Stocks Turn Mixed

Earlier gains faded as the government's $700 billion financial rescue package ran into resistance in Congress

Major U.S. stock indexes revered earlier gains to trade mixed Tuesday afternoon, one day after a broad sell-off. The market's focus on Tuesday: The Senate Banking Committee's hearing on the Bush administration's $700 billion financial rescue plan, featuring testimony from Treasury Secretary Henry Paulson, Federal Reserve Chairman Chairman Ben Bernanke, and Securities and Exchange Commission Chairman Christopher Cox.

On Tuesday around 3:05 p.m. ET, the blue-chip Dow Jones industrial average declined 10.99 points, or 0.1%, to 11,004.70, weighed down by a drop in General Electric (GE). The broader S&P 500 index edged lower by 0.38 points, or 0.03%, to 1,206.71. The tech-heavy Nasdaq composite index added 7.37 points, or 0.34%, to 2,186.53 as Google (GOOG) and other tech stocks eked out gains.

On the New York Stock Exchange, 20 stocks were lower in price for every 11 that posted gains, The ratio on the Nasdaq was 16-11 negative. GOOG and other tech stocks eked out gains while a drop in GE hurt the DJIA.

Bonds were mixed. The dollar index edged higher. Gold and oil futures closed lower.

Initial stock-market gains gave way to nervousness Tuesday after Paulson's plan ran into much second-guessing from lawmakers.

Chairman Bernanke made a strong emotional case for addressing the financial sector problems, reports Action Economics. He painted a bleak picture for the U.S. economy if the Treasury's plan is not effected quickly. The markets are not serving the necessary functions of the economy, he noted, and if liquidity isn't restored, more jobs will be lost, the unemployment rate will rise, the housing market will see more foreclosures, and GDP will contract.

Bernanke also explained that the $700 billion price tag for the rescue plan is not an expenditure of that size, but a purchase of assets, and he believes most, if not all the value could be recovered, and taxpayers will get 'good value" for the money spent.

"This was the most forceful we've seen the Fed chief in Congressional testimony," wrote Action Economics analysts in a website posting Tuesday.

Treasury Secretary Paulson also made a strong case for the TARP plan, repots Action Economics. noting that until the housing sector stabilizes, there is no way for the financial system to recover. He expressed anger and shock about the situation, but the main problem when he took over was the flawed regulatory system which was structured for another era. Paulson noted that thousands of banking institutions may participate in the bailout, including foreign banks. He is arguing for flexibility in the Treasury's approach to these reverse auctions, though Congress is balking at just that sort of 'blank check."

Paulson also did not favor a plan to enact the $700 billion financial system rescue in phases proposed by Sen. Charles Schumer (D-N.Y.), saying a return of confidence was needed in the financial sector.

Paulson said he did not know if U.S. credit rating would be hurt by the measure. He also said the rescue plan will not put the taxpayer on the hook because "they're already on the hook."

In his prepared remarks, Bernanke said that financial markets are under severe stress and urged immediate action to buy up hundreds of billions of dollars worth of tainted mortgage assets. "Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress," Bernanke said in prepared remarks.

"Action by Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and our economy," he said. "In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.

Amid rising concerns that the plan givesgovernment a blank check, Democrats want an oversight board that would include the chairmen of the Fed, FDIC, and SEC to limit the Treasury's powers.

Both Barrack Obama and John McCain say more oversight of the Treasury is needed. Reports some Republicans oppose the plan Treasury Secretary Paulson laid out. President Bush will discuss the financial crisis at a UN General Assembly meeting in New York today.

Financial stocks remained in the spotlight Tuesday. The Wall Street Journal reported that Toronto-Dominion Bank (TD) is is among the companies now weighing a bid for Seattle thrift Washington Mutual (WM), according to people familiar with the situation. In addition to Toronto-Dominion, potential suitors include Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and Banco Santander (STD), according to people familiar with the situation.

Citigroup named Mike Corbat as CEO of its Global Wealth Management unit (GWM) and Edward Kelly as Head of Global Banking for the Institutional Clients Group (ICG). The company also confirmed that Sallie Krawcheck has decided to leave the firm to pursue other opportunities and will remain as Chairman of GWM through the end of the year.

Oppenheimer analyst Meredith Whitney cut her earnings estimates on Wachovia Corp. (WB), Citigroup, Bank of America (BAC), and Wells Fargo.

November West Texas Intermediate crude oil futures were off $2.32 to $107.05 per barrel Tuesday afternoon on profit taking from Monday's short squeeze that drove the expiring October contract $25 higher. The Commodities Futures Trading Commission is investigating Monday's trading. Tuesday's selling is blamed by some as fear the global economy will fall into a recession for several reasons, including the U.S. financial crisis that is spreading. Some speculators bought yesterday on the argument the Bush administration's $700 billion rescue plan would bolster the U.S. economy and increase demand for commodities. Some believe a slowdown could drive commodities higher on safe haven buying.

December gold futures fell Tuesday on profit taking from Monday's flight to safety surge. But the yellow metal could see more buying due to the uncertainties surrounding the U.S. government's bailout plans and the impact on the real economy, which are weighing on the equity markets, notes S&P MarketScope.

Among Tuesday's stocks in the news, Bristol-Myers Squibb (BMY) increased its offer to buy ImClone Systems (IMCL) to $62 a share from its initial offer of $60 a share. Bristol-Myers intends to commence a tender offer, valued at about $4.7 billion, for all outstanding ImCLone shares it does not already own.

Merrill Lynch reportedly downgraded shares of General Electric Co. (GE) to neutral from buy.

Circuit City Stores (CC) expects to deliver second quarter results that are slightly better than the previously provided range of a loss from continuing operations before income taxes of $170-$185 million, before any unusual/non-cash charges. The company also said Philip J. Schoonover, chairman, president and CEO, has agreed to step down from those positions, effective immediately. Schoonover has also resigned as a director.

3Com Corp. (COMS) posted first-quarter non-GAAP earnings per share of 11 cents, vs. 3 cents one year earlier, on a 7% revenue rise.

Union Pacific (UNP) raised its $1.10-$1.20 third quarter EPS view to $1.28-$1.33. The company said lower diesel fuel costs and strong operating efficiency will more than offset the impact of recent hurricanes and lower shipment volumes. The company noted that widespread commercial power outages associated with Hurricane Ike have impacted its operations and limited the ability of its customers to resume production. Union Pacific's new EPS view includes a reduction of about 10 cents as a result of the hurricanes, primarily Ike.

Dollar Thrifty Automotive Group (DTG) announced that results in the third quarter continue to be affected by challenges in the areas of revenue per day and vehicle depreciation costs. The company said results are also expected to be affected by the bankruptcy of one of its tour operators. In light of performance to date, Dollar Thrifty said it's seeking an amendment to its senior secured credit facility.

DuPont (DD) named Ellen J. Kullman president and a director of the company effective Oct. 1 and CEO effective Jan. 1, 2009. DuPont says Charles O. Holliday, Jr., chairman & CEO, will serve as chairman of the company and as a member of the board until Kullman's expected succession as chairman.

European stock indexes finished solidly lower Tuesday. In London, the FTSE 100 index fell 1.91% to 5,136.12. In Paris, the CAC 40 index dropped 1.98% to 4,139.82. Germany's DAX index shed 0.64% to 6,068.53.

Japanese markets were closed for a holiday Tuesday. In Honmg Kong, the Hang Seng index plunged 3.87% to 18,872.85.

Treasury market

On Tuesday, the 10-year note was higher at 101-15/32 for a yield of 3.824%, while the 30-year bond rose to 101-13/32 for a yield of 4.418% amid worries the Treasury's financial system rescue plan will be delayed by congressional wrangling over details.

How Will Banks Fare in the Bailout?

The details still have to be worked out for the $700 billion fund the U.S. government will create to take distressed mortgage-related assets off banks' hands in hopes of thawing the country's frozen credit system. The most obvious beneficiaries of the plan will be members of the "shadow banking system," including such surviving investment banks as Merrill Lynch (MER)— which has agreed to be acquired by Bank of America (BAC)— and Morgan Stanley (MS), but even more conservative commercial banks that don't have much to purge from their balance sheets are expected to gain as the effects of the program spread through the economy.

A major question that will determine how helpful the bailout is: the price the government is willing to pay, which could turn out to be as low the 22 cents on the dollar that Merrill Lynch got for $30 billion in assets it sold to private equity firm Lone Star in July.

The financial companies that are holding distressed assets don't even necessarily have to sell them to the U.S. Treasury in order to benefit from what many are calling the "mother of all bailouts." A financial company might decide not to sell its distressed assets in the belief that there's more value in holding onto them until the market recovers somewhat and prices for the assets increase, predicts Gerard Cassidy, senior equity analyst at RBC Capital Markets (RY) in Portland, Me.

The Buyer of Last Resort

As Merrill Lynch's transaction with Lone Star showed, the discount on these assets has two components: credit risk, which is based on the likelihood of defaults on the underlying mortgages, and lack of liquidity discount, which stems from a dearth of potential buyers, says Cassidy.

By stepping in as the buyer of last resort, the U.S. government will be pumping liquidity into the banking system, which is expected to boost the value of these securities, he says. As a result, the liquidity discount in the price of the assets should narrow substantially as market participants recognize there's a big buyer providing liquidity, which could help attract more buyers, Cassidy adds.

One group that isn't likely to get any relief from the bailout are hedge funds that hold a large quantity of the distressed debt products, says Jack Ablin, chief investment officer at Harris Private Bank (BMO) in Chicago. "Here's a case where hedge funds, as unregulated entities, have no recourse at the table," unlike the banking lobby and mutual-fund industry group Investment Company Institute, both of which will likely have some influence over the legislation that ultimately materializes, he says. He also believes the hedge funds were directly targeted by the Securities & Exchange Commission's ban on shorting more than 800 financial stocks, which took effect on Sept. 22 and is due to last through Oct. 2.

GM May Be a Loser

Other losers may include companies such as General Motors (GM), whose affiliated financing arm GMAC likely has exposure to toxic securities but may not qualify for the government bailout because it's not strictly a financial firm, says Ablin. "You certainly get into odd territory with GMAC," he says. "It's almost entirely owned by a private equity fund [Cerberus Capital Management]. So do you want to bail out [Cerberus chairman] John Snow?"

Commercial banks, most of which have kept their balance sheets free of toxic assets, will probably benefit indirectly as the increase in market liquidity will help push their borrowing costs lower, says John Jay, senior analyst at the Aite Group, an independent financial services research firm in Boston. "If [its funding costs] go low enough, their senior managers will start to look for businesses to lend money to." In the end, their profit margins are expected to grow as the differential between their borrowing costs and lending rates widens.

The shares of some financial players have had a strong run in spite of the market's attempts to paint them with the same brush as the rest of the industry, says Jocelyn Drake, an equity analyst at Schaeffer's Investment Research in Cleveland. PNC Financial Services (PNC), Wells Fargo (WFC), and Hudson City Bancorp (HCBK) all steered clear of toxic assets and their shares hit one-year highs last week before Treasury Secretary Henry Paulson announced the plan on Sept. 18. The shares posted further gains after the announcement.

Skeletons in the Closet

Schaeffer's tends to base its stock picks on technical performance and the degree of pessimism directed at them. Market pessimism —which is reflected in analysts' ratings, the level of short interest and the ratio of options betting on lower prices for certain stocks vs. bets on higher prices—can give you a sense of how much investing money is sitting on the sidelines waiting for the right signals to come into the market. "There are still some skeletons that could come out of the closet [for the financial industry] and hinder the group," says Drake. But she's betting that as certain stocks continue to buck the trend and outperform their peers, sidelined investors will cave in and start to buy these stocks so as not to miss the boat.

There are also a couple of homebuilder stocks that Drake expects to benefit as liquidity returns to the housing market and inventory begins to move.

She likes Meritage Homes (MTH) and Toll Brothers (TOL), both of which have been in an uptrend since the beginning of this year. She takes the drop in mortgage rates after the government bailout of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) was announced two weeks ago as a positive sign, which she believes will help stoke demand for houses.

A Contrarian View

She recommends that investors hedge such bets that go contrary to market sentiment by buying shares of index exchange-traded funds that short the corresponding sectors. For financials, she uses Financial Select Sector SPDR (XLF and UltraShort Financials ProShares (SKF) to hedge her bank picks and SPDR S&P Homebuilders (XHB) to protect against the downside in homebuilders.

Wall Street's Perfect Storm

Mondays better not get any more manic than this.

Wall Street expected to spend today trying to contain the damage from a bankruptcy filing by Lehman Brothers (LEH) after the fourth-largest investment bank failed to find a buyer for its broken balance sheet over the weekend.

And that's not all. There's the distressed sale of Merrill Lynch (MER) to Bank of America (BAC) for approximately $50 billion, and a radical restructuring plan for American International Group (AIG), the insurance giant which became a major player in mortgage-related securities and derivatives.

Many bond market traders never even got a weekend. An emergency, extra-hours trading session was held on Sunday afternoon for credit default swaps, a kind of derivative. The session was held "to reduce risk associated with a Lehman…bankruptcy," according to a notice posted by the International Swaps & Derivatives Assn. Trades were contingent on Lehman filing for bankruptcy by midnight. Firms also called in employees to review their trading positions with Lehman.

Test of Paulson Policy

The day will face the fallout from the decision by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to let Lehman fail instead of having it taken over by another bank in a deal backed by the government. Paulson and Bernanke made it clear this summer that they had reluctantly arranged the March acquisition of failing Bear Stearns by JPMorgan Chase (JPM). They feared permitting Bear Stearns' bankruptcy would throw Wall Street into chaos because Bear had untold credit derivatives contracts in place with countless other banks and hedge funds. Now the regulators have apparently decided that Wall Street has had time to control its risks with Lehman. The New York firm's creditworthiness has been subject to question since early this year and has been in serious doubt for weeks. The warnings on Lehman and the six months since Bear was gently put down gave Wall Street time to conduct a drill for the bankruptcy by a major investment bank.

Regulators would like to believe Wall Street has had enough time for a drill. Bailouts, while saving financial institutions and easing short-term danger, are widely seen as encouraging managers and investors to take bigger and bigger risks out of confidence that their losses will be covered.

Regulators may have also felt other forces pushing them away from saving Lehman. Building in the wings have been threats of big trouble at other major institutions. Shares of Merrill and AIG tumbled last week, along with Lehman's stock, following the government's takeover of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). Shares of savings bank Washington Mutual (WM) also fell sharply. In other words, things could get plenty costly for the government even though it's not subsidizing a Lehman buyer.

Preferred Stock Trashed

The plunging prices of Merrill and AIG raised the possibility that the market had figured out that the two are harboring big new losses from mortgage-linked securities. Worse, if Merrill and AIG lost a lot of capital, Wall Street sees fewer ways to replace that capital since the Fannie and Freddie deals. Terms of the government's takeovers of Fannie and Freddie trashed the value of their preferred stock.

Until now, preferred stock has been a prime tool for daring investors to inject new capital into a company needing rehabilitation. The Fannie and Freddie deals indicated that preferred investors could lose big, along with common stock investors, in distressed takeovers. Both Merrill and AIG raised new capital early this year by issuing securities similar to preferred. Lehman also raised money from preferred investors, who are now likely to be wiped out in a bankruptcy. So now big issues of preferred securities may not be available to fill holes in balance sheets from new losses.

After a bad week, a working weekend, and a manic Monday, Wall Street can only hope the credit storm is at its worst.

Make Money Investment Ideas - How to Make Money

Investment is the most talked subject. We all want to invest and make money. There are many investment options. As I said earlier investment option mainly depends on the character of the person investing. You have two ways of making money. There are investments that require considerable risk taking ability. There are safe investments. Dynamic characters would love to take risk and make more profit.

To be among successful business man you have to invest in options that are close to your hearts. There are many options available like real estates and stocks. Here again the investment is again divided on the basis of liquidity. You decide on the option based on the liquidity factor. There are more methods of making money like commodity trading, forex trading and mutual funds.

Forex trading is one option that requires you to be on your toes all the time. You have to take spot decisions and you have to take such decisions based on the knowledge you accumulated over years. It is one option that gives great returns on your investment. Stock market is yet another risky investment but, you take decisions based on the knowledge accumulated. It is one business we cannot predict. Stock market allows you to invest long term and make money with safety. Short term or day trading is full risk.

You can make good income by investing in mutual funds. This is one investment option that allows you to take rest. decisions here are taken by professionals. You can be sure that your investment is in safe hands.

There are many investment methods and you can choose your investment based on your priorities.

Doubling Stocks and Marl the Stock Trading Robot

Anyone who has done research on penny stocks in the last year has definitely heard of Michael Cohen and his company named DoublingStocks. His name and company is synonymous with promoting penny stock companies. He even has his own stock picking robot named Marl. In fact, a lot of the penny stocks he promotes makes gains of over 100% in a day or less. The reason for this is the sheer number of followers he has.

For those of you who do not know what a promoted stock is, allow me to explain. Companies that trade on the smaller boards, such as the pink sheets or the OTC, are usually small companies that fit the following profile. They may have only a few employees, limited capital, and their stock prices are usually .01 to $2.00 per share. In other words, they are classified as penny stocks. They generally do not get the media exposure a larger company, such as Microsoft, Dell or General Electric, would receive on a daily basis. Therefore, when they have a major breakthrough in their particular type of business, they have to get the word out to the public.

Let's say that ABCD company just found a cure for baldness. If ABCD companys' stock prices were trading at .25 per share, it is easy to see how their price per share would double or triple in just a few days. But it's not likely that any of the major news channels would cover ABCD company, therefore they would have a potential gold mine and no one would know about it. That's where a penny stock promotion company, such as DoublingStocks, comes to their rescue. The promotion company would alert the news media, as well as sending out ten of thousands of emails alerting potential stock buyers of the latest breaking news. The price of the stock could skyrocket within a few days. Now, you can see how important the job of a penny stock promoter can be.

Some people would view this as a pump and dump scheme, and that is why so many traditional traders say that DoublingStocks is a scam. But, if you are capable of buying and selling at the correct entry points, you can make a ton of money buying these promoted penny stocks. The secret is to refrain from getting greedy. You should set a goal for the percentage of your investment you are willing to lose and stick to it. At the same time, you should set your profit goals and decide ahead of time exactly when you are going to sell your stock. Keep in mind, when a stock price shoots straight up, it will fall down twice as fast. Trading the pennies is not a place to second guess yourself and you should not let emotions get in the way. If you follow these simple guidelines, you should be very safe in the treacherous waters of the penny stock market.

Trading Stock - Plan to Be Successful From the Start

There may be a lot more to trading stock profitably than one might think. Without the proper training and guidance it is the most difficult thing in the world to do. I'm just saying that there are certain things that must be done by anyone looking to trade stocks profitably.

The very first thing you must do when planning on trading stock profitably is to decide that you're going to take it seriously. I completely understand why some might think this sounds like blanket, generic advice, but your attitude towards any endeavor can often times determine how well you will do in that endeavor. This is also not to say that you should not have fun when learning stock trading, but also realize that this is not a game, but a tremendous opportunity to not only profit, but to accumulate wealth as well.

Have a plan. There, I said it, have a plan. I don't think that anyone without a plan actually ever truly feels that they will be successful in their venture. Often times it is because plans in the past have failed or that attempts they have made have failed. Truthfully, those past attempts don't have to have anything to do with future attempts. So what are we really saying here? What I'm saying is that if you don't have a plan and you don't plan to have a plan then you should not count on stock trading for generating income or wealth. Take your time and give a lot of thought when creating a trading plan.

Everything runs on fuel of some sort. We as human beings run on food, liquids, and air. It doesn't really matter how big we are or how strong we are if we don't have enough of any of these things we will not survive. Successful stock trading or trading of any type for that matter runs on fuel as well. That fuel I speak of, is capital. Capital is the lifeblood of any business. It does not matter how many of the other necessary factors of the business are in place if capital is insufficient. This is why it is so very, very important to adequately capitalize your stock trading account in order to be successful.

These are but a few of the necessary factors in trading stock successfully.

Data: Inflation Cools; Retail Sales Slip

A batch of U.S. economic reports released on Sept. 12 carried some mixed messages for the U.S. economy: Measures of wholesale inflation dipped in August, and a closely followed reading of consumer sentiment surged in September. But another report painted a different picture of the consumer: Retail sales dropped by a worse-than-expected amount in August. A separate release showed a surge in business inventories in July.

The U.S. producer price index (PPI) fell 0.9% in August, lower than the 0.4% decline the markets expected, while the core rate edged up 0.2%, which was in line with Wall Street estimates. This comes after gains of 1.2% and 0.7%, respectively, in July. Year-over-year, overall PPI decelerated to 9.6%, from 9.8% in July. Core prices, excluding food and energy, accelerated to 3.6% over last year from 3.5% previously.

Energy plunged 4.6%, to explain the weakness in the headline index. Gasoline prices dropped 3.5%, while food prices were up 0.3%. Light truck prices dropped 1.9%, while computers fell 1.2%.

Lehman Brothers (LEH) economist Michelle Meyer said in a Sept. 12 note that while the year-over-year core rate came in at a "still elevated" 3.6%, "we remain comfortable with our view that inflation is likely to trend lower as commodity prices continue to cool and slack develops in the economy."
Mixed Components

U.S. retail sales fell 0.3% in August; excluding autos, sales were down 0.7%. Markets expected a 0.3% increase for the overall index and a flat reading for the ex-autos index. Sales are down 0.4% over last year (decelerating from +4.5% previously), with ex-autos sales up 4.2%, below the +7.9% rate previously. Moreover, July's headline 0.1% dip was revised lower to -0.5%. July ex-autos was revised to 0.3% from +0.4% before. June data were also revised down.

The components of the report were mixed. Excluding autos, gas, and building materials, sales fell 0.2%. Gas station sales fell 2.5%, nonstore retailers were down 2.3%, while building materials fell 2.2%. Vehicle sales were up 1.9%; food sales rose 0.7%.

"Retail sales through August were much weaker than we expected, though it was difficult to gauge the likely timing of the rebate boost to spending and the ensuing unwind," wrote Action Economics analysts in a Sept. 12 Web site posting.
Inventories Up

U.S. business inventories rose 1.1% in July, while sales rose 0.5%. The June inventories figure was revised higher, to 0.8%, from 0.7% before. The 1.7% June surge in sales was not revised. The inventory-sale ratio edged up to 1.24, from 1.23 in June.

The University of Michigan's U.S. consumer sentiment preliminary reading surged to 73.1 in September from 63.0 in August. The improvement is much better than the 64.0 expected, and stems largely from the drop in energy prices. The economic outlook index jumped to 70.9, from 57.9 in August, while current conditions rose to 76.5, from 71.0.

The one-year-ahead inflation measure fell sharply to 3.6%, from 4.8% in August and an all-time high of 5.2% as recently as May. "This drop brings this measure now well below the prior long-held 4.8% record-high from October 1990, as the 'panic up-trend' in price that consumers perceived through the first half of the year is now unwinding," wrote Action Economics analysts.

"The reversal in inflation expectations will provide a sense of relief to the Federal Reserve," wrote Meyer of Lehman Brothers.

Stocks End Mixed amid Financial-Sector Tumult

Major U.S. stock indexes finished mostly higher on Friday, even as Wall Street quaked with fear at the possibility of further meltdowns within the financial industry. The talk that Lehman Brothers Holdings (LEH) was desperately shopping itself to prospective buyers set the tone for the gloom, but jitters about additional losses at American International Group (AIG) and the prospects for Washington Mutual (WM) finding a buyer also kept stocks under pressure during a volatile trading session.

Market rumors of a joint bid for Lehman involving Bank of America (BAC) and other parties were circulating, notes S&P MarketScope.

Other financial stocks were in the hot seat Friday. Shares of AIG plunged nearly 31% after Standard & Poor's Ratings Service put the insurance giant's credit ratings on negative watch. The market is worried AIG may have trouble rolling over $40 billion in debt and won't be able to raise additional capital in the current credit environment. Merrill Lynch (MER) and Washington Mutual (WM) ended down, though off their earlier lows.

Bonds were lower after reports Friday showed that producer prices, excluding food and energy, were up 0.2% in August, while the overall index fell 0.9%. Headline August retail sales fell 0.3%, and were down 0.9% excluding autos. July business inventories rose 1.1%, while the University of Michigan consumer sentiment index surged to to 73.1 from 63.0 in August.

The dollar index traded lower. Gold futures were higher. Crude oil and gasoline futures climbed as Hurricane Ike approached the Texas coast.

On Friday, the Dow Jones industrial average rebounded from a 150-point drop to close 11.72 points, or 0.10%, lower at 11,421.99. The broader S&P 500 index gained 2.65 points, or 0.21%, to finish at 1,251.70. And the tech-heavy Nasdaq composite index ended 3.05 points, or 0.14%, higher at 2,261.27. By the end of the week, the S&P had recouped 27 of the 43 points it lost on Sept. 9, while the Nasdaq had bounced 51 points after a 60-point drop on Sept. 9.

On the New York Stock Exchange, 18 stocks advanced in price for every 14 that declined. The ratio on the Nasdaq was 15-14 negative.

Shares of Lehman Brothers were in focus Friday as investors waited for news on the firm's fate. S&P says it would be in favor of a possible Bank of America (BAC)/Lehman combo, only with government backing. Ladenburg Thalmann believes that BofA will be a winning bidder for Lehman, adding that there is a "natural fit" between the two companies.

Some analysts are saying that Lehman Brothers isn't under as much pressure as Bear Stearns was six months ago to secure a deal because it still has access to the Fed's discount window if it needs capital. But Christopher Whalen, managing director at Institutional Risk Analytics, a Torrance, Calif.-based firm that builds customized risk management tools, thinks Lehman is headed for bankruptcy if it doesn't find a buyer very soon.

The problem is that nobody can buy it without having to write down a big chunk of its assets right away because of the debt-laden real estate business, Whalen says.

"The only possible savior is a foreign buyer. I can’t see Bank of America [buying] this because the board would sack Ken Lewis," he says. "Don't forget Countrywide," which didn't show up on BofA's books in the second quarter because the acquisition closed at the start of July.

When it shows up in BofA's third-quarter results, the bank will start to look "fairly gritty", he says.

Even a foreign buyer would understand that "the best way to buy Lehman is on the other wide of a bankruptcy because then it will be clean," says Whalen.

Beleaguered bank Washington Mutual was also in the spotlight Friday. WaMu expects its capital ratios at the end of the third quarter to remain significantly above the levels for well-capitalized institutions and it continues to be confident that it has sufficient liquidity and capital to support operations while it returns to profitability. According to a Wall Street Journal report, WaMu said late Thursday that it had about $50 billion in liquidity from "reliable funding sources" and reported that retail deposit balances at the end of August "were essentially unchanged" from the end of 2007.

WaMu shares spiked Friday afternoon on reports from American Banker and Reuters that the Seattle-based bank was in "advanced" talks with JPMorgan Chase & Co. about a possible deal, only to slide back after CNBC Business News reported there was no such deal.

According to a New York Times report, investors fear that American International Group will face billions in additional losses due to its ties to home loans whose values have plummeted. Meanwhile, Reuters reports that credit protection costs for financial firms rose in early trading on Friday, led by AIG, Lehman, and JPMorgan Chase (JPM), as investors awaited news on the fate of Lehman.

In economic news Friday, the U.S. producer price index fell 0.9% in August, lower than the 0.4% decline the market expected, while the core rate edged up 0.2%, which was in line with expectations. This comes after gains of 1.2% and 0.7%, respectively, in July. Headline prices decelerated to a 9.6% rise over last year from 9.8% previously. Core prices accelerated to 3.6% over last year from 3.5% previously. Energy plunged 4.6%, to explain the weakness in the headline index. Gasoline prices dropped 3.5%, while food prices were up 0.3%. Light truck prices dropped 1.9%, while computers fell 1.2%.

U.S. retail sales fell 0.3% in August; excluding autos, sales were down 0.7%. Those figures are weaker than the market had expected. On a year-over-year basis, sales were down 0.4% (vs. 4.5% previously), and ex-autos sales were running at a 4.2% clip (vs. 7.9% previously). July's headline 0.1% dip was revised lower to -0.5%. The 0.4% increase in July ex-autos was revised to 0.3%. June data were also revised down. Excluding autos, gas, and building materials, sale fell 0.2%.

The components of the report were mixed. Weakness was evident in gas stations (-2.5%), nonstore retailers (-2.3%), building materials (-2.2%), and electronics (-1.3%). Motor vehicle sales were up 1.9%; food sales rose 0.7%, and sporting goods were up 0.5%.

U.S. business inventories rose 1.1% in July, while sales rose 0.5%. June's 0.7% rise in inventories was revised higher to 0.8%. The 1.7% June surge in sales was not revised. The inventory-sale ratio edged up to 1.24, from 1.23 in June.

The University of Michigan's U.S. consumer sentiment index preliminary reading surged to 73.1 in September from 63.0 in August. The improvement is much better than the 64.0 expected, and largely from the drop in energy prices. The economic outlook index jumped to 70.9 from 57.9 in August, while current conditions rose to 76.5 from 71.0.

Next week, all eyes will be on the Federal Reserve, whose policy committee meets to decide whether to change its 2% interest rate on Sept. 16. "The Fed remains trapped between the problems in the financial markets, a weak economy, and inflation fears," an S&P research note said. "With core inflation accelerating and above target, it is hard to see them loosening, especially while gross domestic product (GDP) growth remains positive. On the other hand, the continuing weakness in the labor market and the turmoil in the mortgage and related financial markets make any tightening difficult.

Lower oil prices could provide some cover to loosen in coming months if the economy deteriorates." S&P said it expect the Fed to keep the funds rate at 2% until mid-2009, with the next move a hike.

In energy markets Friday morning, October reformulated gasoline futures were up 5.68 cents to 280.56 cents as Hurricane Ike moved closer to the Texas coast and the Houston area, home to 26 refineries that account for one-fourth of U.S. refining capacity. Hundreds of thousands of people fled coastal areas in the path of the as the storm gathered strength. Ike was a Category 2 storm with 105 mph (165 kph) winds and likely will come ashore late on Friday or early on Saturday. Refineries are built to withstand high winds, but flooding can disrupt operations and -- as happened in Louisiana after Hurricane Gustav -- power outages can shut down equipment for days or weeks. An extended shutdown could lead to higher gasoline prices.

October West Texas Intermediate crude oil futures settled up 24 cents at $101.18 per barrel on Friday.

Among other stocks in the news Friday, Chipotle Mexican Grill (CMG) said that based on third-quarter results to date, the impact of the weakened economy has been greater than anticipated, resulting in further sales deceleration leading to comparable-restaurant sales in the low-single digits for the quarter. The company says the combination of a weak economy as well as food costs rising faster than expected during the quarter will result in its EPS for the period being slightly below thos of a year ago.

Deutsche Bank AG (DB) reportedly agreed to buy nearly 30% of Postbank for $3.9 billion.

Potrash Corp. (POT) announced that its Board of Directors has approved, subject to regulatory approval, an increase to the share repurchase program authorized in January, 2008, raising the ceiling to approximately 10% of the public float or 31.5 million of the company's issued and outstanding common shares.

LDK Solar (LDK) says it has signed an 11-year processing service agreement to process upgraded metallurgical grade (UMG) solar-grade silicon provided by Germany-based Q-Cells AG into wafers. LDK will process a minimum of 20,000 metric tons of UMG solar-grade silicon in the years 2008-2018, with an option to process an additional 21,000 metric tons during the same period.

Cemex (CX) expects third-quarter EBITDA to be about $1.25 billion, a decrease of about 3% on a like-to-like basis for ongoing operations vs. the year-earlier quarter, while operating income is expected to be close to $800 million. The company sees third-quarter sales of about $5.9 billion, flat with a year ago. It also sees 2008 EBITDA of $4.6-$4.7 billion. About half of the drop in its EBITDA guidance is the result of the lower expected performance from U.S. operations. Cemex also expects lower EBITDA contributions from Spanish and UK operations.

European indexes were higher Friday. In London, the FTSE 100 index added 0.84% to 5,363.30. In Paris, the CAC 40 index rose 0.87% to 4,286.19. Germany's DAX index gained 0.25% to 6,194.42.

Major Asian indexes finished mixed Friday. Japan's Nikkei 225 index rose 0.93% to 12,214.76. In Hong Kong, the Hang Seng index fell 0.18% to 19,352.90.

Treasury market

Treasury prices ended lower after Friday's round of economic data. The 10-year note was down 20/32 at 102-09/32 for a yield of 3.72%, and the 30-year bond fell 1-19/32 to 103-02/32 for a yield of 4.31.

Lehman Endgame Looks Ugly

It’s looking like Lehman Brothers may not be able to count on the federal government for any help in its hour of need and that has all of Wall Street shaking. Shares of Lehman sunk deeper into penny stock territory on Friday, as the beleaguered firm races to find another bank to buy it in a bid to stave-off an imminent collapse of the historic 158-year-old firm.

In early Friday trading, Lehman’s stock fell 10% to $3.80, continuing a downward death spiral that began Sept. 8. Now that Wall Street has concluded Lehman CEO Dick Fuld won’t be able to pull-off his previously announced plan for shoring-up the investment firm’s balance sheet, it’s pretty much become a race against time for Fuld to find a buyer—at any price—for the firm. The speculation on Wall Street is that Bank of America, Barclays and consortium of private equity firms are the most interested suitors.

But it’s not clear if any of those potential buyers will want to do a deal with Fuld, as long as the acquirer must also take on some $30 billion in rotting commercial real estate assets that Fuld was planning to unload. Treasury Secretary Hank Paulson, according to wire service reports, say the federal government is unwilling provide any additional help to Lehman beyond allowing it continue borrowing short-term money from the Federal Reserve—-something the firm has been able to do since the spring.

When JPMorganChase agreed in March to a shot-gun marriage with Bear Stearns, to similarly save that investment firm from collapse, the Fed guaranteed up to $29 billion of Bear’s bad mortgage-related assets. The Fed backstop gave JPMorgan CEO Jamie Dimon enough security to take on the risk of rescuing Bear from a certain bankruptcy filing. This time, however, it doesn’t appear that either the Fed or Treasury is willing to provide a similar guarantee to Lehman’s would be savior.

And without that kind of government-backed guarantee it’s by no means certain any bank will be willing to take on the risk of adding Lehman’s questionable commercial real estate assets to its balance sheet. “There’s very little chance anyone will do a deal for Lehman without the government stepping in,’’ says Janet Tavakoli, a derivatives and structured finance consultant in Chicago.

That’s why some of Lehman’s trading partners are beginning to demand cash settlement for trades, meaning trades must be completed within a day instead of the typical three-day period, sources say. Hedge funds and other banks are still trading with Lehman. They are worried if Lehman will be around to make good on those transactions.

The apparent reluctance of either Treasury or the Fed to go the distance and insure that a deal gets done is why some on Wall Street are beginning to whisper the unthinkable: a Lehman bankruptcy filing at some point in time. A bankruptcy filing, of course, could be a real mess for Wall Street given all the tens of billions in short-term loans other banks have extended to Lehman, which are backed by collateral. And of course there are numerous other trades and transactions Lehman has done with hedge funds and other trading partners that also are backed by collateral—-in some cases potentially backed by pieces of the same assets.

Andrew Rahl, a bankruptcy lawyer with Reed Smith, says a Lehman bankruptcy filing would be an unprecedented event, given that some of Lehman’s division, such as it brokerage arm, are regulated entities. “Clearly this would be a filing without any real precedent. There could be unintended consequences; there could even be some favorable consequences.’’ One favorable outcome might be the freezing of some of Lehman’s ailing commercial real estate assets by the bankruptcy court—meaning those assets wouldn’t find their way into the market anytime soon.

One way Lehman could avoid such a calamity would be to simply break itself up into many pieces and let would be acquirers buy what they like best. A bank could take on Lehman’s investment banking arm, another buyer could get its Neuberger Berman operation and vulture investor might take a flyer on Lehman’s distressed commercial real estate property.

The fear of Lehman failing is one reason shares of other financial firms with mountains of troubled-assets on their balance sheet are plunging too—most notably Merrill Lynch and American International Group. Wall Street is coming to grips with the reality that if the federal government can’t bailout all these institutions, there may be no buyers out there to save them. In the government’s bailout of Fannie Mae and Freddie Mac, it wasn’t just shareholders who got creamed—-holders of Fannie and Freddie’s higher-yielding preferred shares also took a beating. To date, most Wall Street banks have been able to raise capital by selling preferred stock to deep-pocketed sovereign wealth funds and private equity firms. But Wall Street won’t be able to do those deals if there’s uncertainty about whether those preferred shares will have any value down the road.

It’s not a pretty picture. But it’s another reason why this yearlong mortgage-inspired credit crunch is shaping up as one of the worst financial disasters in decades.

Gasoline rises on Ike, but crude dips below $100

Gasoline prices jumped at the wholesale level Friday as Hurricane Ike swept through Gulf of Mexico, prompting companies along the Texas coast to shut down refining and drilling operations.

Crude oil on the futures market, however, briefly sank below the psychologically important $100-a-barrel mark for the first time since April 2—showing that investors believe a worsening global economy will continue to drive down demand for some time in the United States and elsewhere.

The fact that U.S. fuel demand is so weak right now might mean the recent surge in the wholesale price of gasoline—which rose to about $4.85 a gallon in the Gulf Coast market Friday—might not be passed along to consumers unless Ike's impact is severe and long-lasting.

"Major oil companies are sensitive to raising prices in this environment," said Ben Brockwell, director of data pricing and information services at the Oil Price Information Service.

Ike is forecast to land early Saturday as a Category 3 hurricane near Galveston, a barrier island about 50 miles southeast of Houston. The Houston region is home to about one-fifth of U.S. refining capacity, and the site of a major fuel and grain distribution channel.

Wholesale gasoline prices on the Gulf Coast moved further into uncharted territory Friday, as refineries anticipated that Ike would lead to at least a significant pause in their operations, and at worst damage to their facilities. On Thursday, the Gulf Coast wholesale price of gasoline last traded at around $4.75 a gallon, according to OPIS, up substantially from about $3.25 Wednesday and less than $3 Tuesday.

Wholesale prices were much lower in other regions such as Chicago, New York and Los Angeles, but even those areas saw prices rise.

"Hopefully it's a temporary phenomenon, but we won't know until next week," Brockwell said.

Wholesale prices are determined by major players in the supply chain including refining and trading companies, which constantly buy and sell barrels. These prices end up deciding what refineries charge distributors, before they get marked up further at the retail level for the consumer.

The average U.S. retail price for gasoline edged up less than a penny to $3.675 Friday from Thursday, according to auto club AAA, OPIS and Wright Express.

On the New York Mercantile Exchange, light, sweet crude for October delivery fell 6 cents to settle at $100.18 a barrel in afternoon trading, after briefly sinking to $99.99.

October gasoline futures climbed 0.11 cent to $2.76 a gallon on Nymex.

"All week long, it's been a gasoline story more than anything. If you just looked at the crude market independently, you wouldn't know that we had a couple of hurricanes," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, referring to Ike and last week's Gustav.

"This dichotomy could persist for a few more days next week," he said. But "once the storm factor subsides, we'll see a much higher correlation between gasoline and crude oil."

Also, the demand for crude tends to fall off when refineries shut-in, as the have done this week, because they are not taking new crude shipments.

Exxon Mobil Corp., Valero Energy Corp., ConocoPhillips and Marathon Oil Co. have begun halting operations as the Category 2 hurricane headed straight for the nation's biggest complex of refineries and petrochemical plants. U.S. wholesale gasoline prices spiked 30 percent Thursday.

As of Friday, nearly 98 percent of crude production and more than 94 percent of natural gas production in the Gulf were shuttered, according to the Department of the Interior's Minerals Management Service.

By Friday afternoon, Ike was a Category 2 storm centered about 165 miles southeast of Galveston, moving to the west-northwest at nearly 12 mph. Forecasters warned it could become a Category 3 storm with winds of at least 111 mph before the eye strikes land.

Ike is huge, taking up nearly 40 percent of the Gulf of Mexico. The National Hurricane Center said tropical storm-force winds of at least 39 mph extended across more than 510 miles.

Ike and last week's Hurricane Gustav have helped to stanch a sharp downturn in oil prices. Concerns over slowing economic growth on a global scale and a strengthening U.S. dollar have led funds to liquidate their commodities holdings, pushing crude prices down about 30 percent from their record $147.27 set on July 11.

U.S. fuel demand in June was down 5.6 percent from the same period a year ago, according to a recent report from the Energy Department, so many market watchers are expecting oil prices to resume their tumble.

"With demand being down as much as it is, the market, some argue, is a bit oversupplied," said Stephen Maloney, a senior consultant in energy risk management at Towers Perrin. "When you ask, how does Ike affect things? Its impacts are going to be in the context of lower demand for products than a year ago."

In other Nymex trading, October heating oil futures rose 1.45 cents to settle at $2.93 a gallon. Natural gas for October delivery rose 7.37 cents to settle at $7.372 per 1,000 cubic feet.

In London, October Brent crude fell 6 cents to settle at $97.58 a barrel on the ICE Futures exchange, after closing at a six-month low in the previous trading session.

The wild ride in United parent UAL's stock

Shares of UAL, the parent of United Air Lines, went into a tailspin briefly this morning after the (Fort-Lauderdale) Florida Sun-Sentinel published a story this morning on its web site that UAL would be filing bankruptcy. Which UAL did.

Six years ago.

The article in question was a story that the Sun-Sentinel’s sister paper, the Chicago Tribune, published in 2002, except the date was changed to today. Interestingly, the story didn’t move the market until a staffer at Income Securities Advisor, a Miami investment advisory firm run by the much respected Richard Lehmann, mentioned it in a subscription-service that he distributes via the Bloomberg wire service.

All this created a panic in UAL’s stock around 11 a.m., with its shares plunging from roughly $12 a share to…a penny, as apparently more than one investor panicked (or a market maker refused to absorb any losses amid the uncertainty, and set the bid at a mere cent).

NASDAQ halted trading in UAL, the company issued a statement calling the bankruptcy talk “completely untrue” and lashing out at the “irresponsible posting” of an article published six years ago. The “whodunit” here is shaping up to be a real potboiler because an editor at the Sun-Sentinel was quoted afterward saying that its computer records indicated that no one had opened that story file since 2003—which raises the question of whether this was the handiwork of a hacker who cracked into the Sun-Sentinel’s computer system and reposted the story to profit from the inevitable plunge in UAL’s shares.

For now I’ll leave it to other publications to chase the Whodunit, and I’ll address the question that none of these newshounds is asking: Was a purported news story saying United was filing bankruptcy even plausible in the first place? And is United at risk of filing bankruptcy in the foreseeable future?

The answers are no and no and here’s why…

Granted, articles I have written in the past year have been critical of United's management, raising the question whether CEO Glenn Tilton was so fixated on dressing United up for a merger (which never happened, and now probably won't) that it eroded the carrier's competitive position. And the economic climate has been brutal for airlines--soaring fuel prices, a drop in demand, and that's just for starters.

But based on the carrier's current balance sheet, cash flow, and the recent dip in fuel prices, it doesn't appear United is at risk of filing bankruptcy in the immediate future. As of June 30, the carrier was sitting on $2.9 billion in near-term liquidity, and that doesn't include a deal the Chicago-based airline struck with Chase Bank (which issues its affinity credit card) and Paymentech (its credit card processor) that should enhance its liquidity by another $1.2 billion. And cash needs for 2008 are moderate: $700 million in maturing debt, $450 million in capital spending and minimal pension funding requirements (since the airline terminated virtually all of its defined-benefit plans while in bankruptcy.)

Overall, the $2.9 billion in liquidity United reported at mid-year was equivalent to 14% of its trailing 12-month revenues. According to analysts at Standard & Poor's, that's relatively less than peer airlines, but S&P analysts also note that UAL doesn't count collateral from fuel hedge counter-parties in its cash position as other airlines do. But after factoring in the proceeds from Chase and Paymentech, S&P analysts predict that United will finish out the year with more liquidity than it reported on June 30. And even if oil prices turned sharply north again, the airline still has $3 billion in aircraft and other assets that it hasn't borrowed against and could if the industry outlook became dire enough.

And the recent dip in oil prices--along with the prospect that oil could drop back into double-digit levels--should be enough to either nudge UAL back into the black, or at worst, trim back the size of its losses. Ironically, the UAL bankruptcy "story" hit just hours after Ray Neidl, a veteran airline analyst for Calyon Securities, issued a broad report predicting that the worst may be over for the industry:

"Unless oil prices go above $150/bbl or we experience a sharp recession in the coming months, we believe trends for the industry are bottoming out," Neidl wrote. "If the worst is over, at the current low stock prices even after the recent rally, we could see a strengthening of airline stock prices between now and next spring."

To be sure, not all is wine and roses at United. S&P Analysts still believe the carrier could lose more than $1 billion this year (not including non-cash charges for writing down the value of goodwill and other assets). And the airline still faces a number of unique challenges, including labor relations that are among the most poisonous in the industry. Against this backdrop, S&P analysts downgraded UAL's debt in late July from 'B' to 'B-', with a negative outlook, a development that could raise the airline's borrowing costs even higher.

I'll expand on this posting but that's my two cents for now.

Blue Chips Rally after GSE Rescue

Major U.S. stock finished higher Monday in a session that featured some remarkable developments. The Dow industrials and S&P 500 index advanced strongly in reaction to the announcement Sunday of the federal government's takeover of Fannie Mae (FNM) and Freddie Mac (FRE), which own or guarantee half of the country's $12 trillion in outstanding home mortgage debt. The action removes some uncertainty about the solvency of the government-sponsored enterprises and instills some confidence in the economy.

Also on Monday, UAL Corp. (UAUA) shares fell sharply, to near 3.00 at one point in the session from their opening price of 12.17, and then recovered to finish the session down 1.38 at 10.92. The airline operator said reports that the company filed for bankruptcy are completely untrue and were caused by the irresponsible posting of a six-year-old Chicago Tribune article by the Florida Sun Sentinel newspaper website with the date changed. The story was related to United's 2002 bankruptcy filing. (United exited bankruptcy in February, 2006.) United is launching an investigation.

The Nasdaq composite index lagged the blue chips, amid declines in Google (GOOG) and Apple (AAPL).

Bonds rose in price. The dollar index climbed. Energy futures ended mixed. Gold eased.

On Monday, the Dow Jones industrial average jumped 270.56 points, or 2.41%, to finish at 11,491.52. The broader S&P 500 index climbed 23.01 points, or 1.83%, to end the session at 1,265.32. And the tech-heavy Nasdaq composite index gained 12.78 points, or 0.57%, to close at 2,268.66.

On the New York Stock Exchange, 20 shares were trading higher for every 11 that fell in price. The ratio on the Nasdaq was 17-11 positive.

Major stock indexes overseas rallied hard Monday on the GSE bailout. In London, the FTSE 100 index surged 3.81% to 5,440.20. In Paris, the CAC 40 index jumped 4.1% to 4,368.00. Germany's DAX index gained 2.66% to 6,290.35.

Asian markets rallied overnight. Japan's Nikkei 225 index climbed 3.38% to 12,624.46. In Hong Kong, the Hang Seng index shot higher by 4.32% to 20,794.27.

The U.S. financial sector was boosted by the Fannie/Freddie news, with the major U.S. financial institutions like Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C) finishing higher. Homebuilding shares also gained.

However, not all financials rallied. Fannie and Freddie shares plunged to below $1 on the news, capping a meltdown of tens of billions of dollars in market cap over the past year for the mortgage firms.

In an announcement Sunday, Treasury Secretary Henry Paulson said the firms were being placed in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent. Under the plan, the Federal Housing Finance Authority will assume the power of the board, and the two firms' CEOs will resign after a transitional period. Common and preferred dividends paid by each company have been suspended.

In addition, S&P and Citigroup lowered their equity ratings on Fannie and Freddie to sell.

Bond-market guru Bill Gross of PIMCO expects the news to help housing and the economy, notes Action, while a leading hedge fund, Paulson & Co., is looking to buy financial stocks.

"We believe the plan is a significant positive for the housing market, the economy, and the capital markets and that its announcement may prove a key turning point in the ongoing credit crisis," wrote Lehman Brothers economist Zach Pandl in a note Monday.

The extraordinary news concerning Fannie and Freddie somewhat overshadowed developments elsewhere in the financial sector.

Washington Mutual (WM) announced that Alan H. Fishman has been appointed CEO to succeed Kerry Killinger who is leaving the company. WaMu says Fishman has also joined the company's board.

Lehman Brothers Holdings (LEH) replaced key senior management, appointing new co-heads of its Fixed Income unit and new co-chief executives of the Europe and the Middle East segments. An unconfirmed report from Reuters also says that Korean regulators are urging Korea Development Bank to take a cautious approach to dealings with Lehman, and cites Japanese sources suggesting that Nomura Holdings is considering acquiring a stake in the firm. Merrill Lynch (MER) upgraded its recommendation on Lehman to neutral from underperform, saying that it believes the environment has improved for Lehman to be able to attract the equity capital it needs at a price around the current market.

Merrill also upgraded Goldman Sachs (GS) to buy from underperform.

Friedman Billings (FBR) upgraded shares of East West Bancorp (EWBC), (UCBH) and (ZION) to outperform as it believes that the government's decision to place the GSEs into a conservatorship has positive implications for bank stocks in general, specifically those with depressed valuations driven by uncertainty surrounding capital levels relative to exposure to housing-related losses.

Bankunited Financial (BKUNA) announces that it received notification Monday that the Office of Thrift Supervision has reclassified the bank's regulatory capital status from well-capitalized to adequately capitalized although the Bank's capital ratios exceed the statutory threshold for well-capitalized institutions. As a result, Bankunited is subject to restrictions on accepting brokered deposits.

While the GSE bailout garnered the lion's share of the market's attention Monday, traders were also looking ahead to reports on the U.S. trade balance Thursday and retail sales Friday.

Energy futures turned lower despite worroies that Hurricane Ike will hit the Gulf of Mexico's oil structure. The Weather Bureau so far has not been able to pinpoint where the storm will make landfall. October WTI crude oil futures were lower at $105.37 per barrel. Meanwhile, OPEC ministers are gathering in Vienna for tomorrow's meeting. They were widely expected to leave formal targets unchanged, especially as the powerful hurricane has lifted oil prices. Also, there was speculation the ministers did not want to cut output with global economies appearing to be headed for a recession.

Gold traded on a heavier footing, with a broad dollar rally encouraging movement out of commodities and in to other assets. The improved risk profile generated by the U.S. GSE bailout weighed on gold, with some of last week's safe haven bid coming undone as equity markets moved broadly higher.

Among other stocks in the news Monday, Altria Group (MO) agreed to acquire UST Inc. (UST) in an $11.7 billion deal, which includes assumption of $1.3 billion in debt. Terms: $69.50 cash per UST share.

Gehl Co. (GEHL) agreed to be acquired by its largest shareholder, Manitou BF S.A., a manufacturer and distributor of material handling equipment headquartered in France, in a $450 million deal (aggregate enterprise value). Terms: $30 cash per Gehl share.

Hercules Offshore (HERO) reported that all of its drilling rigs, liftboats and marine vessels located in U.S. Gulf of Mexico have been accounted for, appear to have sustained no damage as a result of Hurricane Gustav. Notes, all of its contracted drilling rigs have resumed operations, except for three drilling rigs on stand-by and one drilling rig that was recently re-evacuated as Hercules Offshore takes precautions as it monitors Hurricane Ike.

Treasury market

Bond prices recovered somewhat from earlier lows. The 10-year note fell to 102-10/32 for a

yield of 3.725%, while the 30-year bond was lower at 103-06/32 for a yield of 4.312%.

Investments in Costa Rica - Not Exactly What You Think

Investments in Costa Rica?... isn't that an island?...somewhere in the Caribbean?

My wife and I moved to Costa Rica six years ago from the frigid climate of Minnesota where we had owned a printing business for 15 years. For as long as we could remember we had worked 12 hour days and spent most of our time figuring out how to stay even...getting ahead wasn't even in the cards.

Then 9/11 happened. And for us it was an epiphany. Life was too short to spend the balance of our lives on a treadmill that went nowhere. We accelerated our retirement plans by almost ten years.
And over the next year we sold everything we owned and eventually found ourselves in Costa Rica (which, mind you, we had only visited once previously...and on vacation at that !).

Stupid? In retrospect, sure. To move to a foreign country where we knew no one, didn't know the language and our only exposure was the internet? Of course, it was stupid.

But...we loved it, even in spite of the fact that life here was completely different than the books portrayed or the internet showed. We rented a small home about an hour outside of San Jose in a community which was rural, coffee country and yet still large enough to have a hospital and within 45 minutes of the main airport.

And we purchased land...and we built a house. And luckily, Rhonda had the temperament to deal with the local builders, even though we didn't understand much Spanish. I still remained a type A and the manana attitude drove me crazy.

And much of the real estate and construction business was definitely not in any "how to..." book that we ever found. And we definitely made mistakes. But luckily they didn't hurt us TOO much financially. And we asked a lot of questions and we learned, little by little, how the real estate market functioned in Costa Rica.

And we decided that we wanted to let others know the things that we had to learn the hard way. We started a real estate company whose sole aim was to present properties which reflected prices that locals paid...because there is a two tier real estate market in Costa Rica...one for "gringos" and one for Ticos (locals, as Costa Ricans call themselves).

Because there are very few rules or regulations for real estate here, our "exposure" of the market didn't make us very popular with other real estate people. (remember, Costa Rica is a VERY small country...about the size of West Virginia or Houston). So our website didn't exactly endear us to local agents who were used to charging whatever prices and commissions that they thought the traffic would bear.

And slowly we began to get a reputation...admittedly, some was good, some bad...depending upon who you talked to. And we began to get publicity...unsolicited publicity from magazines like Newsweek and Investors Business Daily. And our business grew. And grew some more.

As our business grew we began to meet more people from Costa Rica...some influential, some not... some quality, some not. And we became exposed to many more types of investments that were totally foreign to us. And we learned who really "controls" the country and which people control investment capital and have the influence to make policy. To illustrate how much of our education was "coincidence" (and I personally do not believe in coincidences... I believe that they happen for a reason) our third attorney was introduced to us purely second hand at a local gathering; "coincidentally" his wife was from Minnesota...Rhonda was then invited to a weekly gathering of "gringas", all of which married Ticos 35-40 years ago and who have now ALL become very influential ; e.g., Minister of Finance; Minister of Agriculture and two other former cabinet members.

Because of our real estate organization (see it here: www.cr-home.com) we are able to see daily what people are seeking and watch the ebb and flow of interest. And not only are we able to gauge areas of interest but also types of properties or homes that are attracting the most interest...e.g., we know that beach properties or condominiums at present are receiving very little interest and the high end beach properties sales are very slow. We have our own hypotheses as to why this is occurring but we are dealing with "what is", not what we think "should be"...nor do we look for esoteric explanations to explain the status. We are big believers in the KISS philosophy..." keep it simple, stupid."

Over the past three years we have made a number of investments here...none have shown a loss and others have turned a 100% return within a 60 day period. Some have unrealized profits. We have yet to take a loss. Please understand here that we are not professional investors (if there indeed is such an animal)... we have simply taken advantage of situations that we consider to be extremely low risk. WE ARE NOT SIMPLY "HOPPING ON THE COSTA RICAN REAL ESTATE BANDWAGON"...because if we had done that, we would have already lost a significant amount of money.

Let me explain...
Our website and mission statement is all about value...and it is about education and knowing "the good, bad and ugly" BEFORE buying. Too many people get caught up in the emotion and beauty of Costa Rica and buy on impulse. And these are the people that ultimately run the risk of losing their entire investment. (con men and fraud exist everywhere but are more common here simply because of the lack of comprehensive rules and regulations concerning real estate and construction). That being said...we attract a different type of clientele...one that typically wants to ensure that he gets the most value for his or her money....and definitely not one that is an impulse buyer. We deal primarily with the "baby boomer" who is looking at Costa Rica as a retirement destination AND the buyer who wants to ensure that he or she gets the most value for their investment.
And the above paragraph illustrates the best, most concise reason why our business is almost recession proof and not affected by the "subprime crisis" and will allow us to continue to capitalize of various forms of investment in Costa Rica.

So...now that we have established our background...WHY are we recommending Costa Rica as a basis for specific types of investments?
We are not attempting to "sell" Costa Rica because we expect anyone who is examining Costa Rica as an investment to do their own due diligence. So...
- Costa Rica is home to the longest running democracy in Latin America. Its stability is unquestioned and it is allied closely with the U.S.
- Almost a third of the land mass of Costa Rica is set aside for national parks. Costa Ricans themselves are huge lovers of wildlife, flora and fauna.
- There is virtually no mineral exploration and absolutely no oil drilling in Costa Rica for environmental protection.
- The literacy rate in Costa Rica exceeds that of the States or Canada.
- Medical care is superb and available to everyone...even to those who are unable to pay.
- Costa Rica is more familiar to Americans than nearly any other foreign destination...for vacation. Nearly everyone who has visited Costa Rica wants to return and, in fact, Costa Rica has the highest return rate for vacationers of any other destination in the world.
- While Costa Rica is technically a "second world country", its infrastructure is excellent.
- Costa Rica's economy, while operating at a deficit, is in excellent shape.
- Costa Rica has no standing army, thus expends no funds on a national defense.
- Costa Rica espouses family values and many visitors liken it to the States from the 50s. The pace of living is slower and the Costa Rican people (Ticos) have different values than their counter parts in America and Canada.
- There are literally dozens of microclimates within a two hour drive from anywhere in the country. Where else can you drive for a day and see two oceans, several volcanoes, sandy beaches, mountains, waterfalls, lakes, rain forests, cloud forests, agricultural land, hot springs, wildlife preserves, and much much more...?
- Cost of living estimated at approximately 30% of equivalent lifestyle cost in the States or Canada.
- An estimated 30% of the population speaks or understand some degree of English.
This is only the abbreviated version of the positives of Costa Rica...other countries such as nearby Panama, Nicaragua and Mexico are attempting to woo the "baby boomers" but OUR belief is that the "blue chip" of Latin American investment will almost always win out. Just because land in Nicaragua or Panama maybe 20% cheaper or because the government offers one time incentives to expats....does not necessarily mean that it is worth the risk of your hard earned savings. Weigh the pros and cons. Some say that Costa Rica is overpriced...some say that its time has passed for investment...we say "take a look at the number of people that visit here...and that return...do your homework...then make your decision."

Okay, we have subjectives about Costa Rica and why people visit here and keep returning. Now we need facts.
During the first six months of 2008, more than 125,000 foreigners visited Costa Rica...and this is a 16% increase over last year. And remember, this is in a so called recession which is worldwide. Don't believe that the trend will continue?...try this: ask your friends what their impressions are of Costa Rica or what they have heard ABOUT Costa Rica. I can guarantee that the responses will be overwhelmingly positive. Subjective ? Yes, but still highly convincing and you will not get these types of responses from any other location or destination.

Numbers of weekly airline flights are climbing...ranging from American Airlines with 43, to Continental with 25, Delta with 24 down to Spirit and U.S. Airways each with 7. This does obviously not take into account visitors from other parts of the globe. Currently, the States and Canada account for over half of all visitors and tourists to Costa Rica. Europe accounts for nearly 20% and the rest of the world, the balance. This is another good rationale why our business is expanding instead of collapsing like many of the local pundits have predicted...the slowdown in the States is more than counterbalanced by Canada (which is experiencing a VERY strong economy and a very strong currency) and Europeans... who are also experiencing gains with the rise of the euro vs. the dollar and other currencies. The Costa Rican real estate market is simply not dependent upon one country or group of people to experience strong real estate interest. And please also keep in mind that Costa Rican real estate is a microcosm of Economics 101...the areas of interest for the "boomers" and second home buyers are small and it is easy to see that there are more buyers than sellers (which is really what the markets are all about... remember our KISS theory?)

We have established statistically that more and more visitors are arriving in Costa Rica. Now we need to establish a base for our investment philosophies...and it is primarily centered upon the huge number of "baby boomers" which are just beginning their retirement years. We do not need a huge elaboration as to why "boomers" are examining overseas destinations in increasing numbers...but here are a few of the major reasons:
- Cost of living...it is no surprise that costs of almost everything are climbing daily. The equivalent cost of living in Costa Rica is roughly a third as much.
- Medical care is excellent and only at a fraction of the cost.
- There is a tremendous amount of diversity here and an almost unending list of activities and sightseeing which is available daily...you will definitely never be bored!
- Stable government and environment.
- High literacy rate and people are genuinely friendly.
- Only a short plane ride from the States.
- Infrastructure is good and water is drinkable everywhere in the country.
- The banking system is excellent and safe.
- There is a huge amount of flora and fauna here which is literally unequalled anywhere in the world...and over 25% of the country's land is set aside for national parks.
- Land and construction is still extremely affordable by comparison.
- Crime is still relatively low, especially when compared to its counterparts and "competition".
Okay, now that we have established that Costa Rica is a viable, growing and stable marketplace AND that the "boomers" have the potential to have a major influence on the marketplace in Costa Rica...let's pinpoint specifics which will allow us to make significant investment gains:
Most "gringos" say that they would prefer beach living. The reality is that over 50% of all people who buy on the beach sell within five years. We have found over the past five years that most gringos prefer acreage with the following features:
- Views...either the ocean from a distance or the Central Valley
- Access to good medical and professional services
- Not "too remote"
- Good shopping and dining accessibility within a reasonable drive.
- Internet availability...good infrastructure
- More moderate temperatures
- More rural than urban but still amenities available closeby
- Within a "reasonable" drive to an international airport.
- Private, but not too private; i.e., neighbors nearby but not TOO close.
- At least half to an acre of land...river, waterfall or lake if possible.
- Fruit trees and other vegetation a major plus.

With the above in mind, Rhonda and I settled in Grecia which was approximately half an hour from the country's major airport, 45 minutes from a first class hospital (yet only 10 minutes to a municipal hospital, in Grecia). We chose to be in the mountains overlooking the town and the Central Valley. Major shopping was 45 minutes away as was "better dining" and (for me) bookstores. Notice how we fit the above "profile"? BTW, we also had a river on our property. Why do we bring this up here?...because our "property preferences" were (and are) the same as 80% of most gringos that move to Costa Rica to retire (full or part time.)

Next factor: there are very very few rules and regulations when it comes to real estate and construction in this country. There are ways to protect yourself legally but there are no sure methods of ascertaining what is a "fair and honest" price. There is no MLS system and there is not a system of comparables. For the most part, real estate is bought and sold the way it has been for decades...primarily word of mouth. This is specifically why people flock to the real estate industry...because of "net selling" or the simple fact that it is almost impossible to know what is a fair price. (net selling refers to "marking up" a property over and above what the seller wishes to "net...very commonplace here.)

Next: There are very few American style houses for sale here... and Tico houses simply are not satisfactory for 98% of "gringos" that move here (lower ceilings, smaller rooms, not enough land, no 220V power, no views, etc). This obviously brings up the logical conclusion...if there is a market, and it appears that it is highly skewed in favor of the sellers...is there an opportunity here to capitalize on that imbalance? (for those of you who are thinking ahead here...remodeling is difficult because almost all construction here is block and steel and all wiring and plumbing is encased in concrete...remodeling costs actually exceed "STARTING FROM SCRATCH".)

Because there is a two tier market here...one for locals and one for "everyone else" it is important to ensure that pricing received is comparable to others of comparison (as much as possible in a country where "comparables" are simply conversation over coffee.) A "gringo" certainly can look for his or her own property but it is almost a guarantee that prices will be at least 50% higher as locals share the common perception that "gringos" have money trees "back home" and that we will pay almost "any asking price" because we don't know the culture or the area.

And remember we know the markets...who is buying, what they are seeking and what they will pay. And then obviously the determination has to be made if it is possible to make a profit.

The last item to take into account is the simple fact of Costa Rican land itself...without the "gringo factor". Ticos (Costa Ricans) are accustomed to an inflation rate of around 12% annually and many compensate by buying additional land and simply holding hard assets. And when selling, Ticos know that if they do not get their price today...they will in six months or in a year. The trick then becomes to truly know the markets and to be able to take advantage of buyers that MUST sell and that need money.

On to "brass tacks" and specifics...
1. The void of, and lack of, American style houses in many areas is crying to be filled. The following is a quick "down and dirty" summary of approximate profits to be made from such an investment: Land cost: (one acre...view property in Grecia or environs) $50,000; American style house of 3 BR, 1500-1600 sq. meters: $75,000...misc costs including architect, utilities and landscaping: $10,000. Selling price: $190-195,000, possibly more. Estimated gross ROI (before payout to limited partner or construction supervisor)...50%.

2. Smaller developments can be even more profitable...we prefer to stick with a much smaller number of homes as it is more manageable and you fly under the municipality's radar...nothing illegal, just avoiding the possibility of locals swarming around with their hands out. Typically, we raise money in smaller increments (shares) as the amounts normally exceed $250,000.

Profit estimates here are extraordinary.
3. Oftentimes, at least bimonthly, we see a property at an extraordinary price...one that we know is substantially below market value. Sometimes these properties can be resold almost immediately...other times they involve buying a larger piece and reselling smaller units of land. A good example is a block of four quarter acre beach front parcels which are titled and located only 1 ½ hours from San Jose on the Central Pacific coast. The owner is in the States and is admittedly desperate. The units can be picked up as a whole and resold for at least a 50% profit (our opinion). They are RARE and gorgeous.

4. Recently, we were contacted by the owner of a small house in Grecia. We had previously listed it at a decent price...but no takers. It has a gorgeous view and the house needs probably $5000 worthy of work. In our opinion, the owner is now willing to sell for close to land value only. Not a huge winner, but percentage wise, probably a 50% profit is available. Estimated ROI to the investor...50%+

5. Occasionally we are shown properties which have a "glitch" in their titles...not major problems but simple filings to correct them. "informacion processoria" properties are normally those which have passed down from family member to family member over the years without doing proper registration or filings. It is a simple matter for a competent attorney to correct the oversight (and, in many cases, it was simply not done for lack of funds). These properties can oftentimes be had at substantial discounts. A good example is a property currently being offered of nearly two acres just on the outskirts of San Jose...a suburb called Aserri. The property HAD to be sold (family financial emergency)...asking price was actually less than 20% of what comparable properties were currently selling for ADJACENT to this property. Estimated "fix" time is six months...properties like this do not often surface and, most of the time they are "no brainers".

Now, we are the first to admit that 99.9% of people that read about these investments are not able to do them themselves. This is why we have typically set up "arrangements" or agreements to handle the everyday details and carry the project from start to finish. Obviously, investments such as the Aserri property, or others that are shorter term investments that can be resold quickly, do not need "special handling".

Hopefully, this investment overview has sparked your interest. We have met nearly all of our investors...some before the physical and actual investment, other afterward. We have an annual pigroast in January and typically nearly all of our investors along with friends and neighbors from Costa Rica get together for fun and an overview of each investment status. In the past it has been a huge hit...plus of course, it is a great excuse to come to Costa Rica.

Why American Savers Have Drawn the Short Straw

American savers, take a bow. This is your moment of vindication. Your hour of glory. And you earned it (in a manner of speaking).

You resisted the siren call of plastic teaser APRs, dutifully living within your means to store money for a rainy day. You never took out an interest-only mortgage. Never had to pawn the copper pipes from your exurban McMansion to pay the reset on your liar loan. Your credit score would have gotten you into Harvard at age 12.

Good for you! Your reward: injurious savings yields, inflationary rot, and election-season neglect, all served up with a dollop of institutional insecurity.

Even with a current account deficit that, starved of domestic savings, requires $2 billion a day in foreign financing, economic policymakers are fixated on propping up credit and giving the participants in the housing bubble second chances. In order to do so, they are stripping the hides off of net savers.

Since August of last year, the Federal Reserve has slashed interest rates from 5.25% to 2.00%—wielding a blunt instrument that was swung enough to bend the yield curve in favor of suffering banks. You know, the institutions that screwed up but were too big and important to be deprived of an inalienable right to cheap deposits that they can loan out at several points higher.

Indeed, a year ago, a six-month certificate of deposit earned, on average, 3.53%, according to Bankrate.com (RATE). Today, that's down to 2.03%. A one-year CD that earned 3.75% at this point in 2007 was offered for as little as 1.92% in April, before inching up to its present 2.38%. It's hardly a secret that banks are only able to pay out such pittances thanks to depositors' knee-jerk desire for security: "Hey, I might be earning crumbs on my cash, but at least I'm not losing money."

Sure you are. Wholesale inflation has soared 9.8% in the past 12 months, the highest clip since 1981. The more widely cited consumer price index jumped to 5.6%. In other words, while your saved buck was adding 2 cents or so on one end (and even less after taxes), three times as much was getting singed off the other end of that dollar bill. "Inflation is just deadly to savings," says David Gitlitz, chief economist at TrendMacrolytics, an investment adviser. Gitlitz observes that, taking into account the hit from inflation, rates haven't been this negative since the dreary 1970s. (That, in turn, gave way to an early '80s that saw the worst inflation in U.S. history since the Civil War.) "It steals your purchasing power and sets less and less of an incentive to keep money in the bank."

You're telling me. My trusty Manhattan pizza guy recently hiked the cost of a slice for the second time in the past year, from $2 to $2.50 to $3. "Why you mad?" he blurted, pounding a ball of dough. "Prices are nuts; you can't even buy a glass of milk no more." ("We're paying 128% more for a bag of flour," added his grandson-apprentice, with startling accuracy.) Even my barber justified taking up the cost of a standard trim and buzz by 20%. "Fuel surcharge," he deadpanned in his Uzbeki accent. (As it turns out, he rides the subway.)

In a perfect world, the Fed's rate-cutting campaign would have shored up real estate and the stock market. Instead, investors have been running for inflationary cover in hard assets like crude oil, gold, and even fertilizer. Oil, we all know, went from $70 to more than $140 in one year flat, sending gasoline and utility costs soaring and counteracting the lift from monetary and fiscal stimulus. Still comforted by that 2% savings yield? (Your mattress and piggy bank are in stitches.)

Commodity inflation has also been exacerbated by concurrent weakness in the dollar, which is stuck between a Europe that is loath to cut interest rates and a Washington that is too scared to hike them. Even with its recent rally, the greenback is only worth two-thirds of a euro. You practically have to wheelbarrow dollars to places like Madrid and Berlin.

All of which might be tolerable to the lonely and beleaguered saver if he weren't taunted daily by lopsidedly pro-spending, pro-creditor news stories. Forget about moral hazard. Forget about rewarding profligacy. Washington is hell bent on putting a floor beneath the housing market. And subtlety got vetoed out of the process. Consider some recent news reports:

"President Bush Signs $300 Billion Housing Rescue Bill" (AP)—increasing to $625,500 from $417,000 the size of home loans in high-cost areas that Fannie Mae (FNM) and Freddie Mac (FRE) are allowed to buy.

The number of Chapter 7 filings—designed to give individual debtors a "fresh start" by discharging many of their debts—recently rose by 36%.

"The FDIC may lower mortgage rates for delinquent IndyMac borrowers after suspending foreclosures..." (Bloomberg).

Maybe savers' ultimate vindication will arrive when and if every asset is so deflated, credit is so choked off, and misery is so prevalent that only those with cold hard cash can lob in lowball offers for homes, cars, and everything else. Assuming, of course, they didn't stash all their money in one of the many banks that is about to go under; the feds are closely watching 117 of them—and counting. The phone lines have never been so jammed with nervous clients.

Oh, the joys of saving.

The Labor Market's Cruel Summer

Financial markets were expecting the U.S. economy to shed jobs in the August employment report, released Sept. 5, but a big jump in the U.S. unemployment rate took Wall Street by surprise. The weaker-than-expected data for August suggest the U.S. economy is headed for recession and puts pressure on the Federal Reserve to lower rates rather than raise them, as the Fed has indicated it wants to do.

The unemployment rate jumped 0.4 percentage points to 6.1% in August, as nonfarm payrolls fell another 84,000, compared with an upwardly revised decline of 60,000 in July. Even worse for the labor market, June's 51,000 decline was revised to –100,000, for a net –58,000 revision over the prior two months. The drop in payrolls wasn't too far off economists' consensus estimate of 71,000, but the spike in the unemployment rate was another matter: The consensus estimate had called for it to remain at 5.7% (it was at 5.0% in April).

Manufacturing lost 61,000 jobs in August (44,700 in transportation equipment). Construction fell 8,000. Services employment fell 27,000, with a 61,600 drop in administrative and support services. The government added only 17,000. Household employment declined 342,000, while the civilian labor force rose 250,000.

Pressure for a Rate Cut
"The data are worse than expected across nearly every category and will likely add to the angst in stocks, weaken the dollar, but should give further support to Treasuries," wrote Action Economics analysts in a Sept. 5 Web site posting.

"The data are more confirmation that this is a recession," wrote S&P Economics in a Sept. 5 note.

The rise in the unemployment rate was entirely in adults, as the teenage rate dropped sharply as teens returned to school. Average hourly earnings rose 7¢ (0.4%), a slight acceleration from the recent 0.3% trend, and are up 3.6% from a year earlier, compared with 3.4% in July.

"The wage acceleration, although slight, could also cause some nervousness at the Fed," says S&P Economics.

Financial markets showed a relatively sharp response to the payrolls dive and jobless jump on Sept. 5. Treasury prices headed higher, with bond yields already at five-month lows following the rout in stocks this week. Stock index futures, meanwhile, headed lower. The dollar initially slid lower vs. other major currencies.

What does the market see ahead on the Fed policy front? Fed funds futures, a vehicle for market pros to make bets on future loan interest rate moves, extended their gains after the worse-than-expected employment report, and are now tilted toward another potential rate cut later in the year. "That's a far cry from the 75 [basis points] in tightening that had been suggested two months ago," notes Action Economics. At this point, it's unlikely the Fed will cut rates again, as policymakers have made it quite clear that they don't plan to take the funds rate below the current 2%.

App Stores: Microsoft, Google Follow Apple

When Apple (AAPL) opened its iTunes App Store in July, the idea of a mass-market Web site that sells downloadable games, tools, and other applications for cell phones was a rarity. Handset owners could buy apps from their carriers or the occasional niche site. But these days, the app store concept is becoming commonplace. The question is, does the world need a warren of wireless app stores?

In the coming six months, at least four would-be rivals of Apple will probably open their own online bazaars where developers of all stripes will sell downloadable software applications to make cell phones more fun and useful. Google (GOOG) has already announced its plans, while Microsoft (MSFT), Symbian, and T-Mobile USA are in the likely-to camp.

The appeal of an app store is undeniable. Since the App Store debut, users of Apple's iPhone and iPod Touch have downloaded more than 60 million applications, sampling the more than 3,000 games, calendars, and fitness applications on offer for as much as $10 a pop, though some are available at no charge. Sales averaged $1 million a day in the first month.

Microsoft's Skymarket Is Coming
Microsoft and other owners of competing operating systems want to ensure Apple's popularity doesn't take a toll on their own market share. "People are chasing the iPhone," says Van Baker, an analyst at consultancy Gartner (IT). Microsoft's plans to launch a store were laid bare by job descriptions posted Sept. 2 on job board computerjobs.com. The mobile applications marketplace, to be called Skymarket, may launch in tandem with the next version of Microsoft's cell-phone software, Windows Mobile 7, expected in 2009.

While he wouldn't confirm or deny plans for Skymarket, Scott Rockfeld, group product manager for Microsoft's mobile communications business, says the company ultimately wants to provide a resource, akin to CBS's (CBS) CNET, which includes reviews and customer feedback on products. "They are the trusted adviser to their community," Rockfeld says, though he declines to comment on plans to sell applications other than to say, "We are always innovating on Windows Mobile." The job postings have since been removed. Currently, Microsoft operates Windows Mobile App Catalog and Total Access, which aggregate applications and direct users to third-party sites to make purchases.

On Aug. 28, Google said it will open Android Marketplace, which will offer third-party applications for mobile phones running on a new operating system, called Android, built by a Google-led industry group. Done right, the new stores could create competition for Apple, Baker says. "They could significantly impact the iPhone," Baker says. "If you have an equivalent of iTunes App Store available on multiple handsets, consumers will have more choice. And competition tends to spread the market."

"Wild West Days"
Apple's interest in applications stems from more than just the 30% cut of every sale. The software is also a complement to sales of more expensive, higher-margin hardware. J. Gold Associates analyst Jack Gold figures that the App Store has helped Apple sell 10% to 15% more iPhone 3Gs than the company would have sold otherwise.

Existing retailers such as Handango could suffer as well. Anticipating additional competition, the company is already revamping its site.

Due to be launched later this year, the new storefront tracks users' recent searches and purchases and recommends additional software from its portfolio of some 200,000 applications. Handango CEO Bill Stone says the new stores will expand the larger market. "With the market growing so fast, there's plenty of room to operate," he says. Additional stores "can crack the code on awareness."

Still, aping the iTunes App Store won't be easy. "It's all Wild West days compared to the iTunes store," says Richard Doherty, director with consultancy Envisioneering Group. Each new market entrant faces its own, unique challenges in rolling out a store. And there's danger that some of the new stores won't live up to expectations. "There's almost as much downside to this if it's done poorly as an upside," Doherty says.

Google's Open-Door Policy
Take Microsoft, whose Windows Mobile software resides on millions of smartphones. Older Windows Mobile phones may not be upgradable to Windows Mobile 7 and may not be able to take advantage of the new Skymarket store. Other devices may not contain enough built-in memory for their users to download multiple applications.

Google's Android Marketplace faces a different set of challenges. Google will let developers post applications to the store in a matter of minutes, without going through an approval process. "A model like [Google's] really allows people to experiment," says Android developer Jeffrey Sharkey.

But that will make it hard to vet bad, glitchy, or inappropriate applications. To weed out bad apples, the Marketplace "features a feedback and rating system similar to YouTube," according to the official Android developer blog. But users could still unwittingly download software containing viruses or malicious code damaging a phone, or simply buggy applications. Apple takes weeks to vet applications posted to its store, and rejects many.

Programmers Hedging Their Bets
How soon the Android Marketplace will support paid applications is unclear as well. When the first Android phone come out this fall, "at a minimum you can expect support for free (unpaid) applications," according to the official blog. "Soon after launch an update will be provided that supports download of paid content and more features."

T-Mobile USA, owned by Deutsche Telekom (DT), appears to be feverishly revving up its own marketplaces, according to people close to T-Mobile. The carrier's new site for third-party developers states that "in the coming weeks, T-Mobile will be offering new ways to go to market." Unlike Apple, which sells applications for a single brand of handsets. T-Mobile faces the daunting task of offering applications that work with many different handsets, says Moe Tanabian, senior principal at IBB Consulting. T-Mobile declined to comment.

Unsure about how the stores will work, and which of these efforts take off and when, many programmers are hedging their bets, working on apps for a variety of operating systems. Microsoft's Professional Developers Conference, scheduled for October, has been the fastest-selling developer conference in history, according to Rockfeld. Interest in Android is surging. One blog for Android developers, AndroidGuys.com, has seen its traffic rise fivefold, to 10,000 visits a day, from June to August. "Proliferation of these stores can be a benefit for the developers," says Dan Gilmartin, vice-president of marketing at uLocate, which is working on applications for most of these efforts. "We are seeing growth in demand for applications across the board."