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Trick or Treat or Just the Facts

Global markets regained some composure. Here at home, it was apparently the biggest one-week market gain since 1974. The Dow jumped 11.3% (down 29.7% y-t-d) and the S&P500 rose 10.5% (down 34%). The broader market rallied sharply. The small cap Russell 2000 surged 14.1% (down 29.8%), and the S&P400 Mid-caps jumped 13.3% (down 33.8%). Economically-sensitive issues did some recovering. The Morgan Stanley Cyclicals jumped 8.8% (down 46.6%), and the Transports surged 12.7% (down 15%). The S&P500 Homebuilding index jumped 33.6% (down 37%), and the Morgan Stanley Retail index rose 19.0% (down 29%). The Utilities increased 5.5% (down 30.7%), and the Morgan Stanley Consumer index gained 6.5% (down 23.3%). The NASDAQ100 gained 11.0% (down 36%), and the Morgan Stanley High Tech index advanced 10.7% (down 39.5%). The Street.com Internet index increased 12.8% (down 41.3%), the NASDAQ Telecommunications index 12.2% (down 37.5%), and the Semiconductors 12.8% (down 41.3%). The Biotechs rallied 8.8% (down 14.2%). The financials bounced, with the Broker/Dealers rising 11.0% (down 56.4%) and the Banks gaining 13.9% (down 33.9%). Although Bullion dropped $10, the HUI Gold index rallied 14.9% (down 52.6%).

One-month Treasury bill rates dropped to 0.11% and three-month yields sank to 0.44%. At the same time, two-year government yields gained 5 bps to 1.57%. Five-year T-note yields jumped 26 bps this week to 2.84%, and 10-year yields rose 28 bps to 3.97%. Long-bond yields surged 30 bps to 4.47%. The 2yr/10yr spread jumped 21 to 237 bps. The implied yield on 3-month December '09 Eurodollars rose 20 bps to 2.84%. Benchmark Fannie MBS yields increased 32 bps to 6.04%. The spread between benchmark MBS and 10-year T-notes widened 4 to 207 bps. Agency 10-yr debt spreads increased 4 to a new high 207 bps. The 2-year dollar swap spread declined 4 to 121.25, while the 10-year dollar swap spread increased one to 48.25. Corporate bond spreads were mixed. An index of investment grade bond spreads narrowed 22 to 201 bps, while an index of junk bond spreads jumped a notable 86 to 928 bps.

Investment-grade debt issuance included Verizon $3.25bn, Coca-Cola Enterprises $1.0bn, Kimberly-Clark $500 million and Estee Lauder $300 million.

Junk issuers included MGM Mirage $750 million (at 1225 bps over Treasuries!).

I saw no convert or international issuance this week.

October 31 - Bloomberg (Shelley Smith, Abigail Moses and Caroline Hyde): "Corporate debt markets in Europe endured their worst month on record... Investors are demanding the highest yields relative to government debt in a decade to buy corporate bonds. The cost of credit-default swaps on the Markit iTraxx Crossover Index surged as high as 925 bps, up from 171 before the crisis started last year, and a gauge of leveraged loan prices plummeted almost 20%."

German 10-year bund yields jumped 13 bps to 3.875%. The German DAX equities index surged 17.2% (down 37.6% y-t-d). Japanese 10-year "JGB" yields dipped 2 bps to 1.47%. The Nikkei 225 rallied 12.1% (down 44% y-t-d). Most emerging markets bounced. Brazil's benchmark dollar bond yields dropped 190 bps to 8.55%. Brazil's Bovespa equities index surged 18.3% (down 41.7% y-t-d). The Mexican Bolsa rallied 20.4% (down 30.8% y-t-d). Mexico's 10-year $ yields fell 212 bps to 7.58%. Russia's RTS equities index recovered an astonishing 40.8%, yet still remains down 66.2% for the year. India's Sensex equities index declined 3.8%, with y-t-d losses boosted to 51.8%. China's Shanghai Exchange fell another 6.0%, with y-t-d losses of 67.1%.

Freddie Mac 30-year fixed mortgage rates jumped 42 bps to 6.46% (up 20bps y-o-y), completely reversing last week's drop. Fifteen-year fixed rates surged 47 bps to 6.19% (up 17bps y-o-y) to the high since August 2007. One-year ARMs increased 15 bps to 5.38% (down 19bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates rising 18 bps this week to 7.65% (up 112bps y-o-y).

Bank Credit ballooned $163bn to a record $10.062 TN (week of 10/22), with an unprecedented 7-wk gain of $671bn. Bank Credit has now expanded $850bn y-t-d, or 11.2% annualized. Bank Credit posted a 52-week rise of $993bn, or 10.9%. For the week, Securities Credit surged $148bn. Loans & Leases jumped $14.3bn to $7.270 TN (52-wk gain of $595bn, or 8.9%). C&I loans gained $4.8bn, with y-t-d growth of 13.3%. Real Estate loans slipped $2.7bn (up 6.6% y-t-d). Consumer loans declined $1.4bn, while Securities loans rose $29.7bn. Other loans dropped $16.2bn.

M2 (narrow) "money" supply jumped $54.3bn to $7.925 TN (week of 10/20). Narrow "money" has expanded $463bn y-t-d, or 7.7% annualized, with a y-o-y rise of $552bn, also 7.5%. For the week, Currency jumped $4.4bn, while Demand & Checkable Deposits declined $5.8bn. Savings Deposits rose $16.5bn, and Small Denominated Deposits increased $11.8bn. Retail Money Funds surged $27.3bn.

Total Money Market Fund assets (from Invest Co Inst) increased $1.6bn to $3.538 TN, with a y-t-d expansion of $424bn, or 16.5% annualized. Money Fund assets have posted a one-year increase of $591bn (20.1%).

The Asset-Backed Securities (ABS) market remains essentially shut down. Year-to-date total US ABS issuance of $129bn (tallied by JPMorgan's Christopher Flanagan) is running at 25% of comparable 2007. Home Equity ABS issuance of $351 million compares with 2007's $229bn. Year-to-date CDO issuance of $30bn compares to the year ago $298bn.

Total Commercial Paper outstanding surged $100.6bn this week to $1.550 TN (7-wk decline $266bn), with CP down $236bn y-t-d. Asset-backed CP increased $26.3bn, with 2008 posting a decline of $51.6bn. Over the past year, total CP has contracted $333bn, or 17.7%.

Federal Reserve Credit jumped $69.6bn to a record $1.873 TN, with a historic 7-wk increase of $985bn. Fed Credit has expanded $999bn y-t-d (135% annualized) and $1.01 Trillion y-o-y (117%). Fed Foreign Holdings of Treasury, Agency Debt last week (ended 10/29) increased $7.5bn to $2.486 TN. "Custody holdings" were up $430bn y-t-d, or 24.7% annualized, and $454bn y-o-y (22.3%).

Declining again from the previous week, International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi - were nonetheless up $985bn y-o-y, or 16.7%, to $6.886 TN.

Global Credit Market Dislocation Watch:

Oct. 30 - Bloomberg (Sandra Hernandez): "The U.S. government's borrowing needs will almost double to $2 trillion this fiscal year, prompting the Treasury to revive three-year notes and hold more frequent sales of 10- and 30-year debt, according to Goldman Sachs... The Treasury should consider holding so-called reopenings of two-year note auctions on a monthly basis because demand for the maturity is strong enough to support sales of $50 billion to $60 billion a month, Goldman said..."

October 28 - Dow Jones (Patrick Yoest): "A non-government budget watchdog said the U.S. budget deficit likely will surpass $1 trillion in fiscal year 2009, which would catapult the deficit figure into record territory. Maya MacGuineas, who heads the Committee for a Responsible Federal Budget, said Monday that an already-high budget imbalance, combined with new spending from bailout measures and flagging revenue from the economic downturn, made it likely that 'the budget deficit will in fact reach $1 trillion.' The committee is comprised of economists and former government officials who favor reining in deficits. 'We are staring at really troubling, troubling deficits,' MacGuineas said. The Congressional Budget Office in September predicted that the budget deficit for fiscal year 2009, which began Oct. 1, would total $438 billion."

Oct. 30 - Bloomberg (Alison Vekshin and Robert Schmidt): "The U.S. Treasury and the Federal Deposit Insurance Corp. are considering a program that may offer about $500 billion in guarantees for troubled mortgages to stem record foreclosures, people familiar with the matter said. The plan, which might put as many as 3 million homeowners into affordable loans, would require lenders to restructure mortgages based on a borrower's ability to repay."

October 27 - Bloomberg (Linda Shen and Hugh Son): "At least 18 regional U.S. banks, including SunTrust Banks Inc. and Capital One Financial Corp., accepted $35 billion in government cash as the Treasury rolled out the second half of its $250 billion package..."

October 28 - Bloomberg (Hugh Son and Andrew Frye): "U.S. life insurers are in talks with the government for potential investments as companies jockey for the remaining $90 billion of the $250 billion set aside to prop up ailing financial companies. The Treasury has been 'asking us how we can fit into the program,' said Jack Dolan, spokesman for the... American Council of Life Insurers..."

October 28 - Wall Street Journal (Chip Cummins): "Western officials came knocking on the door of the oil-rich Middle East Tuesday, seeking funds amid today's global financial crisis. But governments here and their big investment funds are licking their own wounds from the fallout. U.S. Deputy Treasury Secretary Robert Kimmitt started a week-long tour of the Persian Gulf... telling an audience in Dubai that the U.S. was eager for fresh investment from the region. And British Prime Minister Gordon Brown asked nations enjoying big budget surpluses... for more money... But the calls come as the Gulf's handful of government investment funds face big paper losses amid recent global stock-market carnage."

October 28 - Bloomberg (Maria Levitov): "Russian Prime Minister Vladimir Putin urged China to move away from the dollar, saying a global economy based on the U.S. currency has 'serious problems.' 'Wider use of national currencies' is needed, Putin said at the Russia-China Economic Forum... China and Russia, the largest and third-largest holders of dollars, have about $2.4 trillion between them."

October 29 - Bloomberg (Gabi Thesing): "The European Central Bank's lending to financial institutions surged to a record as it pumped extra cash into the banking system to ease a funding gridlock. The... central bank said its outstanding euro loans to banks rose to 773.7 billion euros ($1.01 trillion) yesterday, the largest amount ever... The figure does not include the ECB's dollar loans."

October 28 - Bloomberg (Julie Ziegler): "Billionaire investor George Soros said the U.S. risks losing global economic influence unless it quickly leads an international effort to ensure that economies around the world remain stable. The $700 billion bailout package approved by Congress this month had an unintentional effect of drawing capital away from so-called peripheral countries such as Brazil as investors sought a haven, said Soros. Failure to protect such countries would lead to a bigger crisis that may result in the U.S. and the dollar losing clout, Soros told an audience... 'There will be a different system that will emerge and I think the U.S. will not have the kind of influence that it has,' he said."

October 30 - Wall Street Journal (Craig Karmin and Leslie Scism): "The credit crisis is causing a contraction of the little-noticed but huge business of securities lending, and financial players including pension funds, insurers and hedge funds are paying a price. Losses are sparking lawsuits from customers who pursued securities lending as a way to squeeze additional gains with seemingly little risk."

October 30 - Wall Street Journal: "Corporate pension plans dug themselves out of a deep hole between 2002 and 2007. Now, they are back in it. That presents already rattled investors with yet another worry: Pension-plan shortfalls will likely result next year in hits to earnings, shareholders' equity and possibly cash at a number of companies. Given the prevalence of 401(k) plans in the U.S., many investors may think pension plans are a worry of the past. Yet there are still more than 350 companies in the S&P 500 with defined-benefit pension plans that show up on their books... At the end of 2007, companies in the S&P 500 had a combined pension-plan surplus of about $60 billion, according to David Zion... analyst at Credit Suisse. The market selloff in the nine months to late September turned that into a combined deficit of about $75 billion, he estimated."

October 28 - The Wall Street Journal (Charles Forelle and Bob Davis): "Iceland's central bank raised its benchmark interest rate by six percentage points to 18%, and Hungary agreed to take a $25.1 billion loan package organized by the International Monetary Fund, as the two countries tried to rescue their currencies."

October 30 - Bloomberg (Alex Nicholson): "Russia's international reserves dropped $31 billion last week, the biggest decline this year, as the central bank struggled to prop up the nation's currency and a banking system under threat from the global financial crisis. The reserves fell to $484.7 billion, the lowest since the end of January, after dropping for four consecutive weeks..."

Oct. 30 - Bloomberg (Steve Matthews and William Sim): "The Federal Reserve agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time. The Fed set up 'liquidity swap facilities with the central banks of these four large systemically important economies' effective until April 30... The arrangements aim 'to mitigate the spread of difficulties in obtaining U.S. dollar funding.'"

October 28 - Bloomberg (Ari Levy): "GMAC... will halt new vehicle loans through its financial services unit in seven European countries as global credit markets deteriorate. The company will stop originating loans in the Czech Republic, Finland, Greece, Norway, Portugal, Slovak Republic and Spain..."

October 29 - Bloomberg (Ari Levy and Greg Bensinger): "GMAC LLC, the money-losing auto finance and home-loan lender, is seeking to become a bank holding company after gaining access to the Federal Reserve's new program designed to unlock short-term commercial credit markets."

October 28 - Bloomberg (Aaron Kirchfeld and Jacqueline Simmons): "Teachers at the Clara Zetkin Middle School in Freiberg, Germany, were counting on a budget surplus to ease staff shortages across the state of Saxony. Those hopes have faded as a result of bets made by state-owned Landesbank Sachsen Girozentrale on structured investments backed by mortgages in the U.S. The German lender loaded up on asset-backed securities and derivatives manufactured and sold by Wall Street amounting to more than 27 times the bank's equity. Now Saxony, which pledged taxpayer money as a guarantee against losses, is on the hook for 2.8 billion euros ($3.5 billion)."

Currency Watch:

The dollar index slipped 0.9% to 85.63. For the week on the upside, the South African rand increased 14.6%, the South Korean won 10.2%, the Australian dollar 7.3%, the Brazilian real 6.9%, the Canadian dollar 5.4%, the New Zealand dollar 4.7%, the Mexican peso 4.4%, the Norwegian krone 4.0%, the Swedish krona 2.1%, and the Singapore dollar 1.6%. On the downside, the Japanese yen declined 4.2%. In the emerging currencies, the Indonesian rupiah declined 7.8% and the Argentine Peso 3.2%.

Commodities Watch:

October 28 - Bloomberg (David Wethe): "As many as 20 of the 100 deepwater oil rigs on order worldwide may be delayed or canceled as loan availability erodes, possibly slowing developments including the biggest petroleum discovery in the Americas in three decades."

Gold declined 1.4% to $725. Silver rallied 5.2% to $9.85. December Crude gained $3.66 to $67.81. December Gasoline rose 3.2% (down 39.6% y-t-d), and December Natural Gas gained 5.0% (down 9.4% y-t-d). December Copper recovered 8.4%. December Wheat rallied 3.9% and Corn jumped 7.7%. The CRB index gained 4.7% (down 25.3% y-t-d). The Goldman Sachs Commodities Index (GSCI) rose 5.0% (down 26.3% y-t-d).

China Watch:

October 29 - Bloomberg (Lyubov Pronina and Greg Walters): "China may provide Russian oil companies with a 'considerable' loan as the countries expand energy cooperation. The size is being negotiated, Russian Deputy Prime Minister Igor Sechin told reporters after a meeting between Prime Minister Vladimir Putin and Chinese counterpart, Wen Jiabao, in Moscow... Rosneft and pipeline monopoly OAO Transneft may get as much as $25 billion in export-backed loans from China as Russia seeks to expand into Asian energy markets... 'For China, it's about strategic access to energy,' said Ronald Smith, chief strategist at Moscow-based Alfa Bank. 'For Russia, it's about the money.'"

October 28 - MarketNews International: "Chinese economic indicators such as power production and port throughput are falling sharply, a leading economist warned... Xia Bin, an economist with the Development Research Center, a think tank under the State Council, told a business audience here that the world financial crisis is impacting China's economy and said that Beijing's response so far has been too timid. 'If the policy adjustment is slow and small, the government's concerns about an economic slowdown will become a reality in the first half of next year,' he said."

October 29 - Bloomberg (Nipa Piboontanasawat): "China's wages in urban areas rose 18.3% in the first nine months of 2008 from a year earlier, the National Bureau of Statistics said. The average wage earned in the nine-month period climbed to 19,731 yuan ($2,889)..."

Japan Watch:

October 30 - Bloomberg (Sachiko Sakamaki and Toru Fujioka): "Japan said it will pump 5 trillion yen ($51 billion) into the world's second-largest economy, earmarking funds for households and local governments to help weather the global financial crisis. 'We're facing a storm that comes once in every 100 years,' Prime Minister Taro Aso said... 'While Japan's financial system remains relatively sound there will surely be an impact on the real economy.'

October 28 - Wall Street Journal (Yuka Hayashi and Yumiko Ono): "Japan, seen as a bastion of strength in the unfolding global economic turmoil, showed new vulnerability Monday as the country's biggest bank announced plans to raise fresh capital, the yen traded near its highest levels in more than a decade and shares fell to lows not seen in 26 years. Mitsubishi UFJ Financial Group said Monday it would raise as much as 990 billion yen, or $10.7 billion, in capital."

October 29 - Bloomberg (Toru Fujioka): "Confidence among Japan's small and midsized companies dropped to a decade low as a faltering economy weighed on profits."

October 29 - Bloomberg (Jason Clenfield): "Japanese companies plan to cut production this month and next as the global financial crisis increases the likelihood of a worldwide recession. Industrial output will fall 2.3% in October and 2.2% in November, the Trade Ministry said..."

Asia Bubble Watch:

October 31 - Bloomberg (Patricia Kuo): "Asia-Pacific companies and governments outside Japan cut sales of bonds in dollars, yen and euros by 98% and curbed bank borrowing in October as the global credit slump boosted costs and weakened lenders... 'It's going to be quite a few months before we see a decent size of new lending in the region,' said John Corrin... chairman of the Asia Pacific Loan Market Association. 'There were about 30 banks capable of underwriting $1 billion of loans 18 months ago. There are probably around 10 banks today which can do $100 million each.'"

Latin America Watch:

October 31 - Bloomberg (Drew Benson and Lester Pimentel): "Argentina's debt ratings were cut by S&P for the second time since August amid mounting concern the global financial crisis and a tumble in commodity export prices will lead to default. S&P lowered the South American country's foreign debt rating to B-, six levels below investment grade and in line with countries including Bolivia and Lebanon..."

Central Banker Watch:

October 29 - Bloomberg (Craig Torres): "The Federal Reserve cut its benchmark interest rate by half a percentage point to 1%, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era."

October 30 - Bloomberg (Scott Lanman): "The Federal Reserve bought commercial paper valued at $145.7 billion in the first days of the program aimed at backstopping the market... The central bank extended $144.8 billion of loans as of yesterday to a unit that paid $143.9 billion for the debt... Separately, direct loans to commercial banks rose to a record $110.7 billion yesterday from $107.5 billion a week earlier. Cash borrowing by securities firms totaled $79.5 billion, down from $102.4 billion."

October 31 - Bloomberg (Mayumi Otsuma): "The Bank of Japan cut its benchmark interest rate to 0.3% to help stave off a prolonged recession. Governor Masaaki Shirakawa cast the deciding vote to lower the key overnight lending rate from 0.5%..."

October 30 - Bloomberg (Chinmei Sung and Janet Ong): "Taiwan's central bank cut interest rates for the third time in less than two months... The Central Bank of the Republic of China (Taiwan) reduced the discount rate on 10-day loans to banks to 3% from 3.25%..."

October 30 - Bloomberg (Fiona MacDonald and Arif Sharif): "The Central Bank of Kuwait cut its benchmark interest rate for the second time this month following the U.S. Federal Reserve's 0.5 percentage point reduction... The Persian Gulf country's central bank cut the repo rate to 2%, from 2.5%..."

Unbalanced Global Economy Watch:

October 29 - Bloomberg (Brian Lysaght): "London's largest shopping mall, a 265-store, glass-roofed center owned by Westfield Group and Commerzbank AG, opens today, just in time for Britain's first recession in 17 years. 'It's clearly not the best time, but this is a long-term investment,' said Michael Gutman, managing director of Westfield U.K..."

October 29 - Bloomberg (Svenja O'Donnell): "U.K. mortgage approvals stayed close to a record low and consumer credit rose at the weakest pace since 1993 after the worsening financial crisis prompted banks to tighten lending, pushing the country towards a recession."

October 30 - Bloomberg (Jennifer Ryan): "U.K. house prices dropped by the most in at least 17 years in October as banks tightened their grip on credit and the prospect of a recession deterred potential buyers, Nationwide Building Society said. The average cost of a home fell 14.6% from a year earlier to 158,872 pounds ($261,000)..."

October 31 - Bloomberg (Svenja O'Donnell): "U.K. consumer confidence dropped in October close to the weakest level since at least 1974 as the financial crisis spooked British shoppers, GfK NOP said."

October 28 - Bloomberg (Colm Heatley): "Irish companies' biggest difficulty is an inability to access credit from the country's banks, according to a survey by the Institute of Certified Public Accountants. Some 50% of accountants surveyed by the... institute said a lack of credit was the main pressure facing their clients, while 33 percent cited rising wage demands and 32% cited energy costs."

Oct. 30 - Bloomberg (Fergal O'Brien): "European confidence in the economic outlook fell by a record after the worsening credit crisis sent stocks plunging, shut off companies' access to funding and heightened concerns that a recession looms."

October 29 - Bloomberg (Emma Ross-Thomas): "Mortgage lending in Spain fell for the 13th month in August as the global credit crunch coupled with the collapse of a domestic housing boom threatened to tip the economy into recession. Mortgage lending fell 38% from a year earlier..."

October 29 - Bloomberg (Tasneem Brogger): "Norway's jobless rate unexpectedly held at a 20-year low in the three months ended September, indicating companies in the world's No. 5 oil exporter are continuing to demand labor. The... rate held at 2.4%..."

October 31 - Bloomberg (Torrey Clark and Alex Nicholson): "Russia's inflation rate will be about 13% by the end of the year, higher than the government's 11.8% forecast, central bank Chairman Sergey Ignatiev told lawmakers."

Bursting Bubble Economy Watch:

October 31 - Bloomberg (Dan Levy): "Almost 20% of U.S. mortgage borrowers owed more on their loans in the third quarter than their house was worth as foreclosures depressed prices and the economy weakened, according to First American CoreLogic. More than 7.5 million properties already have negative equity and another 2.1 million will follow should home prices decline another 5%.. First American... said... Six states account for almost 60% of homes with negative equity, led by Nevada and Michigan."

October 28 - Bloomberg (Shobhana Chandra): "Consumers in the U.S. were the most pessimistic ever in October as stocks plunged and banks shut off credit, raising the risk spending will tumble."

October 31 - Wall Street Journal (Kelly K. Spors and Simona Covel): "Small businesses are getting hit with another aftershock of the credit crisis: Customers who are delaying payment of their bills for weeks or months. The growing wave of late payers is hurting many companies that were already reeling from the economic crisis themselves. It's also damaging healthy companies. Small businesses are hugely dependent on their cash flow, so they must either cut costs or scramble to find alternative funding if they aren't being paid on time. With money tight and bank loans hard to get, a cash-strapped company can easily be pushed to the brink. Making matters worse, big companies typically delay payments to their smaller suppliers first -- in part because small businesses are unlikely to have teams of people devoted to chasing down their accounts receivables."

October 31 - Bloomberg (Julie Ziegler and Alex Nussbaum): "The worst financial crisis since the Great Depression is beginning to shake up the budgets and planning on U.S. college campuses, even in the elite Ivy League. Cornell University... became the latest school to react to the declining economy. The school will suspend hiring of non-faculty staff from outside the university... Publicly supported schools, which educate about 80% of U.S. undergraduates, can expect shortfalls for at least the next two academic years, given state projections of continuing deficits, said Donald Heller, director of the Center for the Study of Higher Education, at Penn State University."

October 28 - Wall Street Journal (Kate Linebaugh): "With credit drying up and new-vehicle sales slumping to a 25-year low, car dealerships from New Jersey to California are going out of business at an accelerating pace, threatening greater economic pain for communities around the country. The National Automobile Dealers Association estimates 700 new-car dealerships will close this year, up from 430 last year, and taking with them an estimated 37,100 jobs around the country. That is a heavy blow to a key piece of the U.S. economy. The country's 20,700 dealerships accounted for $693 billion in sales last year, or 18% of all retail sales..."

Oct. 30 - Bloomberg (Hugh Son): "American Express... will slash 7,000 jobs, or about 10% of its staff, and may take a charge of as much as $290 million in the fourth quarter tied to the cuts. American Express plans to save as much as $1.8 billion next year with a freeze on hiring and management raises, and less spending for technology and marketing... The job cuts are concentrated on managers and other people who don't deal directly with customers..."

October 31 - Wall Street Journal (Greg Hitt and Brad Haynes): "The U.S. has led the way in efforts to lower barriers to global trade since World War II, despite opposition from unions and voters hurt by foreign competition. This election could put trade-liberalization on ice for a while. A slumping economy, years of stagnating wages for many workers and unease about the rise of China as an economic power are fueling popular skepticism toward free trade and buoying Democratic candidates who are seizing on anxieties about globalization."

October 30 - Bloomberg (Jeremy R. Cooke and Michael B. Marois): "U.S. state and local governments may have trouble persuading voters to approve $66 billion in planned borrowing for schools, sewers and other projects as a faltering economy and rising costs reduce taxpayers' appetite for debt. Voters in 41 states will decide Nov. 4 on the second- largest amount of municipal-bond measures after November 2006's $78.6 billion... Referendums in California make up the bulk, with almost $42 billion, led by a $9.95 billion measure to fund a high-speed rail network."

October 29 - Bloomberg (Michael Janofsky, Mark Drajem and Alaric Nightingale): "Richard Burnett's lumber company had started loading wood onto ships heading for China. More was en route to the docks. It was all part of an order that would fill 100 40-foot cargo containers. Then Burnett got a call from his buyer at Shanghai VIVA Wood Products Co. The deal was dead. He told Burnett... he couldn't get a letter of credit to guarantee payment for at least six months. 'It was like a spigot got cut off,' Burnett said... The inability of buyers in China and Vietnam to get letters of credit has cost his company as much as $4 million this year, a third of projected revenue, forcing him to lay off 15 of 35 employees, he said. Suppliers of oil, coal, grains and consumer products from Chicago to Mumbai are losing sales as the credit crisis spreads beyond financial institutions, and banks refuse financing or increase the fees for buyers."

October 29 - Bloomberg (Julie Ziegler): "Costs rose 5.9% this year at private four-year colleges in the U.S., outpacing the biggest gain in inflation in 17 years and increasing the demand for financial aid. Tuition and fees rose 0.3 percentage point more than inflation at those schools, to an average of $25,143, according to... the College Board..."

Oct. 30 - Bloomberg (Lauren Berry): "Hedge funds might cut spending on technology as much as 39% next year because of declining revenue, a study found. Hedge funds may reduce technology budgets to as little as $882 million next year from $1.45 billion this year, according to a study... by research firm The Tabb Group LLC..."

October 29 - Bloomberg (Alex Duff): "America's Cup teams will cut their budgets by up to 80% under plans for sailing's richest event in 2010 as financial turmoil makes it harder to find sponsors, Alinghi team owner Ernesto Bertarelli said. 'We need to adapt to the times,' the Swiss billionaire said..."

MBS/ABS/CDO/CP/Money Funds and Derivatives Watch:

October 28 - Bloomberg (Jody Shenn): "Subprime, Alt-A and prime-jumbo mortgage securities fell this month as bond holders were forced to sell assets, driving some prices to record lows. The least protected bonds originally rated AAA and backed by Alt-A mortgages with five years of fixed rates slipped to about 15 to 25 cents on the dollar... 'Super-senior' bonds from the same groups of loans were selling in the 'mid-50s to mid-60s,' down from 60 to 70 cents. The non-agency U.S. home-loan bonds, an almost $2 trillion market, fell from 100 cents on the dollar last year as foreclosures soared and home values tumbled."

October 29 - Wall Street Journal (Kate Haywood): "Barclays Capital sold more than 30% of the $970 million of mostly leveraged loans it put up for sale to liquidate positions linked to a derivatives agreement with hedge fund Black Diamond Capital Management LLC... The bank received bids for 75% of the loans and other debt... The small percentage of assets sold suggests that bidders drove too hard a bargain on the price of the assets. The loan market has fallen about 13 cents since the beginning of October, trading on average at around 70 cents on the dollar..."

GSE Watch:

October 31 - Bloomberg (Craig Torres): "Federal Reserve Chairman Ben S. Bernanke said the market for mortgage-backed bonds will require some form of government support through either guarantees or insurance programs to weather times of heightened stress. The Fed chief also said Fannie Mae and Freddie Mac... should retain some form of government support and oversight even if the companies are transformed from their current federal conservatorship to the status as private companies."

October 30 - Bloomberg (Jody Shenn): "Fannie Mae's portfolio of home loans and bonds grew at a 2.3% annual rate last month as federal regulators seized control of the mortgage-finance company. The portfolio rose by $1.4 billion to $761.4 billion, after expanding at a 3% pace in August... Freddie Mac last week said its portfolio contracted by $24 billion to $737 billion in September, after falling $37.4 billion the previous month. Fannie's slowing growth and Freddie's shrinkage came during the month in which as the U.S. took over the companies... A jump in the companies' borrowing costs this month is now hindering their buying."

Real Estate Bust Watch:

October 28 - Bloomberg (Timothy R. Homan): "House prices in 20 U.S. cities declined at the fastest pace on record as foreclosures climbed before the credit crisis deepened this month. The S&P/Case-Shiller home-price index dropped 16.6% in August from a year earlier, as forecast, after a 16.3% decline in July... The decrease in property values... will probably intensify in coming months as the latest tightening of credit markets threatens to dry up mortgage financing."

October 30 - Bloomberg (Kathleen M. Howley): "Home prices in the Hamptons, the summer resort of Wall Street bankers and Hollywood celebrities, plunged a record 19% in the third quarter from a year earlier... The median price for a home on the eastern tip of New York's Long Island fell to $830,000 from $1.03 million..."

October 27 - Bloomberg (David M. Levitt): "Manhattan office rents may fall by about 25% between now and mid-2010, Colliers ABR predicted, as the city sheds tens of thousands of jobs in a financial industry-led recession."

October 29 - Wall Street Journal (Jonathan Karp): "Underscoring the deepening woes in commercial real estate, a high-profile British developer has defaulted on a $365 million loan for prime land it bought in Beverly Hills last year as part of a plan to build luxury condominiums. In recent weeks, CPC Group... has been roiled by the collapse of its partner in the project, Iceland's Kaupthing Bank, which was taken over by the Icelandic government."

October 31 - Bloomberg (Denis Maternovsky and Ellen Pinchuk): "Russia's real-estate market is 'in trouble' as the 'difficult' economic situation slows lending and high prices plummet, Alfa Bank President Petr Aven said. 'Real estate is in trouble and will be in trouble,' Aven... told Bloomberg... 'That was one of the bubbles and bubbles have to disappear someday.' An average Russian would need to work 150 years to buy a high-end apartment covering 100 square meters (1,100 square feet) in central Moscow, compared with 30 years in Poland and six years in Germany, Aven said..."

Speculator Watch:

October 27 - Dow Jones (Sandra Hernandez): "In the latest sign of how the financial crisis and steep drop in commodity prices since July have blindsided some of the most prominent investors, energy crusader T. Boone Pickens said he and his BP Capital investment firm have lost some $2 billion since oil and natural-gas prices started tumbling in July. The figure, released on '60 Minutes,' is sharply higher than the most recent estimates of Pickens' losses."

October 29 - Financial Times (Kate Burgess): "Hedge funds are scrambling to assess the damage done to portfolios after bets on Volkswagen's shares have turned sour. Estimates of the losses suffered by funds that went short - borrowed shares and sold them in the expectation they could buy them back more cheaply - run into several billions of euros. After Porsche declared it held sway, directly or indirectly, over more than 74% of VW's shares this week, fund managers have been struggling to buy back shares to cover their short positions, pushing the carmaker's share price ever higher. There is widespread speculation that the losses nursed by some hedge funds may be enough to force them under."

Oct. 30 - Dow Jones: "Knight Capital Group... said... that its asset management unit suspended redemptions from its Global Multi-Strategy Funds after investors sought to withdraw about $480 million. The financial services firm said its Deephaven Capital Management LLC unit took the step to protect investors from the 'current extreme and unprecedented market conditions.' ...Knight Capital said the GMS Funds had assets under management of nearly $1.6 billion at Oct. 1..."

October 27 - Bloomberg (Doug Alexander): "Desjardins Group, Canada's biggest credit union, stopped selling two guaranteed investment products tied to hedge funds as declining stock prices curbed their appeal. 'They actually haven't been popular since the beginning of the year,' Desjardins spokesman Andre Chapleau said..."

Muni Watch:

October 29 - Bloomberg (Angela Greiling Keane): "U.S. city and regional transit providers may be at risk of defaulting on as much as $16 billion in financing unless the U.S. Treasury and Federal Reserve act to stabilize them, leaders of the House transportation panel said. More than 30 of the nation's largest transportation agencies may be in danger of collapse after private guarantors including American International Group Inc. had their credit ratings cut, violating terms of loans from 1988 to 2003, lawmakers said..."

October 28 - Bloomberg (Darrell Preston): "U.S. states' credit ratings are threatened as turmoil in credit markets pinches finances and an economic slowdown crimps revenue, Moody's... said. Moody's has a negative outlook on six states -- Florida, Kentucky, Nevada, Ohio, Rhode Island and Wisconsin -- while its outlook on state credit overall also has been negative since April... Sales-tax revenue, which generates about a third of general fund revenue for states, is expected to fall as consumers cut spending... Income-tax revenue also will likely decline because of 'sagging personal income'..."

New York Watch:

October 28 - Bloomberg (Michael Quint and Henry Goldman): "New York state faces budget deficits totaling a record $47 billion over four years as a weakening economy, financial slump and job losses on Wall Street reduce tax collections, the Division of Budget said. The state is projecting a shortfall of $1.5 billion in the current fiscal year ended in March 2009, $12.5 billion next year, $15.8 billion the following year and $17.2 billion in fiscal 2012, the division said. Next year's gap is more than double the $5.4 billion deficit projected in August..."

October 28 - Bloomberg (Henry Goldman): "New York state's pension fund has lost about 20% of its value since April 1 due to declines in the stock market and other investments, state Comptroller Thomas DiNapoli said."

California Watch:

October 28 - Bloomberg (Michael B. Marois): "California Governor Arnold Schwarzenegger will require lawmakers to return for a special session to address the state's growing budget deficit and ailing economy. Schwarzenegger will issue the order Nov 5., said his spokesman Aaron McLear."

October 28 - Bloomberg (Michael B. Marois): "California schools are being warned by Governor Arnold Schwarzenegger to prepare for up to $4 billion in budget cuts as the most populous U.S. state seeks to address a deficit worsened by the ailing economy... Schwarzenegger also said the state's deficit will likely swell to $8 billion and that he'll propose tax increases to help address the problem..."

October 31 - Wall Street Journal (Bobby White): "When the economic crisis deepened this fall, this city already was losing scores of police and firefighters because it could no longer afford the rich salaries and benefits it offered after the Sept. 11, 2001, attacks. Now, with crime on the rise and tax revenue sinking, this San Francisco Bay area city faces more cuts in police and fire department budgets. It is a scenario being closely watched by the many other California municipalities that offered the same lucrative pay packages -- and that now face the same fiscal pressures."

October 28 - Bloomberg (Simeon Bennett): "Neglected swimming pools and Jacuzzis in homes abandoned after mortgage delinquencies may be spurring an increase of West Nile virus near Los Angeles as mosquitoes move in, a study showed. Cases of the potentially lethal mosquito-borne virus rose almost fourfold to 140 in the Bakersfield area of Kern County last year, coinciding with a 300% increase in home delinquencies in the county, according to the study in the... journal Emerging Infectious Diseases. 'The recent widespread downturn in the housing market and increase in adjustable rate mortgages have combined to force a dramatic increase in home foreclosures and abandoned homes and produced urban landscapes dotted with an expanded number of new mosquito habitats,' researchers led by William Reisen, a professor of entomology at University of California, Davis, wrote."

Crude Liquidity Watch:

October 31 - Bloomberg (Glen Carey and Matthew Brown): "Abdullah Hajeri led a march on the Emir's palace in Kuwait this week, demanding the oil-rich nation's ruler stop stocks from plunging. Adnan Mohammed Saleh, down the Persian Gulf coast in Dubai, said he wants more government protection from the global financial crisis. 'Every day the market is crashing,' said Saleh, a 42-year- old trader... The region's rulers are under pressure from citizens to shore up investors, not just banks, as they try to fend off what may be the worst economic crisis since December 1998..."

Trick or Treat or Just the Facts:

October 31 - Bloomberg (Shelley Smith, Abigail Moses and Bryan Keogh): "Corporate debt markets in the U.S. and Europe endured their worst month as the credit crisis spread beyond financial firms to industrial companies amid the prospect of a global recession. Corporate industrial bonds in October are set to post their steepest monthly loss on record, while the gaps between yields on those bonds and government debt soar by the most ever."

October 31 - Bloomberg (Jody Shenn): "Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds, representing almost $5 trillion of U.S. home- loan securities, may this month generate their worst returns relative to Treasuries on record. Agency mortgage bonds have returned 171 bps lesss than Treasuries with maturities similar to their expected average lives through yesterday, the weakest performance since at least 1988... The debt is suffering from 'de-leveraging flows,' as funds and firms relying on borrowed money sell securities across credit markets to meet margin calls, match redemptions or cut balance sheets, Noah Estrin, a mortgage strategist at RBS Greenwich Capital, wrote..."

October 31 - Bloomberg (Ye Xie and Daniel Kruger): "The yen and the dollar rose against the euro and headed for record monthly gains as signs of a global recession led investors to seek safety... Japan's currency has risen 20% against the euro in October... It's the currency's biggest monthly gain since the European currency's introduction in 1999. The dollar has increased a record 10.6% this month against the euro and is down 7.1% against the yen, the biggest decline since 1998..."

October 31 - Bloomberg (Chris Fournier): "Canada's currency posted its worst monthly performance in almost six decades as commodities including oil, natural gas and gold slumped. The Canadian dollar weakened 11% in October, the most since at least 1950... Crude oil, which accounts for 21% of the weighting in the central bank's Commodity Price Index, has weakened 37% this month. 'This was a month when paradigms were reassessed,' said David Watt, a senior currency strategist at RBC Capital Markets..."

October 31 - Bloomberg (Agnes Lovasz and Lukanyo Mnyanda): "The pound fell against the dollar, logging the biggest monthly decline in 16 years... The pound dropped to $1.6195 as of 5:09 p.m. in London, from $1.6451 yesterday. The U.K. currency, higher in the week, is down 9% since Sept. 30..."

October 31 - Bloomberg (Candice Zachariahs): "The Australian and New Zealand dollars were set for the biggest monthly declines since the mid- 1980s... The Australian dollar dropped 15% this month... New Zealand's dollar slumped 12%..."

October 31 - Bloomberg (Michael J. Moore): "Mexico's peso fell for the first time in four days... The currency has plunged 14% in October, its worst monthly performance since December 1994, when Mexico abandoned a currency peg to keep the nation from depleting its foreign reserves."

October 31 - Bloomberg (Andrea Jaramillo and Drew Benson): "Argentina's peso had its biggest monthly drop in more than six years... The currency plunged 7.5% this month, its biggest drop since the government abandoned a currency peg in 2002..."

October 31 - Bloomberg (Chanyaporn Chanjaroen and Grant Smith): "Commodities headed for their worst month since at least 1956... The Reuters/Jefferies CRB Index of 19 raw materials has plunged 24% this month..."

October 31 - Bloomberg (Pham-Duy Nguyen): "Gold futures fell, heading for the biggest monthly plunge in 28 years... This month, the price has dropped 17%, the most since March 1980. Silver... is down 19% this month."

October 31 - Bloomberg (Claudia Carpenter): "Copper headed for its biggest monthly drop in two decades and aluminum fell the most in 13 years... Copper has shed 37% this month and aluminum is down 16%. The MSCI World Index of equities has dropped 19% while the dollar has risen 11% against the euro... 'It's crazy what we have seen,' said Eliane Tanner, a commodity analyst at Credit Suisse..."

October 31 - Bloomberg (Jae Hur): "Wheat was little changed, poised for the biggest monthly drop in more than 22 years... Corn and soybeans headed for a fourth straight monthly loss. Wheat declined 21% this month..."


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