yields 21.5 percent, or about 18 percentage points more than similar-maturity Treasuries, Trace data show.

The Fed has hired Morgan Stanley to examine alternatives for AIG, a person familiar with the situation said. Morgan Stanley will review what role, if any, the government should play in helping the insurer, said the person, who declined to be identified because the talks are confidential.

`The Bigger Problem'

``The bigger problem here is that AIG is a bigger balance sheet, the tentacles go further and we don't have the same relationship between the Fed and an insurance company as we do with some of the others,'' said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. in a Bloomberg Television interview.

AIG may report writedowns of $30 billion for the period ending Sept. 30, resulting in its ``worst quarter yet,'' if Lehman's bankruptcy leads to distressed sales of mortgage assets, Citigroup Inc. analyst Joshua Shanker said yesterday in a note. He downgraded AIG to ``hold'' from ``buy.''

The company may consider selling assets, including American General Finance, AIG's consumer lender, which could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The company's stake in reinsurer Transatlantic Holdings Inc. is worth about $2.25 billion, based on yesterday's share price.

Aircraft Leasing

Bank of America analyst Alain Karaoglan said Willumstad, 63, should reconsider the decision to keep its aircraft-leasing unit, International Lease Finance Corp., which could sell for $7 billion to $14 billion. The unit was downgraded today by S&P, which may increase its cost of borrowing.

AIG rejected investments from buyout firms KKR & Co., TPG Inc. and J.C. Flowers & Co., people familiar with the talks said. Billionaire Warren Buffett's Berkshire Hathaway Inc. is no longer talking with AIG about an investment in the insurer, CNBC reported, citing people familiar with the situation it didn't identify.

The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said on Aug. 7. ``We're obviously dependant on the condition of the U.S. housing market.''

Last week, the U.S. Treasury seized Fannie Mae and Freddie Mac, the biggest sources of funding for U.S. mortgages, and nearly wiped out the value of their shares. AIG had $550 million to $600 million of preferred shares in the companies, said a person who declined to be identified because the insurer hadn't made a formal announcement.

`Moral Hazard'

Republican presidential nominee John McCain told CNBC today that there is a ``moral hazard'' in forcing taxpayers to be responsible for the poor performance of companies.

Asked whether regulators should allow AIG to fail, McCain said, ``I think you have to.''

AIG former CEO and Chairman Maurice ``Hank'' Greenberg, who controls the largest stake in the insurer, has ``repeatedly offered'' to assist the firm, his spokesman Glen Rochkind said.

Greenberg, 83, saw his holdings decline by $3.1 billion last week. He controls 11 percent of AIG shares through two investment firms and personal holdings.

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Sept. 16, 2008

The Federal Reserve held interest rates steady, and in a disappointment to Wall Street, didn't appear to signal that rate cuts are forthcoming anytime soon. Though officials continued to warn about inflation risks, they also signaled that economic concerns have intensified. 

In its statement, the Fed said: "Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters."

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Bloomberg Television reported today as the 2nd most historic day on Wall Street.

In the biggest reshaping of the financial industry since the Great Depression, two of Wall Street's most storied firms, Merrill Lynch & Co. and Lehman Brothers Holdings Inc., headed toward extinction.   

Lehman Brothers filed bankruptcy this morning in Manhattan, and is the largest bankrutpcy in history, their stock now trading at $.19 a share.

Bank of America agreed to buy Merrill Lynch.

The Dow Jones Industrial Average has plunged 505 points to well below 11,000. This is the worst point loss since the September 2001 terrorist attacks in New York City.

AIG plunged 60% to its lowest since May 1988, extending its year to date collapse to 91%, and surrounded it with pessimism.

U.S. dollar falls the most against the Japanese yen since 1999.

S&P 500 suffers worst one-day slide in 6 years - 4.6%; lowest since Stepember 2001 attacks

S&P Financials suffer worse one-day drop EVER.

Wachovia plunged 23%, most since 1980.

"WE ARE IN A FINANCIAL CRISIS", SAYS JACK BOGLE, FOUNDER OF VANGUARD GROUP.

GOLD RISES $45 to $790 IN 2 SESSIONS

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By Pham-Duy Nguyen

Sept. 12 (Bloomberg) -- Gold rose, snapping a nine-day losing streak, as the dollar fell against the euro, reviving demand for the precious metal as an alternative investment.

The euro rose as much as 0.9 percent against the dollar. The 15-nation currency is still down 1.1 percent this week and gold has fallen 5.5 percent. Gold reached a record in March as the euro headed to an all-time high against the dollar in July.

``Gold is definitely oversold and it's certainly due for a bounce,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``This is about capital flow. We're seeing some profit taking on the long-dollar positions and a little bit of buying coming into gold.''

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WASHINGTON POST REPORTS U.S. GOVERNMENT TO ARRANGE SALE OF LEHMAN BROTHERS

LEHMAN DROPS 41% - PLUNGES 75% THIS WEEK

BANK OF AMERICA UP 2.1%

MORGAN STANLEY REMOVES ITS LEHMAN'S RATING CITING TOO MUCH UNCERTAINTY 

Most would agree that the daily spot price of gold is impacted by several factors, not the least of which is the U.S. Dollar Index and global market conditions.  Since 2001, these have been the driving forces in gold's climb from $265/oz. to over $1,000/oz.

Recently the dollar has rallied and oil prices have dropped sharply, resulting in the pull-back of gold prices. Yet most analysts remain bullish on gold long-term. In the words of world-reknowned economist Jean-Marie Eveillard, "Value investors must be  willing to suffer short-term pain for long-tern gain."

Holders of Mint State Pre-1933 U.S. gold coins do benefit from rising spot gold prices, however, the volatility of corrections reflected in the spot price are tempered by limited availability of pre-1933 investment grade gold, making it the perfect form of gold to own for long-term capital appreciate and wealth preservation.

The "privacy factor" adds to the appeal of certified pre-1933 gold coins, creating more demand that the supply can accommodate, which can result in an appreciation in the value of these coins even when gold bullion prices depreciate.

Ultimately, a new breed of financial advisors and investors see the diversification, risk management, and hedge offered by mint state pre-1933 gold coins as a necessity in every portfolio, regardless of the short term movement of the spot price of gold.

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Washington Mutual tumbles 30 percent to 17-year low

By Jonathan Stempel and Dena Aubin

Wed Sep 10, 2008 4:37pm EDT

NEW YORK (Reuters) - Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz) shares sank 30 percent to a 17-year low and the perceived risk of its debt soared on worries the largest U.S. savings and loan will not find a buyer or raise enough capital to combat soaring mortgage losses.

The stock closed down 98 cents at $2.32 on the New York Stock Exchange, and are down 44 percent in the last two days. It fell earlier to $2.30, the lowest since January 1991, according to Reuters data.

Analysts attributed the decline in part to anxiety that potential buyers might walk away because of a pending accounting rule requiring they value the assets of targets at market prices, and perhaps the need to raise capital.

They also pointed to Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz), which said earlier on Wednesday it plans to sell a majority stake in its asset management unit and spin off commercial real estate, and posted a $3.93 billion quarterly loss. The shares of Lehman, Wall Street's fourth-largest investment bank, fell 7 percent.

"Lehman failed to find anyone to invest capital. With Washington Mutual potentially needing some in the future, the market is taking the opportunity to punish that company," said Jaime Peters, a banking analyst at Morningstar Inc in Chicago.

Washington Mutual did not immediately return a call seeking comment.

Earlier this year, it raised $7.2 billion from investors, including private equity firm TPG Inc TPG.UL.

On Monday, the thrift ousted the longtime chief executive, Kerry Killinger, and replaced him with Alan Fishman, the former chief of Brooklyn, New York's Independence Community Bank Corp.

Washington Mutual lost $3.33 billion in the second quarter, and said cumulative losses from subprime mortgages and other home loans could reach $19 billion through 2011. The thrift's shares have fallen 93 percent in the last year.

SHAKE-OUT

It costs $4.3 million up front plus $500,000 annually to protect $10 million of Washington Mutual debt against default for five years, Phoenix Partners Group said on Wednesday. The up-front payment increased from $3.2 million on Tuesday.

Wednesday's level suggests that investors see an 85 percent chance of default within five years, according to Tim Backshall, chief analyst at Credit Derivatives Research in Walnut Creek, California.

"The market's shaking out who's going to be able to survive over the next year, and this is just part of the shake out," said Mirko Mikelic, portfolio manager for Fifth Third Asset Management in Grand Rapids, Michigan.

On Tuesday, Standard & Poor's lowered its outlook to "negative" for its "BBB-minus" credit rating, which is one notch above "junk" status.

Washington Mutual this week announced an agreement with its chief U.S. regulator, the Office of Thrift Supervision (OTS), requiring improved risk management and compliance. It said the agreement doesn't require it to raise capital.

An OTS spokesman did not immediately return a call seeking comment. A Federal Deposit Insurance Corp spokesman said the agency does not comment on banks that are open and operating.

Morningstar's Peters said a falling stock price complicates Fishman's task to nurse Washington Mutual back to health.

"Fundamentally, nothing has changed at Washington Mutual since he was named CEO," Peters said. "He already has a very difficult task ahead of him. His primary task is to stabilize loan losses, and keep capital at a level that makes regulators happy."

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The Dow Jones Industrial Average dropped 280 points, undoing a Monday stock rally inspired by the government takeover of Fannie Mae and Freddie Mac, as anxiety about the financial sector returned to the markets. Lehman Brothers Holdings shares dropped 45% after talks between the firm and Korean investors ended without a deal. Investors snapped up Treasury securities and the Chicago Board Options Exchange Volatility Index jumped 13%.

Lehman's Slide Rattles Stocks Anew

By PETER A. MCKAY

September 9, 2008 3:21 p.m. Eastern Time

A day after the government takeover of Fannie Mae and Freddie Mac helped ease investors' nervousness about the housing and financial markets, markets were roiled anew by worries about the health of Lehman Brothers Holdings.

Financial stocks tumbled as negotiations fell through between Lehman Brothers and Korean investors, underscoring the risks that remain for firms looking for capital to shore up their balance sheets. Lehman shares plunged roughly 44% in recent trading to trade below $9.

The Dow Jones Industrial Average, which soared nearly 290 points Monday after the rescue of Fannie and Freddie was unveiled, recently fell by about 200 points to around 11310. Other indexes saw even sharper declines. The Standard & Poor's 500 Index fell 2.7% to around 1233. The Nasdaq Composite Index fell 2.1% to roughly 2222. The Russell 2000 index of small-cap stocks shed 2.7%.

"Everyone is looking for a solution to the housing problem," said Anthony Conroy, head of trading at BNY ConvergEx Group, a New York stock brokerage. "The [Fannie and Freddie bailout] is one piece of that solution, but there are still a lot of other moving parts that have to get going for the situation to resolve itself."

The rally financial stocks enjoyed Monday proved fleeting. Washington Mutual shares tumbled 22% and American International Group slid by 18%. Mortgage insurers Radian Group and PMI Group swooned roughly 20% each.

Fear gauges across markets bounced. The Chicago Board Options Exchange Volatility Index, or VIX, was recently up by more than 11%. Investors packed into Treasurys, especially longer-dated maturities. The 10-year note jumped up 26/32 to to 3.598%, and the 30-year bond surged 1-13/32 to 4.192%. Declining shares outpaced advancers on the New York Stock Exchange by roughly 2,700 to 450. A similar ratio was seen in trading on the Nasdaq Stock Market.

In the options market, the implied volatility of financial names exploded. The implied volatility in Lehman options increased 88% to a new record, according to Interactive Brokers. Implied volatility in Washington Mutual jumped to 210%, suggesting investors expect to see wild swings in the thrift's shares.

A sharp drop in crude-oil prices on Tuesday buoyed most stock sectors but pushed energy producers' shares lower. That in turn weighed on major market yardsticks, which have become increasingly energy-oriented over the past 12 months or so as other categories have fallen into the doldrums, especially the financial sector.

Crude-oil futures shed about $2 to trade just above $104 a barrel, weighed by expectations that the Organization of Petroleum Exporting Countries will leave its production targets unchanged at its Tuesday meeting.

Amid the ongoing financial turmoul other dangers remain for investors. Prices of homes in the U.S. remain low and inventories of unsold units remain high, which has cut into many average Americans' wealth and could keep prices of mortgage securities depressed in the months ahead.

That point was underscored Tuesday as new data showed that a forecasting gauge of home sales resumed falling in July. The National Association of Realtors' index for pending sales of previously owned homes dropped 3.2% to 86.5 from 89.4 in June, a bigger drop than analysts had been expecting.

Ahead of the report, Credit Suisse downgraded a quartet of home builders -- Toll Brothers, Pulte Homes, D.R. Horton and KB Home. Credit Suisse noted home prices need to fall further and credit availability must improve to spur sales and restore affordability. All four stocks were down at least 8%.

The dollar weakened against major rivals. The euro recently traded at $1.4197, up from $1.4145 late Monday. Against the Japanese currency, the dollar fell to 107.04 yen, down from 108.08 yen.

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425 STOCKS IN THE S&P 500 ARE FALLING, LEAD BY LEHMAN AND WAMU

STOCKS DROP TO SESSION LOW

S&P TUMBLES 2.4% WIPING OUT YESTERDAY'S GAINS OF 2.05%

S&P EXTENDS YEAR-TO-DATE LOSS TO 15.75%

By DAVID ENRICH and DAMIAN PALETTA
September 8, 2008; Page C3

U.S. state and federal regulators on Friday shut down Silver State Bank, the latest in a series of bank failures.

David Enrich for the Wall Street Journal

A Silver State branch in Scottsdale, Ariz.

Until recently, the son of Republican nominee Sen. John McCain sat on Silver State's board and was a member of its three-person audit committee, responsible for overseeing the company's financial condition.

Andrew McCain left the Henderson, Nev., bank July 26 after five months on the board, citing "personal reasons." He is Sen. McCain's adopted son from his first marriage.

There is no evidence that Mr. McCain, 46 years old, committed any wrongdoing. Nor are there signs that Sen. McCain, the Arizona Republican who on Thursday accepted his party's presidential nomination, had any knowledge of or involvement in Silver State's problems.

McCain spokesman Taylor Griffin issued this response: "Silver State, like many regional banks, is struggling in the midst of very difficult economic conditions. Andy realized after joining the Silver State board in April that the bank needed directors who could devote a great deal of time and attention to guiding the bank through this challenging time. Living in Phoenix and having just accepted the chairmanship of the Phoenix Chamber of Commerce, Andy realized that it would be difficult for him to devote the time and attention that Silver State's shareholders and depositors deserved. So, he stepped down."

Efforts to reach Andrew McCain at Hensley & Co., the family-owned beer distributor where he is chief financial officer, were unsuccessful.

The lender, the 11th bank to fail in the U.S. this year, was overexposed to risky real-estate loans, a problem vexing many banks amid the worst financial crisis in a generation. Silver State had nearly $2 billion in assets and 17 branches in Arizona and Nevada. The Federal Deposit Insurance Corp. said Nevada State Bank, a Las Vegas-based unit of Zions Bancorp., is taking over the insured deposits of the failed bank, as well as some of its assets. Some $20 million of Silver State's $1.7 billion in deposits were uninsured by the FDIC, representing about 500 customer accounts, the agency said.

Silver State's failure will be costly to the FDIC's already-strained deposit-insurance fund. The FDIC estimated it will incur a $450 million to $550 million hit.

The FDIC had been preparing to shut down Silver State late last month but encountered resistance from the Nevada Division of Financial Institutions, according to people familiar with the matter. The Nevada regulators had final say over whether to pull the plug on the state-chartered bank and wanted to keep it open.

Founded in 1996, Silver State specialized in construction and land-development loans. In July 2007, Silver State raised about $30 million through an initial public offering. Its shares made their debut at $20 apiece.

The business unraveled this year. By June 30, borrowers had fallen behind on about $252 million of loans, compared with about $11.5 million six months earlier, according to the FDIC. The bank's capital ratios, which represent the bank's cushion to absorb losses, have dropped sharply. Mr. McCain's ties to Silver State date from 2006, when he became a director of Choice Bank, a small Scottsdale, Ariz., lender that Silver State acquired that year. Mr. McCain's family was an early investor in Choice, according to people familiar with the matter.

Choice was smaller than Silver State, but its finances deteriorated just as quickly and hurt the parent company. As of March 31, Choice was facing $7.9 million of delinquent loans, up from $1.6 million three months earlier. Silver State recently logged an $18.8 million write-down, representing the full remaining value of its investment in Choice, to reflect the "continued deterioration" of the franchise's credit quality, according to securities filings.

In June, Silver State planned to raise up to $40 million through a stock offering. As a way to entice investors, the company's 10 directors each agreed to participate. Mr. McCain, who at the time owned 1,126 shares of Silver State stock, pledged to buy 170,648 shares, according to regulatory filings. At the $3.26-a-share offering price, it would have cost him $556,312.

A successful stock offering could have bought Silver State some time. But the offering never was consummated, in part because Silver State couldn't drum up interest.

If Mr. McCain had remained on Silver State's board another four days, his position on the audit committee would have required him to sign off on the company's second-quarter financial statements.

Three weeks after Mr. McCain quit, Silver State had to revise those second-quarter numbers to reflect a loss of $72.3 million, which was larger than previously reported. It warned in the Aug. 15 regulatory filing of "uncertainty about the company's ability to continue as a going concern," a sign the bank's survival was in doubt.

Silver State said at the time its insurance carrier planned to cancel policies protecting Silver State's directors and executives from liability because of the bank's elevated risk profile, effective Oct. 7. William Robert, a co-founder of Choice, said Mr. McCain didn't play an active role on the boards of either Choice or Silver State. "He got on [the Silver State] board; he looked around; and he decided he shouldn't be on it," Mr. Robert said. "There's nothing suspicious here."

U.S. Seizes Mortgage Giants

Government Ousts CEOs of Fannie, Freddie;
Promises Up to $200 Billion in Capital

In its most dramatic market intervention in years, the U.S. government seized two of the nation's largest financial companies, taking direct responsibility for firms that provide funding for around three-quarters of new home mortgages.

Treasury Secretary Henry Paulson announced plans Sunday to take control of troubled mortgage giants Fannie Mae and Freddie Mac and replace the companies' chief executives. The Treasury will acquire $1 billion of preferred shares in each company without providing immediate cash, and has pledged to provide as much as $200 billion to the companies as they cope with heavy losses on mortgage defaults. The Treasury's plan puts the two companies under a conservatorship, giving management control to their regulator, the Federal Housing Finance Agency, or FHFA.

Bloomberg/Landov

Treasury Secretary Henry Paulson (right) and James Lockhart, head of the Federal Housing Finance Agency, at news conference Sunday to announce takeover.

With that, the U.S. mortgage crisis entered a new and uncharted phase, potentially saddling American taxpayers with billions of dollars in losses from home loans made by the private sector. Bush administration officials argued that the cost of doing nothing would be far greater because of the toll on the economy of falling home prices and defaults in the $11 trillion U.S. mortgage market.

Mr. Paulson noted that more than $5 trillion of debt and mortgage-backed securities issued by Fannie and Freddie is owned by central banks and other investors world-wide. "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Mr. Paulson said.

By taking this action, the government has seized control of the vast bulk of the secondary market for home mortgages and will have a more direct responsibility than ever for solving the housing crisis. The intervention also marks the failure of the public-private experiment that was created to boost home ownership among Americans. Fannie and Freddie were created by Congress to help prop up the housing market, and investors have long believed the government would bail the companies out in a crisis. But the companies have long been owned by private shareholders seeking to maximize profits.

The federal takeover was initially welcomed by banks and market watchers outside the U.S. who saw it as a way to dispel some of the uncertainty roiling the world's financial markets. The intervention could eventually be a boon for Wall Street, by providing a boost to the moribund mortgage industry and by perhaps diminishing the influence of Wall Street's two largest competitors in the market of packaging and reselling mortgage-backed bonds.

Markets across Asia rallied early Monday morning on the news, with financial shares leading the way. Japan's Nikkei Stock Average of 225 companies soared more than 3%, and Hong Kong's Hang Seng Index opened 4.5% higher.

The move is also likely to nudge down mortgage rates for consumers, who are facing the worst housing bust since the 1930s. Despite steep interest-rate cuts by the Federal Reserve, the cost of a typical 30-year fixed-rate mortgage has remained well over 6% for most of the past year. To bolster the mortgage market, Treasury said it will buy, on the open market, at least $5 billion of new mortgage-backed securities issued by Fannie and Freddie.

The government rescue of Fannie and Freddie is likely to leave a trail of billions of dollars in losses for stockholders, including some major banks. But it protects the investments of bondholders, including mutual funds, foreign central banks and government investment funds that own huge amounts of debt issued by the two companies. Investors that have loaded up recently on mortgage-backed bonds -- such as Pacific Investment Management Co., the large Newport Beach, Calif., bond manager -- could benefit as Treasury purchases of such securities drive up their values.

It is unclear how much the government's intervention will ultimately cost taxpayers. In addition to its initial acquisition of preferred shares, the government receives warrants giving it the right to a stake of 79.9% of each company for a nominal sum. The Treasury's preferred shares, which carry an annual dividend yield of 10%, will be senior to those earlier issued, meaning the government will have the first right to receive dividends.

Existing shareholders won't fare so well. The new overseers will eliminate dividends on billions of dollars of common and preferred stock, moves that are expected to further drive down the price of those shares. If the government exercises its warrants, existing common shares will be drastically diluted. Common shareholders are expected to see the value of their investment, which has already fallen, shrivel further, say analysts. Even preferred stockholders are expected to see a significant decline.

That prospect is especially problematic for some of the commercial banks and thrifts that hold high concentrations of Fannie and Freddie preferred shares. The Office of Thrift Supervision, a government agency that supervises savings and loans, said that roughly 2% of the 829 companies it regulates -- or around 17 banks -- had a concentration in common or preferred shares of Fannie Mae and Freddie Mac that surpassed 10% of their Tier 1 capital. Regulators said Sunday they would work with banks that hold large exposures to Fannie and Freddie "to develop capital-restoration plans" if necessary.

The Shape of the Future

The Treasury's move doesn't answer the question of what ultimately happens to Fannie and Freddie. Under the conservatorship of their regulator, the companies will still have their shares listed on the New York Stock Exchange. But management control goes to the regulator until it deems the companies financially healthy. Congress ultimately will have to decide in what form Fannie and Freddie will be relaunched or whether they will be replaced by different types of entities.

Mr. Paulson signaled that he wants to remake the U.S. housing-finance system in the longer term, ditching the "flawed business model" of government-sponsored enterprises like Fannie and Freddie. The Treasury plan limits the size of each company's mortgage portfolios to a maximum of $850 billion as of the end of 2009. (Fannie currently owns about $758 billion of mortgages and related securities, while Freddie's total is about $798 billion.) After that, the Treasury intends for the mortgage holdings to shrink about 10% a year until they reach about $250 billion at each company.

Wrangling over the future shape of Freddie and Fannie will likely be kicked to the next Congress. Already the majority Democrats are pushing back on elements of Treasury's plan. "Good luck on that," said Massachusetts Rep. Barney Frank, chairman of the House Financial Services Committee, when asked about the Treasury's plan to start reducing the firms' portfolios beginning in 2010. Mr. Frank called it "more of a sop to the right" than a real policy prescription and said it wasn't going to happen.

Many economists and analysts believe the government had to wade deeper into the mortgage market because for now "private markets are just not willing to put up the capital" for home mortgages at prices U.S. consumers could afford, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Without government support for the mortgage market, home prices would fall much further, exposing the country as a whole to greater economic strain, Ms. Wachter says.

The turn of events for Fannie and Freddie is remarkable considering the two companies for so long shunned the riskiest type of mortgages, only to embrace those mortgages late in the game in an effort to regain market share from Wall Street rivals.

As early as 2005, Fannie executives publicly expressed concerns about growing risks in the mortgage market. In May of that year, Thomas Lund, a Fannie Mae executive vice president, said that lenders should be concerned if borrowers straining to afford homes were given loans allowing for low payments in the early years but storing up much higher ones for later. "In many cases the consumers may not understand all the risks," he said.

Yet both companies expanded their exposure to riskier loans. At both Fannie and Freddie, so-called Alt-A loans, a category between prime and subprime, accounted for roughly 50% of credit losses in the second quarter, even though such loans accounted for only about 10% of the companies' business. Alt-A mortgages include loans made with less than full documentation of borrowers' income or assets.

As these and other loans -- including many in areas such as California and Florida that are among the hardest hit by the housing crisis -- started to go bad, the companies failed to raise enough capital late last year, when investors were still fairly bullish on their prospects, to see them through the current storm. The companies have recorded combined losses totaling about $14 billion over the past four quarters, eating deeply into their meager capital holdings. Most analysts expect them to report sizable losses for at least another couple of years as the costs of foreclosures mount.

A Reflection of the Market

Fannie and Freddie's credit problems are largely a reflection of the overall weakness in the housing market. Some 9.2% of mortgages on one- to four-family homes were at least a month overdue or in the foreclosure process in the second quarter, according to the latest survey of the Mortgage Bankers Association. That is the highest percentage in the 39 years that the trade group has been doing the surveys.

"Make no mistake, anybody in the mortgage business is going to see much higher losses than they thought they would a year ago because we've had the worst housing market and the largest home price declines that anybody has seen," said Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie.

Both companies are also exposed to some of the mortgage industry's most troubled players. Countrywide Financial Corp., now part of Bank of America Corp., was the largest provider of loans purchased by Fannie Mae, accounting for 29% of its business in 2007, according to Inside Mortgage Finance, and was the second largest source of loans for Freddie Mac, with a 16% share. IndyMac Financial Corp., which previously had focused its business on Alt-A loans that didn't meet Fannie and Freddie guidelines, switched to a policy of making loans that could meet their standards in 2007. IndyMac was taken over by the Federal Deposit Insurance Corp. this summer.

At Fannie, Herb Allison, who formerly served as chairman of the investment company TIAA-CREF, succeeds Daniel Mudd. Freddie's chief executive, Richard Syron, was succeeded by David Moffett, who has been vice chairman and chief financial officer of U.S. Bancorp.

Potentially, Mr. Syron could walk away with an exit package totaling as much as $15 million, said David Schmidt, a senior consultant at James F. Reda & Associates LLC, a compensation consulting concern in New York. That includes a pension and deferred compensation, about $3.7 million in severance pay and a possible payment of $8.8 million to compensate for forfeiting recent equity grants. A Freddie spokesman said Mr. Syron had said he doesn't "anticipate receiving nearly that much."

Mr. Mudd's exit package, including stock he already owns, could total $14 million, Mr. Schmidt estimates. That includes $5 million in pension and deferred compensation, $4.2 million in severance pay and $3.4 million of restricted stock, based on Friday's closing price. The value of that stock could fall sharply, however.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

By Jesse Riseborough

Sept. 4 (Bloomberg) -- Gold may gain 10 percent by the end of the year driven by demand for jewelry during the Indian wedding and festival season, according to JPMorgan Chase & Co. data.

The season has boosted prices every year since 2002 with September the strongest buying month, JPMorgan analysts led by Brendan James said in a report. Over the past decade, gold has risen by an average of 10.1 percent from September through to December, according to a study by the broker.

India, the world's biggest buyer of bullion, increased imports 56 percent last month, the first monthly gain in 11 as price declines boosted jewelry sales. Gold, which has dropped 3.5 percent this year, may rebound because of demand for jewelry in India and the Middle East, Societe Generale said last month.

``We should see prices stabilize and move higher,'' Jonathan Barratt, managing director of Commodity Broking Services in Sydney, said today by phone. ``This is a seasonal low.''

``We have undertaken an analysis to determine whether speculation surrounding the effect of the Indian wedding season is real, or simply an urban legend,'' James said in the report yesterday. ``Our analysis indicates that the Indian wedding and festival season has had a positive effect on the gold price since 2002. This suggests that we could see a strong recovery in the gold price in the last four months of 2008.''

By the end of August, in the past 10 years, the gold price has been up 3.2 percent on average from the start of the year, according to JPMorgan's analysis. By the end of September, this has increased to 8.2 percent on average. From September to the end of December, the price has continued to gain, averaging a 13.3 percent annual gain, it said.

Sept. 5 (Bloomberg) -- The U.S. economy is ``stagnant,'' Europe is falling into a recession, and central banks won't have much room to cut borrowing costs amid elevated prices, the Conference Board said today.

``This is a period of rolling adjustments, that goes from sector to sector, that will keep the U.S. growth rate low in the 1 percent-to-2 percent range for the foreseeable future,'' said Gail Fosler, president of the group known for its consumer- confidence survey. ``Europe is in somewhat more peril.''

The euro slumped to an 11-month low against the dollar today after European Central Bank President Jean-Claude Trichet said yesterday the economy is ``weak.'' The U.S. government needs to start using more of its money to support markets and stem a burgeoning ``financial tsunami,'' said Bill Gross, manager of the world's biggest bond fund.

``We are looking for the U.S. economy to slow significantly in the coming quarters,'' said Michael Buchanan, Hong Kong-based chief economist for Asia excluding Japan at Goldman Sachs Group Inc. ``U.S. consumption growth is turning down very sharply. The U.S. consumer is finally going to roll over.''

Risks to economic growth are intensifying globally, Fosler told a conference in Singapore today. Australia's economy is slowing and China is seeing the most pronounced signs of a slowdown since the Asian financial crisis a decade ago, she said.

China's slowdown is evident in ``the willingness of officials to reverse a lot of the policies that they put in place to restrain the economy and move back to a pro-export economy to try and stabilize this,'' Fosler said.

Recession-Like

The U.S. faces a period of ``diminished expectations'' that may last as long as five years, Fosler said. Growth of 2 percent or less in the world's largest economy would feel like a recession, the head of the New York-based research group said.

``The tech sector is beginning to weaken and the manufacturing sector, which has really held up, is likely to begin to weaken,'' she said. ``The U.S. is going to be in a relatively stagnant, relatively slow growth mode for the foreseeable future.''

About 463,000 Americans have lost jobs since January as the worst housing recession in a quarter century curtailed spending and bank lending. Economists expect annualized rates of growth of 1 percent in the third quarter and 0.4 percent in the fourth quarter, according to the median estimate in a Bloomberg News survey in early August.

Federal Reserve Bank of San Francisco President Janet Yellen said yesterday there are ``substantial'' risks of slower U.S. economic growth, and inflation is likely to slow, declining to rule out the chance of an interest-rate cut.

`Ephemeral'

Tight credit conditions and ongoing declines in residential construction will weigh on economic growth in coming months, Fed policy makers said at their Aug. 5 meeting. The U.S. economy's acceleration to a 3.3 percent growth rate in the second quarter ``is likely to prove ephemeral,'' Yellen said.

Europe is moving in a ``more dramatic way'' toward a recession than the U.S., because the region doesn't have the underlying structural productivity that the U.S. has, Fosler said, citing Conference Board indicators.

Global inflation pressures will persist even as commodity prices ease, Fosler said.

``Even if commodity prices come down, we will still be left with a new environment with more pronounced inflation risks and central banks simply do not the latitude to lower interest rates as they did'' in the past, she said.

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U.S. Must Buy Assets to Prevent `Tsunami,' Gross Says

By Jody Shenn

Sept. 4 (Bloomberg) -- The U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami,'' according to Bill Gross, manager of the world's biggest bond fund.

Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm's Web site today.

``Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,'' Gross said. ``If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.''

The government needs to replace private investors who either don't have the money to buy new assets or have been burned by losses, Gross said. Pimco, sovereign wealth funds and central banks are reluctant to fund financial firms after losses on investments they made to support the companies, Gross said. The world's biggest banks and brokers have raised $364.4 billion in new capital after more than $500 billion in writedowns and credit losses since the beginning of last year.

Since financial markets seized up a year ago as the subprime-mortgage market collapsed, the Standard & Poor's 500 Index has fallen 13 percent and home prices are down more than 15 percent. Yields on investment-grade corporate bonds, debt backed by commercial mortgages as well as credit cards reached record highs last month relative to benchmark rates.

`Mom and Pop'

Gross cast a bleaker view for the prospects of the world's financial markets than in previous notes to clients. The fund manager has previously called on lawmakers to support housing with legislation passed in July that allows lenders to forgive some of homeowners' debt and then refinance them into government-insured loans.

Pimco, a unit of Munich-based Allianz SE, is seeking to take advantage of declines in home-loan bonds. The firm is raising as much as $5 billion to buy mortgage-backed debt that has plunged in value, according to two investors with knowledge of the matter. The Distressed Senior Credit Opportunities Fund will invest in securities backed by commercial and residential mortgages, said the people, who asked not to be identified because the fund is private.

Paulson Rescue

Treasury should support not only mortgage finance providers Fannie Mae and Freddie Mac, but also ``Mom and Pop on Main Street U.S.A.,'' by subsidizing rates on home loans guaranteed by the Federal Housing Administration and other government institutions, Gross said. A new version of the Resolution Trust Corp., which bought assets from failing institutions during the savings-and-loan crisis of the 1980s, may also work, he said.

U.S. Treasury Secretary Henry Paulson arranged a rescue package for Washington-based Fannie and Freddie of McLean, Virginia as concern escalated the government-chartered companies didn't have capital to withstand the housing slump. Treasury pledged to pump unlimited debt or equity into the companies should they need it.

As Fannie and Freddie, banks, securities firms and hedge funds shrink, yields on all debt assets will rise compared with benchmark rates and volatility will increase, Gross said. The declines will end once sellers have depleted their assets and sufficient capital has been raised, Gross said. Unless ``new balance sheets'' emerge, prices of almost all assets will drop, even those of ``impeccable'' quality, he said.

`Anorexic' Appetite

The extra yield demanded on Ginnie Mae's 30-year, current- coupon mortgage-backed securities over 10-year Treasuries has climbed to 1.75 percentage points, from 0.87 percentage points at the start of last year, according to data compiled by Bloomberg. Bonds guaranteed by the U.S. agency are backed by the U.S. government. Spreads on 2-year AAA rated bonds composed of federally backed student loans have climbed to 0.95 percentage points over benchmark rates, from 0.01 percentage points below, Deutsche Bank AG data show.

``There is an increasing reluctance on the part of the private market to risk any more of its own capital,'' Gross said. ``Liquidity is drying up; risk appetites are anorexic; asset prices, despite a temporarily resurgent stock market, are mainly going down; now even oil and commodity prices are drowning.''

Home Prices

The decline in home prices hasn't been seen since the Great Depression, Gross said. That drop translates to an even bigger decline in overall wealth as the effects ripple through markets, Gross said. Home prices in 20 of the largest U.S. metropolitan areas fell 15.9 percent in June from a year earlier, according to an S&P/Case-Shiller index.

Fannie and Freddie 30-year fixed-rate mortgage bond yields, which influence the rates on most new home loans, have probably risen 75 basis points because of the waning demand, Gross said. A basis point is 0.01 percentage point.

The Pimco Total Return Fund returned 9.8 percent in the past 12 months, beating 97 percent of its peers in the government and corporate bond fund category as of Sept. 3, according to Bloomberg data. The returns are 5.76 percent annually over five years. Pimco has about $830 billion of assets under management.

About 61 percent of Gross's holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or Ginnie Mae, according to data on Pimco's Web site.

``In a global financial marketplace in the process of delevering, assets that go up in price are rare diamonds as opposed to grains of sand,'' Gross said.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

SEPTEMBER 4, 2008  3 PM EASTERN TIME

DOW TUMBLES 300 POINTS
28 OF 30 DOW JONES INDUSTRIALS TUMBLE
BIGGEST DROP FOR DOW SINCE JUNE 26

NASDAQ DROPS 3%, BIGGEST LOSS SINCE JUNE 26

95% OF S&P 500 STOCKS ARE FALLING
S&P 500 FINANCIALS INDEX TUMBLES 4%
S&P 500 LOSSES ACCELERATE AFTER IT BREAKS 1260 SUPPORT LEVEL
LONGEST LOSING STREAK FOR S&P 500 SINCE JANUARY

LEGG MASON AND LEHMAN BROTHERS SLIDE 10%
CATERPILLAR, BOEING, AMEX AND AIG DOWN 6% OR MORE
GOOGLE FALLS $14 5O $450, LOWEST PRICE SINCE APRIL 17
EXXON FALLS 2.6%; LOWEST SINCE MARCH
CHEVRON DROPS TO FEBRUARY LOW; STOCK FALLS 3.4%

YAHOO TUMBLES TO 5 YEAR LOW
YAHOO TRADES BELOW $18; ERASING ALL GAINS FROM MICROSOFT BID

DOLLAR STRENGTH WILL SLOW ACCORDING TO JP MORGAN

BONDS RISE AS JOB MARKET WEAKENS SUGGESTING FED WON'T CUT RATES

LEHMAN CONSIDERS SPINOFF OF $32B TO DISPOSE OF COMMERCIAL MORTGAGES
WILL PROVIDE $8B IN EQUITY TO SPUN OFF COMPANY










 

COULD THIS BE YOUR ENTRY POINT?



In an interview on CNBC on August 18, 2008, Louise Yamada of Louise Yamada Technical Research Advisors stated that technical indicators for gold remain bullish.  She also advised investors to accumulate gold in the downdrafts once it has stabilized.  

Getting Technical

“Longer term, we are still [bullish on gold]. One of the things that have happened is that gold broke its support—its 8-month support—at $850. So the possibility of pulling back to the uptrend at around $760 still exists. We have to remember that it’s been 2 years since we had the major corrective pullback, which was also about 25 percent in 2006. So this is all part of the normal consolidation corrective cyclical bear market that occurs within an ongoing bull market environment.”

--Louise Yamada, Managing Director, Louise Yamada Technical Research Advisors

Watch the video at:  http://www.cnbc.com/id/26273937/site/14081545

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

 

September 2, 2008

The president of a major US gold bullion dealer has predicted that gold prices will reach new highs in the coming months.

He said: "When the bad news regarding Fannie Mae and Freddie Mac hit in July, gold began to rise rapidly and hit the $980 level before leveling off.

"This move in gold was premature to the bigger events that will soon be unfolding and taking gold to the next new high.

"I think the Fed is propping up the dollar in preparation for the financial tsunami that's about to strike. This would explain why the dollar made an unexpected leap of five per cent in the last two weeks, and why gold isn't moving as expected."

Meanwhile, Agnico-Eagle Mines chief executive officer Sean Boyd has predicted that gold prices may rise to $1,250 per ounce as the tough economic conditions continue.

Speaking to investors in New York, Mr. Boyd explained that increased demand from European, Asian and Middle Eastern buyers will also play a crucial role.

He said: "It's not a stretch to say that it could go up 50 per cent from these levels. The debt, the deficits, nothing has changed.

"The credit crisis has not gone away - in fact it probably will continue, so there are compelling arguments to own gold."

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

September 1, 2008

Seeking Alpha Commentary

Earlier this month I drove down to Brussels, Belgium, to buy some Krugerrands. I could have bought them in my home country, The Netherlands, but I found the premiums at local dealers to be outrageous.

In Brussels, I found a dealer that only asked a couple of Euros above the spot price, which came down to a 1.5% premium. At that time, it was already surprising that at every local dealer, premiums were over 5% for 1oz Krugerrands. And taking a day off from work, spending a full day traveling to Brussels, a distance of 220kms (about 135 miles), and EUR 60 on fuel was certainly worth the difference.

Now, with the spot price in Euros pretty much similar to the price at the time I bought the coins, the Krugerrands can only be bought at crazy premiums on top of the spot price. At my favorite dealer in Brussels, the bid price is now even higher than the spot price.

According to Bloomberg, the reason for that is that Rand Refinery, the producer of Krugerrands, just received a Swiss order for Krugerrands of an abnormal size. It now appears that no Krugerrands will be available at Rand Refinery until the 3rd of September.

I went to Rand Refinery's website and saw that the premiums charged for large amounts (50+) 1oz Krugerrands went up to 5%! And that will get a retail margin on top of it.

The trend we are now seeing is that there is a clear decoupling of physical gold prices and paper gold prices. While it is suspected that large financials are selling their gold, demand for physical gold remains high and is even increasing at current prices. This results in rising premiums and many times in dealers having to refuse coin sales.

A simple Google search will lead you to websites of many bullion dealers around the world, where you can check what the difference is between bid & ask. Spreads have become enormous and at many websites, you will see that stocks are depleted. The situation with silver is quite similar or possibly even worse.

So, if you read about the metals boom/bust-scenarios and about the gold price targets that most analysts have suddenly reduced to well-below $700, stop worrying. Don't take any risks and buy physical gold or silver, rather than paper. We're approaching times when almost anyone will want to buy your coins or bars. And let's not forget that mining companies do not produce paper gold. This means that that at some stage we will have to include the current premiums that are charged for physical gold into the valuations of the already undervalued mining sector.

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