Man, I'll miss you stuffit. Thanks for everything.

What a relief, no bear market yet. I guess I was fooled by the fact that the Dow was lower on Friday than it has been since Fall of 2006.

BL: U.S. Stocks Fall, Dow Average Nears Bear Market as Banks Drop

By Lynn Thomasson

June 28 (Bloomberg) -- U.S. stocks slumped this week, pushing the Dow Jones Industrial Average to the brink of a bear market, on mounting concern that writedowns and record oil prices will keep eroding profit and economic growth.

JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. led financial stocks in the Standard & Poor's 500 Index to the fourth week of declines, the longest streak since 2005. Goldman Sachs Group Inc. recommended investors sell bank shares because credit losses will linger into 2009. United Parcel Service Inc. fell the most since July 2006 after saying profit will miss its prior forecast because fuel costs and an ``anemic'' economy reduced demand for air shipments.

The Standard & Poor's 500 Index dropped 3 percent to 1,278.38, a three-month low. The Dow average retreated 4.2 percent to 11,346.51 and needs to fall another 0.1 percent to complete a bear-market decline of 20 percent from its October record. The Nasdaq Composite Index lost 3.8 percent to 2,315.63.

``The market is dealing with anxiety about further losses and also coming to grips that we're in a significantly slower period of economic growth,'' said Kevin Cronin, Boston-based head of investments at Putnam Investments, which manages $180 billion. ``People thought the worst was behind us.''

Nine out of 10 S&P 500 industries fell this week, giving the index an 8.7 percent plunge in June. That's the steepest monthly slide since September 2002. Analysts forecast earnings at companies in the S&P 500 will slump 11 percent on average in the second quarter, according to a Bloomberg survey yesterday, compared with a projected decline of 8.9 percent a week earlier.

`Too Optimistic'

Goldman Sachs strategist David Kostin said expectations for 2008 and 2009 profits are ``too optimistic.'' Credit deterioration won't peak until next year and raising capital has become more difficult for banks and brokerages because deals have performed poorly, he wrote in a report this week.

Financial stocks in the S&P 500 fell the most since March, retreating 6.6 percent. The group tumbled 29 percent this year.

JPMorgan, the bank that bought Bear Stearns Cos. in a Federal Reserve-backed bailout, lost 7.4 percent to $35.05, the lowest price since October 2005. Citigroup, the biggest U.S. bank by assets, tumbled 11 percent to a nine-year low of $17.25. Bank of America, which is acquiring mortgage lender Countrywide Financial Corp., slumped 9.3 percent to $24.59, the lowest since March 2001.

$142.99 a Barrel

Energy stocks in the S&P 500 rose 1.4 percent after crude oil increased to a record $142.99 a barrel in New York. The commodity's surge sent the S&P 500 Consumer Discretionary Index to the lowest level since October 2003, while the Dow Jones Transportation Average, a measure of shipping, trucking and rail stocks, declined 5.5 percent.

``People realize they've underestimated the second-half drag to earnings from all these macro issues that we're dealing with,'' Alexander Young, a New York-based equity-market strategist at Standard & Poor's, said in a Bloomberg Television interview. ``The outlook for stocks looks pretty bad.''

UPS lost 9.1 percent to $60.36. Jet-fuel costs have jumped 30 percent this quarter, and recouping those expenses with surcharges has a two-month lag time, said Kurt Kuehn, chief financial officer for the world's largest package-delivery company.

Research In Motion Ltd. posted the steepest weekly drop since April 2002, tumbling 16 percent to $120.98. The maker of the BlackBerry e-mail phone predicted earnings that missed analysts' estimates on higher spending to fight Apple Inc.'s iPhone. Analysts at Credit Suisse Group AG rated the stock ``underperform'' in new research coverage and said the company's profit growth may slow.

Kodak's Buyback

Eastman Kodak Co. rallied 17 percent, the most since July 1998, to $14.51 for the steepest gain in the S&P 500. The 128- year-old photography company said it would use a tax refund to buy back as much as a quarter of its stock.

The Russell 2000 Index, made up of companies with a median market value of $498 million, dropped 3.8 percent to 698.14 for a steeper weekly loss than the S&P 500.

American Greetings Corp. tumbled 31 percent to $12.54 for the biggest decline since November 2000. Rising production costs caused the second-largest U.S. maker of greeting cards to report 55 percent less per-share profit than analysts estimated, according to Bloomberg data.

The Fed kept its benchmark interest rate at 2 percent on June 25 and warned that faster inflation may accompany some strengthening of the economy.

U.S. employers probably cut jobs in June for a sixth consecutive month, while manufacturing contracted at a faster pace, signaling the expansion is still at risk, economists said before reports next week.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Last Updated: June 28, 2008 08:00 EDT

"Tenuous situation"...That's one way of putting it, though I think "shitstorm" would fit better here.

R: Elite U.S. Army academy lures kids with mud and duty
Fri Jun 27, 2008 9:59am EDT

By Claudia Parsons

WEST POINT, New York (Reuters) - Climbing ropes and crawling in the mud under barbed wire, dozens of American high school kids at an unusual summer camp vied to see who could get most dirty as they tackled an Army obstacle course.

And as they ran between obstacles in the woods, the kids shouted Army chants. Asked by a cadet if they were motivated, they shouted back in unison: "Motivated, motivated, downright motivated. Ooh, aah, ooh, aah, I want to kill somebody."

Each summer, 800 high school kids hoping to become soldiers spend a week at West Point to see what life is like at the prestigious U.S. military academy for future army officers.

With the wars in Iraq and Afghanistan straining the U.S. military and public support low for the Iraq war, recruiting future officers might seem a tough sell. But officials say applications to the summer program are at a record high.

West Point says it recruits "scholars, leaders and athletes." Kids at the Summer Leadership Seminar, a week-long residential program held over two sessions, have top grades and are strong in sports and extra-curricular activities.

Alex Imbriale, a 17-year-old from North Carolina who is captain of his school's rifle team, attributed his interest in West Point to his father, who is in the army. But there were plenty of students on the program who are not "army brats."

Kathleen Engle, 16, from Fairfield, California, said she had looked into the Peace Corps and other options but decided on the military.

"I was in fifth grade when 9/11 happened and that's when I decided the best thing I could do for my country was this," she said, playing a video game called "America's Army."

"I guess it's going to be hard to kill someone, but if that's your job and that's what our commander tells us we need to do, I'm going to do that in order to protect my country."

IMMIGRANTS AND ADVENTURERS

Mario Vazquez, 17, from El Paso, Texas, hopes to be a neurosurgeon but first he says he has a duty to America.

"My Mom is actually the one that found out about it," he said of the West Point summer program. "My mother is from Mexico ... she said it's a good place to get discipline."

"I owe a lot to this country because of what it's given me, because of what it's given my family, but I also have fears because it's a lot of sacrifice," he said. "You put your country before yourself and you sacrifice your family and a lot of other privileges."

Austin Fullmer, 17, from Las Cruces, New Mexico, said he was attracted by the prospect of moving around the world and seeing new places, and although he would be nervous about deploying to a combat zone, "it's just another adventure."

"I didn't quite realize there were this many kids like me," he said, grinning as he sat in the doorway of Blackhawk helicopter parked in a field.

Graduates of the academy founded in 1802 include former President Dwight Eisenhower, Gen. Norman Schwarzkopf, who led U.S. forces in the first Gulf War, and astronaut Edwin "Buzz" Aldrin.

During their week at the picturesque campus on the banks of the Hudson river in New York state, the high-school students are immersed in cadet life.

They are woken at 5 a.m for physical training, they march in formation under the command of current cadets, take academic workshops and spend a day in the field.

"We're able to pick the most competitive students," said Lt. Col. Dean Batchelder, who handles admissions. There were 3,674 applications for 800 places on the high-school program.

Those who attend are not guaranteed admission to the academy -- which offers a four-year college education in return for a commitment of five years active duty and three years as a reservist -- but they stand a good chance, he said.

"I'm not here to screen them," Batchelder added. "We're not trying to weed out the weak, we're trying to give them the information so they can make a better choice."

NATION AT WAR

Her jeans and pink shirt caked in mud, her face daubed with camouflage cream, 17-year-old Elise Fink put on a flak jacket, stuffed her blonde ponytail under a helmet, and climbed up into the gun turret of a Humvee to check out the machine gun.

"In Iraq you'll be carrying about 40 pounds more than that," Specialist Justin Fletcher, a 10th Mountain Division soldier who returned from Iraq late last year, told her.

The grand-daughter of two brigadier generals and daughter of a lieutenant colonel, Fink says her family was supportive of her interest in West Point or the Reserve Officers' Training Corps (ROTC). Her friends in Wilton, Connecticut, less so.

"My town doesn't do military," Fink said. "My town is very anti-war right now, so to join the military means you're pro-war, and a lot of my friends are anti-war."

"When I said that I was planning on doing ROTC or coming to West Point, they said 'I don't want you to get killed.'"

Fink says support or disapproval of the war in Iraq is irrelevant to her military ambitions. "I feel it's my duty, and it's people's duty to serve their country in some way," she said. "This is the way I chose."

Lt. Col. Jeffrey Wilson, who runs the summer academic program, said applications for the Summer Leadership Seminar were at a record high this year.

"I'm not sure how the fact that we're a nation at war has influenced the motivation of any particular student to apply," he said. "I think that there is a strong sense of service in this generation."

YELLING AND HAZING

Life as a cadet at West Point is highly regimented, with every detail from how to fold your underwear to the position of personal items on your desk dictated by regulations.

Jordy Kronshag, a 17-year-old from Callumet, Michigan, whose skill at the pole vault made her the equal of much larger males on the obstacle course, said she enjoyed the teamwork and leadership training but was still unsure about applying to become a cadet.

"This is the fun part," she said, her clothes muddy from the low crawl under barbed wire. "But also a part I don't like is all the yelling and the hazing, that's going to be tough."

On a day set aside for academic workshops, students in one group staged a mock murder trial. Others built a light-seeking robot in an electrical engineering class.

A third group played "Double Philosophy Jeopardy," with pop culture categories showing how characters in "Star Wars" or "The Simpsons" illustrate stoicism or the philosophies of Friedrich Nietzsche.

At a panel discussion with 10 current cadets one evening, the students asked about free time, punishments for alcohol use, how much cadets work out, whether they have online courses, how cold winters are and how much sleep cadets get.

Cadet John Williams said he applied to West Point for the wrong reasons and didn't know much about it in advance.

"I know a lot of you are doing it for the wrong reasons," he told the students. "You want people to be proud of you, it's pretty prestigious, you don't want to let people down," he said. "That might not be a bad thing."

"I came for the wrong reasons, I've definitely stayed for the right reasons."

(For West Point slang, click on)

(Reporting by Claudia Parsons; Editing by Eddie Evans)

Remind me never to fly China Airlines...

R: Scrape damages Taiwan plane in New York, none hurt
Fri Jun 27, 2008 6:38am EDT

TAIPEI (Reuters) - A China Airlines plane preparing for takeoff in New York hit another aircraft on the ground, the company said on Friday, a scrape that injured no one but that could further dent the Taiwan airline's safety record.

The accident around midnight on Thursday New York time happened as the China Airlines plane was backing away from its gate, airline spokesman Bruce Chen said.

No one was hurt, he said, and the airline is investigating what happened.

About 350 passengers were stranded, Taiwan's Central News Agency said.

China Airlines has a troubled safety record with four deadly accidents in the past 14 years, including a crash in the Japanese city of Nagoya in 1994 in which 264 people were killed. A plane also caught fire in Japan in August. All passengers and crew escaped unhurt.

(Reporting by Ralph Jennings; Editing by Jerry Norton)

Right on, thank you for your insight. I'm trying trailing stops with the next trade I make!

R: Iran and nuclear consequences: Bernd Debusmann
Wed Jun 25, 2008 10:22am EDT

(Bernd Debusmann is a Reuters columnist. The opinions expressed are his own)

By Bernd Debusmann

WASHINGTON (Reuters) - When an Israeli cabinet minister said he thought an attack on Iran's nuclear sites was unavoidable, the price of a barrel of oil rose 9 percent to a new record in June. Nice, fat bonus for oil-producing countries, including Iran.

If rhetoric has that effect, imagine the consequences of an actual strike. The numbers have not been crunched, at least not in public, but a four-month computer simulation and gaming exercise carried out last year by the Heritage Foundation, a conservative Washington think tank, gives an idea.

It was based on an Iranian closure of the Strait of Hormuz, the passageway for 90 percent of oil exported from Gulf producers, in response to a U.S. attack on nuclear sites, air fields and air defense targets. The simulation showed the price of oil more than doubling, U.S. gross domestic product depressed for 2-1/2 years, private non-farm employment declining by more than one million jobs, and disposable personal income dropping by more than $260 billion.

In terms of oil and gasoline prices, last year were the good old days. At the time of the exercise, a barrel of oil traded at $65 and a gallon of gasoline in the U.S. averaged $2.80. It's now around $136 and $4.08 respectively and could well reach twice that after an attack. Tighten your belts!

The exercise did not measure the impact of the closure on Japan, more than 75 percent of whose crude goes through the Straits, South Korea (70 pct), India (65pct), or China (34pct). The assumption was that Iran would only succeed in closing the Strait for one full week, after which shipping would slowly resume.

Reaction to an attack on Iran would go beyond severe economic pain to the U.S. and other oil importers. One of the unintended consequences of the U.S. invasion of Iraq has been to greatly strengthen Iran which has the ability to wage guerrilla war by proxy on Israel (through Hezbollah in Lebanon and Hamas in Gaza) and has shown it can dial up (or down) Shi'ite violence in Iraq.

The military consequences of an American or Israeli attack on Iran are incalculable.

Mohammed El Baradei, the head of the world's nuclear watchdog, the International Atomic Energy Agency, has described military action to stop Iran's nuclear program as a "ludicrous idea" which would unite Iranians against their attackers and "turn the region into a fireball." A crash program for building the bomb could begin as soon as the smoke clears.

ISRAELI HAWKS AND U.S. NEOCONS

The man who made the oil price jump on June 6 with his "unavoidable" comment was Israeli deputy prime minister Shaul Mofaz, a hawk born in Iran, whose views are close to U.S. neoconservatives who also feel that the only way to stop Iran's nuclear program is to bomb it. Their's appears to be a minority position in the lame-duck Bush administration which is already bequeathing two wars and a battered economy to the next president.

But the U.S. could be drawn into an assault if Israel, impatient with the present diplomatic stalemate and the limited success of sanctions on oil-rich Iran, decided to strike, found itself unable to finish the job and requested U.S. assistance. In other words, the U.S. would have to finish what Israel started.

This week John Bolton, a former U.S. ambassador to the United Nations predicted in an interview with the Daily Telegraph of London that Israel would attack between the U.S. elections on November 4 and the swearing-in of the next president on January 20. This was probably more a public expression of wishful thinking by a superhawk than deep insight into Israeli planning.

What has complicated the seemingly endless debate over the nuclear program Iran says is entirely for peaceful purposes is the assumption by many policymakers in the U.S. and Israel that the Iranian establishment is irrational. "The problem is that we are putting Iran in a category of one, different from anyone else," said Gary Sick, an Iran scholar at Columbia University. "There is a strain of commentary that Iranians are so suicidal and martyrdom-inclined they cannot be trusted."

In Israel, that school of thought was enshrined in a 2004 national security report for former Prime Minister Ariel Sharon. It argued that Israel has an inherent right to pre-emptive attacks because the Iranian leaders are irrational and do not value self-preservation, according to Trita Parsi, author of Treacherous Alliance, a study of the complex, shifting relations between Iran, Israel and the U.S.

Despite Iranian President Mahmoud Ahmedinejad's alarming rants about the imminent demise of Israel, there is no evidence that Iran's opaque and many-layered leadership is plotting to commit collective suicide by building a nuclear bomb, promptly launching it at Tel Aviv and dying a fiery death in a retaliatory nuclear strike from Israel.

Israel's nuclear arsenal, a key element of the Middle East power equation, has been an open secret for years. It is still treated with studied silence both by official Washington and Israel, which has neither confirmed nor denied that it has nuclear weapons. Independent experts put their number at between 80+ and 300. Three nuclear submarines provide a second strike capability of which Iran is keenly aware.

Many strategic thinkers both in the U.S. and Israel dismiss the notion of Iranian irrationality and exceptionalism. "Iran's leaders are more concerned about staying in power than anything else," said Mehrzad Boroujerdi, an Iran scholar at Syracuse University.

Just like power elites anywhere else.

(You can contact the author at Debusmann@Reuters.com)

(Editing by Sean Maguire)

One problem with politics is that everyone takes everything too personally for some reason. Politics + emotion = ughhhhhh.........Politics + emotion + alcohol = UGHHHHHHHHHHHHHHH.....

I know this isn't the point of the article, but 95 octane for $4? Where do I sign up? In my town in the SF Bay Area, 91 octane is between $4.60 and $4.80. You rarely find 93 octane, and I've never even seen a station that sells 95. On a recent trip to Los Angeles, we passed stations which sold 91 for as much as $5.25!!! Granted, those were in the middle of nowhere on highway 5, strategically located miles and miles away from any other gas stations so they could charge a premium, but still...I won't be complaining when I go back to school and don't have to drive anywhere.

Respect!

R: Comedian George Carlin dies in L.A.
Mon Jun 23, 2008 5:57am BST

LOS ANGELES (Reuters) - Comedian George Carlin, a counter-culture hero famed for his routines about drugs and dirty words, died of heart failure at a Los Angeles-area hospital on Sunday, a spokesman said. He was 71.

Carlin, who had a history of heart problems, died at St. John's Health Center in Santa Monica about 6 p.m. PDT (2 a.m. British time) after being admitted earlier in the afternoon for chest pains, spokesman Jeff Abraham told Reuters.

Known for his edgy, provocative material, Carlin achieved status as an anti-Establishment icon in the 1970s with stand-up bits full of drug references and a routine about seven dirty words you could not say on television. A regulatory battle over a radio broadcast of his "Filthy Words" routine ultimately reached the U.S. Supreme Court.

(Reporting by Dean Goodman; Editing by Patricia Zengerle)

Wow.

BL: New York Times Posts Biggest Ad Sales Drop This Year (Update2)

By Leon Lazaroff

June 18 (Bloomberg) -- New York Times Co., the third- largest U.S. newspaper publisher, said advertising revenue at its newspapers and their Web sites dropped 13 percent in May, the biggest monthly decline this year.

Ad sales at the News Media Group, including the New York Times and Boston Globe, fell to $130 million, the company said in a statement today. Total sales declined 6.6 percent to $227.5 million as increased circulation revenue couldn't offset drops in national, retail and classified ads.

The deterioration in May advertising mirrors drops at other U.S. newspaper publishers. Gannett Co., the owner of USA Today, reported yesterday that newspaper ad sales fell 14 percent in May. Those declines follow the industry's worst quarter on record in the three months through March, according to the Newspaper Association of America.

``Expectations were that 2008 would be similar to 2007, but clearly things have gotten worse,'' John Morton, an independent newspaper industry analyst in Silver Spring, Maryland, said in an interview. ``Classified is in a tailspin, and there's no hope for newspaper advertising until they win back some of that revenue.''

New York Times fell 11 cents to $16.41 at 12:28 p.m. in New York Stock Exchange composite trading, and had declined 5.8 percent this year before today. Gannett, which reported May sales after markets closed yesterday, lost $1.24, or 4.9 percent, to $24.33 and had dropped 34 percent in 2008.

Web Ads

Including About.com and other Web sites separate from the company's newspapers, New York Times' ad sales dropped 12 percent. The company is investing in its Internet operations to increase the percentage of revenue from digital operations. Ad sales rose 14 percent to $8.46 million at the unit that includes About.com and ConsumerSearch.com.

Other revenue, including syndication and rental income, increased 7.8 percent to $20.1 million.

Classified advertising, historically a steady source of revenue for publishers companies, continues to shift to the Internet from newspapers. New York Times' classified sales tumbled 25 percent in May, while national advertising declined 9.5 percent and retail ads shrank 9.2 percent.

Industrywide, newspaper ad sales declined for the eighth consecutive quarter in the first three months of 2008 as advertisers spent $8.43 billion, said the trade association. Real estate and job recruitment ads each fell by 35 percent.

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net.
Last Updated: June 18, 2008 12:32 EDT

BL: U.S., China to Open Negotiations on Investment Treaty (Update2)

By Mark Drajem and Rob Delaney

June 18 (Bloomberg) -- The U.S. and China agreed to start negotiations for an investment treaty that would guarantee access for the nations' companies to buy assets in the other country, two American government officials said.

The treaty will take at least a year to complete, the officials told reporters on a conference call today, on condition of anonymity. The accord would give companies from both countries the right to seek international arbitration if they face unfair discrimination, they said.

China would be the largest country with which the U.S. signed an investment treaty, and the talks come as American firms seek greater access to the world's fastest-growing major economy. Today's deal is the product of the fourth round of the semiannual Strategic Economic Dialogue discussions started by Treasury Secretary Henry Paulson in 2006.

An investment treaty ``would give us some traction'' to open China's markets to U.S. companies, said John Frisbie, president of the U.S.-China Business Council.

Paulson and Chinese Vice Premier Wang Qishan are leading the SED talks in Annapolis, Maryland, which conclude today. U.S. business groups representing companies such as Citigroup Inc. have pushed China to allow a greater role for overseas enterprises.

The two governments must now negotiate which industries would be covered or exempted from the accord, the officials said. Nothing in the final agreement would limit the ability of the U.S. to review investments for national security risk, they said.

Next Administration

It would be up to the next U.S. administration to decide if they will continue with the negotiations, because President George W. Bush's term ends Jan. 20.

An investment pact may benefit China as its government pushes state-owned companies including oil explorer Cnooc Ltd. and smelter Aluminum Corp. of China Ltd. to buy oilfields and mines abroad to feed industrial demand in the world's fourth- largest economy.

Cnooc, China's biggest offshore oil producer, in 2005 failed in a $18.5 billion bid to buy El Segundo, California- based Unocal Corp. because of opposition by U.S. lawmakers.

``We hope we can get equitable and just treatment and hope the policies of the host countries are open, so that our investors can have a sense of security,'' Chinese Trade Minister Chen Deming told reporters in Annapolis today.

Fighting Protectionism

U.S. Commerce Secretary Carlos Gutierrez said last month in Beijing that both countries should prevent a rising tide of protectionism from blocking trade and investment.

American banks have sought a deal for China to raise its 25 percent ceiling on foreign ownership of domestic banks. Paulson, a former chief executive officer of Goldman Sachs Group Inc. who visited China more than 70 times, so far hasn't been able to secure such an agreement through his SED talks.

Investment treaties are designed to give companies the ability to appeal to foreign arbiters claiming that their investments have been unfairly expropriated or undermined by the host government. After Argentina froze electric utility rates following its economic meltdown in 2001, San Diego-based Sempra Energy filed a claim and was awarded $172 million by a World Bank-affiliated arbitration panel.

Chen separately said today that China's foreign-exchange reserves may rise to $1.8 trillion by the end of the year. The reserves totaled a record $1.68 trillion as of March, a 40 percent jump from a year before, a product of China's swelling trade surplus and controls on the yuan's exchange rate.

Paulson set up the SED in 2006 to help manage economic tensions as U.S. legislators demanded that China allow a faster pace of gains in the yuan, charging the country with maintaining an artificially cheap currency to stoke exports.

Range of Talks

In the first day of this round of talks yesterday, the discussions ranged from the environment and intellectual- property rights to the environment and managing economic cycles.

The two countries today will also sign a 10-year plan to cooperate on energy and the environment. The accord will focus on air, water, clean energy, transportation, and conservation of forests and wetlands, Environmental Protection Agency Administrator Stephen Johnson told reporters yesterday.

People's Bank of China Governor Zhou Xiaochuan told reporters today that his top priority is keeping the country's inflation rate from rising above a 12-year high.

``Our main job is still preventing the economy from becoming overheated,'' Zhou said in Annapolis. ``Tackling inflation remains the most important task.''

Zhou also said yesterday that the weakening dollar is boosting commodity prices around the world and ``emerging economies are feeling the pinch.''

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net, Rob Delaney in Annapolis at robdelaney@bloomberg.net
Last Updated: June 18, 2008 12:34 EDT

BL: Paulson & Co. Says Writedowns May Reach $1.3 Trillion (Update3)

By Tom Cahill and Poppy Trowbridge

June 18 (Bloomberg) -- John Paulson, founder of the hedge fund company Paulson & Co., said global writedowns and losses from the credit crisis may reach $1.3 trillion, exceeding the International Monetary Fund's $945 billion estimate.

``We're only about a third of the way through the writedowns,'' Paulson, 52, told the GAIM International hedge fund conference in Monaco today. ``There are a lot of problems out there and it will continue to be felt through the year. We don't see any signs of stabilizing.''

Paulson, whose New York-based company manages about $33 billion, made bets last year that subprime-mortgage debt would fall after he noticed ``bubble like'' prices. His Paulson Partners fund rose 18 percent a year since it started in 1994, and his main subprime-debt fund rose 591 percent last year. Banks and securities firm worldwide posted more than $395 billion in losses and writedowns since the subprime crisis started last year.

The U.S. is heading into a recession as falling home prices weigh on consumer spending, Paulson said. The second half of this year will be worse than the first as the economic slowdown spills into 2009. Signs of stress are ``accelerating'' in the housing market, and he's betting on falling securities prices, he said.

``I don't consider myself a bull or a bear,'' he told the audience at Monaco's Grimaldi Forum. ``I'm a realist.''

A Royal Bank of Scotland Group Plc strategist agrees that stock and credit markets still face the worst in a slump that started almost eight months ago.

`Most Bearish Period'

``Mid-July through to October is likely to be the most bearish period we will experience in the bear market that began in the fourth quarter of last year,'' Bob Janjuah, a credit strategist at the bank in London, wrote in a report dated June 11.

The MSCI World Index has lost 13 percent since a reaching a record in October. The index is down 4.1 percent this month after the Federal Reserve and the European Central Bank policy makers indicated interest rates may need to increase as the threat of inflation intensifies.

The economic slowdown and inflation have put central bankers ``into a dangerous corner'' where the chance of a ``major policy error has just super-spiked,'' Janjuah wrote.

Ambac Financial Group Inc., the second-biggest bond insurer, is ``the most leveraged, troubled company out there,'' Paulson said. It's at risk of being downgraded to non-investment grade, he said. Ambac spokeswoman Vandana Sharma declined to comment.

Ambac shares have lost 92 percent of their value this year after losses on subprime mortgage securities caused the company to lose its AAA credit rating at Fitch Ratings.

`Deteriorate Significantly'

The housing and credit-market slump pushed Ambac to three straight quarterly losses after more than a decade of profit. It has written down $5.2 billion since the collapse of the U.S. subprime mortgage market last year.

Paulson's outlook is consistent with the view of hedge funds meeting in Monaco this week. More than 80 percent of the 1,300 fund managers, investors and service providers gathered in Monaco for the annual conference said they expect the credit crisis will continue, according to a GAIM survey. About 23 percent said the situation ``will deteriorate significantly.''

Bill Browder, founder and head of Hermitage Capital Management, said securities firms have a ``vested interest'' in claiming an early end to the crunch. ``If we're in the seventh or eighth inning, this is a 100-inning game,'' he said.

`$10 Trillion Opportunity'

Paulson's speech was the biggest draw at the event, which comes as the hedge fund industry endures some of its worst performance in nearly two decades, rising just 0.13 percent through May, according to Chicago-based Hedge Fund Research Inc.

``John Paulson has of course been very successful by making the right trade last year,'' said Manuel Echeverria, chief investment officer of Optimal Investment Services SA, a Geneva based investor with about $10 billion under management. ``We'll have to see what he's going to do now that the trade has run out of juice.''

Paulson said he's preparing to buy distressed securities such as bank loans, call them a ``potentially $10 trillion opportunity.'' While it is still ``premature'' to invest in many of them, he sees ``opportunities this year'' to buy mortgage backed debt, he said.

He hired employees this year to research securities firms such as Citigroup Inc. for long-term investment positions. ``We're trying to see the right entrance point,'' he said. ``If you invest too early, you lose money.''

To contact the reporter for this story: Poppy Trowbridge in London at ptrowbridge@bloomberg.net
Last Updated: June 18, 2008 12:01 EDT

BL: Morgan Stanley Profit Drops on Debt Losses, Trading (Update2)

By Christine Harper
Enlarge Image/Details

June 18 (Bloomberg) -- Morgan Stanley's earnings dropped 57 percent in the second quarter as revenue from asset management and investment banking declined while equities and fixed-income traders generated less profit.

The second-biggest U.S. securities firm fell as much as 7.8 percent in New York trading after reporting that earnings from continuing operations sank to $1.03 billion, or 95 cents a share, from $2.36 billion, or $2.24, a year earlier. The sale of a Spanish wealth management business and part of the company's stake in equity index provider MSCI Inc. propped up the results.

Chief Executive Officer John Mack said in a statement that ``difficult market conditions and lower levels of client activity'' depressed earnings, as the firm suffered writedowns on bonds backed by real estate and leveraged loans and traders made bad bets with the company's money. Lehman Brothers Holdings Inc. reported its first loss in 14 years earlier this week and Goldman Sachs Group Inc. said yesterday that earnings fell for a second straight quarter.

``For Morgan Stanley, one of the challenges in modeling the company is they've had some pretty erratic trading results over recent quarters,'' Roger Freeman, an analyst at Lehman Brothers, who has an ``equal weight'' rating on the stock, said in a Bloomberg Radio interview. ``It's a little tough to get behind those trading results and they seem to have been more negative than positive this quarter.''

Debt Writedowns

Morgan Stanley dropped $2.14, or 5.3 percent, to $38.45 at 10:06 a.m. in New York Stock Exchange composite trading, after sinking as low as $37.42. The shares were down about 24 percent this year through yesterday, compared with the 23 percent decline of the 11-company Amex Securities Broker/Dealer Index. Goldman had fallen 17 percent and Lehman had slumped 62 percent.

Morgan Stanley's net income fell to $1.03 billion, or 95 cents a share, from $2.58 billion, or $2.45, a year ago. Revenue fell 38 percent to $6.51 billion in the three months ended May 30 and the firm's annualized return on equity, a measure of how well shareholders' money is reinvested, declined to 12.3 percent from 29.4 percent a year ago. That compares with Goldman's second-quarter return on equity of 20.4 percent.

Morgan Stanley's fixed-income revenue decreased 85 percent to $414 million, after losses of $436 million on mortgage- related trades and $519 million from leveraged loans and related hedges. Lehman reported a negative $3 billion of fixed-income revenue and Goldman's dropped 29 percent to $2.38 billion. All the firms are based in New York.

Job Cuts

Colm Kelleher, Morgan Stanley's chief financial officer, said in an interview today that the firm suspended a credit trader in London for incorrectly valuing his positions. The firm said it made a $120 million ``negative adjustment'' related to the trades after discovering the error in May.

Banks and brokers have taken more than $392 billion of writedowns and credit losses since the beginning of last year as mortgage-backed securities, collateralized debt obligations, leveraged loans and other fixed-income assets dropped in value. Morgan Stanley reported its first loss as a public company in December after $9.4 billion of writedowns on failed mortgage- related investments.

Morgan Stanley, led by the 63-year-old Mack, announced plans last month to reduce headcount by as much as 5 percent. The company has eliminated at least 3,000 jobs since October.

``We're expecting continued weakness across all their business units,'' William Fitzpatrick, an equity analyst at Optique Capital Management Inc. in Racine, Wisconsin, which manages $1.6 billion, said before the earnings report. ``It's going to take some time for these markets to really improve.''

`Timing Wrong'

Morgan Stanley, which dominates commodity trading with Goldman, said revenue from the business fell in the quarter as the firm lost money on North American electricity and earned less from trading oil liquids. Morgan Stanley, like Goldman, doesn't provide separate income figures for commodities. Crude oil futures doubled in the year to May 30, and the price of materials from gold to corn soared to record highs.

``We took a contrarian view on some positions in the energy sector and it didn't work out for us,'' Kelleher said. ``Our traders, who have a very good track record on this, frankly got the timing wrong.''

Proprietary bets also hurt revenue from equity trading. The division, which produced a record $3.3 billion in the first quarter, reaped $2.1 billion in the second quarter, an 11 percent decrease from a year earlier. The Standard & Poor's 500 Index climbed 5 percent during the quarter.

Tier 1 Ratio

Investment banking revenue, which includes merger advisory fees and income from underwriting stock and bond offerings, fell 49 percent to $875 million.

Morgan Stanley advised on $191 billion worth of takeovers completed during the three months ended May 30, down from $287 billion in the same period a year earlier, according to data compiled by Bloomberg. The firm was fifth among managers of global equity offerings during the quarter, Bloomberg data show.

Asset management revenue tumbled 68 percent to $488 million as funds under management advanced 8 percent to $605 billion. Revenue from global wealth management, the firm's retail brokerage unit, rose 48 percent to $2.43 billion, because of the sale of the Spanish unit. Excluding the sale, which yielded $698 million, revenue increased 4 percent.

Morgan Stanley said it also gained $732 million from the sale of shares in MSCI, the index provider.

The company ended the second quarter with $169 billion in total liquidity, which reflects cash and liquid securities, at the parent and subsidiary level, Kelleher said. That's up from $125 billion in the first quarter, he said.

The company's so-called Tier 1 ratio, which bank regulators monitor to gauge a lender's ability to withstand loan losses, was between 11.5 percent and 12 percent in the quarter, Kelleher said. Yesterday Goldman said its Tier 1 ratio was 10.8 percent.

Morgan Stanley reduced gross leverage, or reliance on debt, to 25.1 times from 27.4 times and adjusted leverage to 14.1 from 16, Kelleher said.

``We've seen nothing that made us want to move from our jog back to a run on risk,'' he said.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.
Last Updated: June 18, 2008 10:12 EDT

BL: U.S. Stocks Fall on Morgan Stanley Profit Decline, FedEx's Loss

By Elizabeth Stanton
Enlarge Image/Details

June 18 (Bloomberg) -- U.S. stocks fell for a second day after Morgan Stanley's earnings dropped 57 percent and FedEx Corp.'s results trailed analysts' estimates, reinforcing concern bank losses and record oil will prolong the slump in profits.

Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. helped lead the Standard & Poor's 500 Index lower. Fifth Third Bancorp, Ohio's second-largest bank, tumbled the most in at least 23 years on plans to cut its dividend and sell shares to boost capital. FedEx slid to a three-year low as rising fuel costs left the second-biggest U.S. package-shipment company with a quarterly loss.

The S&P 500 dropped 8.03 points, or 0.6 percent, to 1,342.9 at 12:18 p.m. in New York. The Dow Jones Industrial Average decreased 75.88, or 0.6 percent, to 12,084.42. The Nasdaq Composite Index lost 17.57, or 0.7 percent, to 2,440.16. Almost three stocks fell for each that rose on the New York Stock Exchange.

``It's just going to be a tough environment for equities for a while,'' David Joy, chief market strategist at Riversource Investments LLC in Minneapolis, which manages $160 billion, told Bloomberg Television. ``The environment is not conducive to growing earnings.''

Financial shares began their retreat before the official open of exchanges after investor John Paulson, who earned the most of any hedge fund manager last year on bets that subprime debt would fall, told a conference in Monaco that banks are ``only a third'' way through credit-related writedowns. Global financial firms so far have posted $394 billion in losses and charges stemming from the collapse of the subprime mortgage market, according to data compiled by Bloomberg.

Morgan Stanley Tumbles

Morgan Stanley, the second-largest U.S. securities firm, retreated $1.85 to $38.74. Earnings from continuing operations fell to $1.03 billion, or 95 cents a share, in the second quarter from $2.36 billion, or $2.24, a year earlier. The average estimate of 19 analysts surveyed by Bloomberg was for earnings of 92 cents a share.

Merrill, the third-biggest securities firm in the U.S., sank 2.7 percent to $36.90. Lehman, the No. 4, tumbled 3.9 percent to $24.15.

FedEx, considered a proxy for the U.S. economy because it controls about 31 percent of the U.S. package market according to SJ Consulting Group Inc., fell $2.33 to $82. The company reported a fiscal fourth-quarter loss of $241 million, or 78 cents a share. Earnings excluding items were $1.45 a share, below the $1.47 forecast by analysts in a Bloomberg survey. FedEx projected fiscal first-quarter profit of 80 cents to $1 a share, compared with an average analyst estimate of $1.34.

FedEx was unable to boost surcharges enough to keep pace with fuel costs that have almost doubled in the last year.

Regionals Retreat

Fifth Third lost $1.95, or 15 percent, to $10.78 for the biggest decline in the S&P 500. The bank will sell convertible preferred shares and assets to raise capital. It lowered it dividend by 66 percent. Earnings may be as little as 1 cent to 5 cents a share in the second quarter excluding additional charges, Cincinnati-based bank Fifth Third said in a regulatory filing today. Analysts surveyed by Bloomberg had predicted an average of more than 40 cents.

Eleven of 12 regional banks in the index fell as the group declined 3.8 percent. Yesterday the regional banks index retreated 5.7 percent after Goldman Sachs Group Inc. said it was ``cautious'' on the group.

The S&P 500 declined for the first time in four days yesterday on Goldman's prediction that banks will need to raise $65 billion in new capital to cover losses, while new home construction fell to a 17-year low and rising fuel costs caused the biggest increase in wholesale prices in six months.

Since closing at a four-month high on May 19, the benchmark of large U.S. companies has fallen more than 6 percent, and is down almost 9 percent this year.

Earnings Slump

Earnings at S&P 500 companies tumbled 19 percent on average in the first quarter. The third straight quarter of lower profits marked the longest stretch of declines since 2002, according to data compiled by Bloomberg.

Bob Janjuah, a London-based credit strategist at Royal Bank of Scotland Group Plc, said the S&P 500 may fall 22 percent from current levels by October. The combination of slow economic growth and inflation makes a ``major policy error'' by central banks more likely, Janjuah wrote in a report dated June 11.

Among smaller companies, MF Global Ltd. tumbled 35 percent to $8.56. The world's largest broker of exchange-traded futures contracts said net revenue this quarter will fall short of analysts' estimates and it plans to sell shares to help pay down debt.

Auto Slide

CarMax Inc. lost 13 percent to $15.99. The largest U.S. used-car retailer reported fiscal first-quarter profit that missed analyst estimates. Carmax attributed the profit decline to weak consumer spending amid rising food and energy prices.

General Motors Corp., the largest U.S. automaker, slid 5.2 percent to $15, the lowest since 1982. U.S. vehicle sales may plunge to a 15-year low this month, according to reports by Citigroup analyst Itay Michaeli and Deutsche Bank analyst Rod Lache. Ford Motor Co., the second biggest, retreated 5.2 percent to $6.26.

Tyson Foods Inc. fell $1.35, or 9.1 percent, to $13.55, a four-month low. Fitch Ratings lowered the debt rating of the second-largest U.S. chicken producer to below investment grade because rising grain costs are eroding profitability.

Union Pacific, General Mills

Union Pacific Corp. rose $3.27, or 4.5 percent, to $75.74, for the biggest gain in the S&P 500. Shares of the largest U.S. railroad may double in the next three to four years, Morgan Stanley said. In the second quarter Union Pacific may post at least 11 percent profit growth as it overcomes higher fuel costs through increased productivity, analysts led by William Greene wrote in a report.

General Mills Inc. rose $2.17 to $62.90. The second-largest U.S. cereal maker posted fiscal fourth-quarter profit that exceeded some analysts' estimates on higher sales. Profit excluding commodity trading rose to about 73 cents a share. Thirteen analysts surveyed by Bloomberg estimated average earnings of 68 cents.

Panera Bread Co. rose $3.25, or 7.1 percent, to $48.81. The owner of the chain of more than 1,000 bakery-cafes said it expects to earn 48 cents to 50 cents a share in the second quarter. In April, the company forecast earnings of 40 cents to 44 cents a share. The average estimate of 14 analysts surveyed by Bloomberg is 42 cents.

YRC Worldwide Inc. added $1.02, or 6.1 percent, to $17.79. The largest U.S. trucking company by sales affirmed its second- quarter earnings forecast of 30 cents to 40 cents per share, excluding certain costs. Analysts estimated profit of about 30 cents per share on average.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
Last Updated: June 18, 2008 12:20 EDT

BL: Morgan Stanley Suspends Credit Trader on Incorrect Valuations

By Joyce Moullakis and Christine Harper

June 18 (Bloomberg) -- Morgan Stanley suspended a credit trader and disclosed a $120 million ``negative adjustment'' related to erroneous valuations of his positions, Chief Financial Officer Colm Kelleher said.

The New York-based firm is cooperating with authorities in London after discovering the error in May, Kelleher said in an interview today. He declined to identify the trader. Joseph Eyre, a London-based spokesman for Britain's Financial Services Authority, declined to comment.

Morgan Stanley, the second-biggest U.S. securities firm by market value, joins at least three competitors in identifying incorrect pricing this year. Credit Suisse Group, Switzerland's second-largest bank, announced $2.65 billion of writedowns on asset-backed securities in March after an internal review found intentional ``mismarkings'' by a group of traders.

``There is a greater degree of scrutiny than before,'' said Peter Hahn, a research fellow at City University's Cass Business School in London and a former managing director at Citigroup Inc. ``We are in an environment where prudence is more highly valued than earnings. You don't want to test market confidence on internal controls.''

Morgan Stanley fell as much as 7.8 percent, and was $1.44, or 3.6 percent, lower at $39.15 by noon in New York Stock Exchange composite trading. The stock is down 26 percent so far this year.

Profit Falls

Morgan Stanley reported a 57 percent drop in second-quarter profit today as revenue from asset management and investment banking declined, while equities and fixed-income traders generated less profit. Morgan Stanley's fixed-income sales and trading revenue decreased 85 percent to $414 million, reflecting a drop in income from interest rate, credit, and currency products and commodities. The firm also had losses of $436 million on mortgage-related trades.

In March, Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, suspended two London-based equity traders after internal controls identified ``issues'' on share valuations. The sums involved were ``not material,'' an official for the company said at the time.

New York-based Merrill Lynch & Co. said last month it was probing a trading desk in London and had suspended a trader after discovering he may have overstated the value of some of the bank's equity derivatives.

To contact the reporters on this story: Joyce Moullakis in London at jmoullakis@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.
Last Updated: June 18, 2008 12:32 EDT

You didn't miss much matt, lots of opportunities to lose money so far this week. But I was wondering where you were anyway.

BBC: Spanish hauliers on fuel strike

Tens of thousands of Spanish lorry drivers have begun an indefinite strike over the soaring price of diesel, which has risen by 20% this year.

After stopping work at midnight on Sunday, many disrupted traffic at the border between Spain and France.

A number of lorries crossing the picket lines had their windscreens broken, lights ripped out and tyres slashed.

The government is preparing a package to assist the sector, with emergency loans and more flexible contracts.

It would also offer cash payments to older lorry drivers who are willing to retire.

French fishermen from Mediterranean ports have, meanwhile, joined fleets from other French ports in suspending their action pending an EU summit in Brussels later this month.

Wide support

Overnight, about 200 lorry drivers parked their vehicles beside roadside toll booths in the Catalonian town of La Jonquera, close to the border with France.

There's been no hostility and it is rather good-natured
James Barber
English driver stuck in Spain

The protesters prevented other lorries from passing, and caused delays to car traffic.

Hundreds of lorry drivers also staged "snail protests" on the ring roads around the capital, Madrid, and Barcelona. There have also been protests in the Basque country and Valencia.

Petrol stations around Madrid and in the north-eastern Catalonia region are already said to be running short of fuel.

Most of the 90,000 hauliers participating in the strike are self-employed, or working for small and medium-sized haulage companies, and they have warned that many supermarkets will run out of goods within days.

"We are the ones who move the goods that this country needs to keep working," the head of the transport association federation Fenadismer, Julio Villascusa, told Cadena SER radio.

"If we stop because we haven't got the money to buy fuel then the country will stop."

Please turn on JavaScript. Media requires JavaScript to play.

Spanish hauliers' fuel strike

The president of another drivers' trade union, Adetec, said many of its small-scale hauliers were going bankrupt.

"We have no more solutions. We can't afford diesel any more. It's as simple as that," Jean-Claude Ferrand told Spanish national radio.

The lorry drivers are receiving support from counterparts in Portugal and southern France, who also disrupted the flow of traffic along one of the main routes into Spain.

However, Spain's largest hauliers' trade union is not taking part.


EUROPEAN FUEL PROTESTS
Belgium: Fishermen clash with police at protest near EU on 4 June
Bulgaria: 150 lorry drivers form convoy outside Sofia on 28 May
France: Lorries and taxis block motorway in Paris on 3 May in support of strike by fishermen
Italy: Fishermen on both coasts begin strike on 30 May
Portugal: Portuguese fishermen stay in port on 30 May
Spain: Spanish fleet begins strike on 30 May. Madrid fishermen hand out 20 tonnes of free fish to public
UK: Truck drivers block London roads on 28 May. Fishermen hold mass protest in capital on 3 June

The drivers want the Spanish government to establish, by law, a minimum price for their services, and to ensure that haulage contracts better reflect the fluctuating cost of fuel, which has risen by more than 20% since the start of the year.

But the BBC's Steve Kingstone in Madrid says that with inflation at an 11-year high, the government is reluctant to approve a minimum price for the work of lorry drivers - fearing that the additional costs would immediately filter through to other sectors of the economy.

Instead ministers are proposing a mixture of short-term funds and long-term restructuring for the haulage industry.

On Monday the government said there was a "reasonable chance" of a deal by midweek, our correspondent reports.

The hauliers' action follows the lead of Spanish and French fishermen, many of whom have been on strike because of the soaring price of fuel.

The fishermen have said they will go out of business unless the EU allows national governments to give them more financial aid and subsidise maritime diesel.

However, the EU has insisted that any fuel subsidies would be illegal under European law and unsustainable in the long term.

http://news.bbc.co.uk/2/hi/europe/7443257.stm

Charts don't really matter on a triple zero stock, and you need more volume than MTPW has had in the past 2 days if you want to get in and out safely. There's a reason why it's at .0004 now...

R: Florida tomato industry in "complete collapse"
Tue Jun 10, 2008 11:15am EDT

By Jane Sutton

MIAMI (Reuters) - Florida's tomato industry is in "complete collapse" and $40 million worth of tomatoes will rot unless federal regulators quickly trace the source of a salmonella outbreak and clear the state's produce, an industry official said on Tuesday.

"We probably have $40 million worth of product we can't sell. We've had to stop packing, stop picking," said Reggie Brown, executive vice president of the Florida Tomato Growers Exchange.

The U.S. Food and Drug Administration on Saturday warned U.S. consumers that the outbreak was linked to eating certain raw red plum, red Roma, and red round tomatoes, and products containing these tomatoes. Several major restaurant and grocery chains have stopped selling those varieties.

"It fundamentally shut down the industry," he said. "The stuff that should have been harvested over the weekend won't survive more than another day or so. The stuff we have in storage is getting riper every minute and at some point it will have to be disposed of."

Florida is the largest tomato-producing state, with a crop valued at $500 million to $700 million annually, he said. The state produces more than 90 percent of the nation's tomatoes this time of year, Brown said.

The FDA has said that it is safe to eat cherry tomatoes, grape tomatoes and tomatoes sold with the vine still attached. But those varieties account for only a tiny portion of the industry, Brown said.

The FDA has said it does not know where the contaminated tomatoes originated.

The infections have struck most often in New Mexico and Texas.

"We're very interested in seeing the FDA bring resolution to this and also would like to express concern for those who've fallen ill," Brown told Reuters.

The FDA said there had been 145 reported cases as of Saturday, including at least 23 hospitalizations, related to the outbreak since mid-April. The infections were caused by Salmonella Saintpaul, an uncommon type of the bacteria.

Salmonella bacteria are frequently responsible for food-borne illnesses. Symptoms generally appear within 12 to 72 hours after eating infected food and include fever, diarrhea, nausea, vomiting and abdominal pain.

(Editing by Jim Loney and Matthew Lewis)

R: New threat to food system: pricey fertilizer
Tue Jun 10, 2008 10:11am EDT

By Russell Blinch and Roberta Rampton

WASHINGTON/WINNIPEG (Reuters) - It powered the Green Revolution and helped save millions from starvation, but now one of the most important tools on the farm is being priced out of reach for many of the world's growers.

With food prices soaring and stocks thinning, the world is in need of bumper harvests but once one of most bountiful of commodities, fertilizer, is becoming scarce and expensive.

It's estimated that one third of the protein consumed by humans is a result of fertilizer. So high prices and spot shortages are yet another stress on the world's ailing food system.

"You can't really expect a bigger harvest if you will not use fertilizer, but the cost is killing us," rice farmer Jaime Tadeo in the Philippines told Reuters, adding that a bag of fertilizer now sells for nearly 1,800 pesos, or $43, up from less than 1,000 pesos a year ago.

"It's totally out of our control because if prices of oil continue to shoot up, the prices of fertilizers will also increase. I am afraid, many of us would not be able to afford it."

Fertilizers are like vitamins for soil and consists of three main types, nitrogen, potash and phosphate.

Because some fertilizers such as nitrogen require energy to produce they track energy prices. But other kinds are just in high demand, even though experts say the shortages are not due to a lack of supply.

Last month China agreed to pay more than triple what they did a year ago to get hold of tight supplies of potash, sending the shares of global fertilizer makers to record levels.

China, the world's biggest import market for the nutrient, will pay $650 to $670 a metric ton for the product, analysts estimated.

"With the intense pressure on global food production and continued growth in potash demand, this is the reality for our industry for the foreseeable future," said Bill Doyle, chief executive of Canada's Potash Corp, the world's top producer.

The rising price is a burden on rich and poor farmers alike as they represent a big investment upfront, despite high world prices for crops. If all goes well, a farmer can earn $3 for every $1 invested in fertilizer.

"We're all hoping Mother Nature cooperates and we can fill the bins, because ...we've got a lot on the line," said Robert McLean, a farmer in Canada's grain belt as he hauled a tractor-trailer load of canola harvested last fall.

Phosphate prices are up 50 percent over last year at C$570 per metric ton when McLean, who grows wheat, barley and canola in south-central Manitoba, booked supplies in January.

Farmers who waited to buy until spring have had to cough up as much as C$1,230 per metric ton, McLean said.

"We were hearing reports it was going to go up quite a bit. Nobody envisioned that it would go up 100 percent. It's just god-awful ugly, I think is a good way to express it,"

With enough rain and heat, fertilizer will help farmers reap historically high grain prices. But poor yields would leave them struggling to pay for next year's supplies.

GREEN REVOLUTION

Fertilizers were seen crucial in the Green Revolution of the past few decades where farmers, especially in poor countries, were able to dramatically increase crop yields.

The Green Revolution took root in the 1940s and newly developed inorganic fertilizers -- leaving rudimentary additives such as manure in the dust -- helped spark an explosion in food production, and saved countries such a India from famine.

World fertilizer use grew more than 11 times from a mere 14.5 million metric ton in 1950 to 169.4 million in 2007, while population ballooned from 2.5 billion to 6.6 billion.

But now with high fertilizer and fuel prices, some worry many of the gains could unravel, putting strain on all farmers but especially in the developing world.

"This has been a significant problem for the low income farmer," said Rajiv Shah, who manages the agriculture development program at the Bill and Melinda Gates Foundation, which has extensive aid programs in Africa.

He said fertilizer use has long been a challenge in Africa, where farmers use about one tenth of what is applied by American farmers.

But now the problems are worsening with farmers forced to use fertilizers even more sparingly. They are also facing shortages and dealing with unscrupulous dealers selling poor quality products. All in all they have a lot on the line this season.

"If it doesn't rain that year, you can lose your entire crop and your family will struggle to get enough to eat," Shah said in a telephone interview.

In the sultry, sprawling palm oil plantations of Malaysia, which produces one of the developing world's most important cooking oils, shortages of fertilizers are already being felt.

"The fertilizer shortage is a huge problem," said Martin Bek-Nielsen of United Plantations, who sees it as inevitable that some farmers will have to cut back.

"Most plantations will not cut back, but small holders who have limited sources will reduce input. The impact on yields will not be immediate, it will be felt in a year or so."

Some believe one possible solution will be for higher government subsidies for poor farmers.

Pedro Sanchez of the Earth Institute at Columbia University said he thinks heavy subsidies for fertilizers is the best way for the farmer to cope with the "worrying" prices.

"The way they are coping is they are getting subsidized fertilizers and improved seeds," he said. "And they are basically tripling their yields of their basic food crops, like corn. And they are having surpluses."

(For pix click here#a=1)

(Reporting by Russ Blinch and Roberta Rampton; Additional reporting Naveen Thukral in Kuala Lumpur and Manny Mogato in Manila; Editing by Eddie Evans)

R: Lehman to survive but make little money
Mon Jun 9, 2008 3:04pm EDT

By Herbert Lash

NEW YORK (Reuters) - Lehman Brothers (LEH.N: Quote, Profile, Research), which is seeking $6 billion in fresh capital to shore up its battered balance sheet, will survive but not make a lot of money, a well-known Wall Street banking analyst said on Monday.

The Federal Reserve will not allow a takeover of Lehman Brothers Holdings Inc, and it is doubtful any bank would want to buy the bank, the smallest of Wall Street's investment banks, said Richard Bove, an analyst with Ladenburg Thalmann & Co, a Miami-based brokerage and investment bank.

Lehman only has about $25 billion in equity to back up a balance sheet of $800 billion, Bove said.

"I don't know who would buy them. No bank would buy them," Bove said at the Reuters Investment Outlook Summit in New York. "Any bank that took them over would immediately have problems."

"The Fed is not going to allow a takeover of Lehman," he said.

Lehman on Monday said it would raise $6 billion in a rights offering and said it expects to post a $2.8 billion loss when it reports-second quarter earnings.

"They're going to survive" but not make a lot of money, Bove said.

Lehman's problem -- along with other investment banks -- is that in the fallout from subprime mortgages the fees that investment banks made from that and related businesses have dried up, the analyst said.

"There isn't a business there at the moment," Bove said.

Investment banks can try to recoup business by going overseas in commodities, currencies, wealth management and private equity -- but it won't be enough, he said.

They "will be scraping around at very low earnings levels for the next several years," Bove said.

Lehman's troubles can be attributed to management, which ballooned the bank's balance sheet as it tried to make money on very thin spreads through large volume, Bove said.

Efforts to buy Lehman shares on the open market was a "bush league thing" -- or second-rate move -- to shore up the bank's tumbling stock price and amounted to "what a junior trader would do to show bravado," he said.

"They screwed up. But the fact of the matter is that this firm is sound, it's well managed and will survive," Bove said.

Chief executive Richard Fuld will also survive, even though he made mistakes during this crisis, he said.

"He's a brilliant guy; most of the things he's done have been successful," Bove said.

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Herbert Lash; Editing by Jonathan Oatis)

BL: U.S. Trade Deficit Probably Widened in April on Fuel Imports

By Shobhana Chandra
Enlarge Image/Details

June 10 (Bloomberg) -- The U.S. trade deficit probably widened in April as the surging cost of oil boosted imports, economists said ahead of a government report today.

The gap between imports and exports expanded to $60 billion, from $58.2 billion in March, according to the median forecast in a Bloomberg News survey of 70 economists.

Rising fuel prices will keep pushing imports higher, while a weaker dollar stimulates export demand by making American-made goods more competitive. Sales abroad are one of the few bright spots in the economy as the two-year housing slump and slowdown in consumer spending cause growth to almost stall.

``The oil deficit is likely to widen sharply,'' said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts. ``Robust export growth remains a crucial support to the U.S. economy.''

The Commerce Department will issue the report at 8:30 a.m. in Washington. Economists' estimates of the deficit ranged from $56 billion to $63 billion.

Growing economies in Asia are stoking demand for goods such as aircraft. Boeing Co., the world's second-largest commercial planemaker, estimates its growth of as much as 5 percent a year will come mainly from outside the U.S., officials said on May 30. Exports, which fell in March for the first time in more than a year, may help avert a bigger slowdown in manufacturing as American consumers buy fewer expensive items like cars.

``Currently, the demand for U.S. exports arising from strong global growth has been an important offset to the factors restraining domestic demand, including housing and tight credit,'' Federal Reserve Chairman Ben S. Bernanke said in a speech last week.

Dollar Drop

U.S. exporters are also getting a boost from the dollar, which was down 9.6 percent against a trade-weighted basket of currencies from major trading partners in the 12 months ended in April.

At the same time, the weaker currency has contributed to an ``unwelcome rise in import prices and consumer-price inflation,'' Bernanke said in his speech, and policy makers are ``attentive'' to the implications of changes in the dollar.

Prices of imported goods rose more than forecast in April and costs excluding oil also increased, according to figures from the Labor Department.

Trade's influence on growth is based on inflation-adjusted figures, lessening the impact of the jump in oil costs. The trade gap in April dropped to the lowest level since November 2003 after taking price changes into account.

Trade's Contribution

A narrowing of the trade deficit contributed 0.8 percentage point to growth in the first three months of the year. The gap last quarter was the smallest since 2002.

Illinois Tool Works Inc., the maker of Hobart mixers and Wilsonart countertops, forecasts its businesses outside North America will generate 60 percent of revenue in four or five years from about half now.

``The faster-growing end markets clearly are not in North America, but in Asia, Latin America and Eastern Europe,'' Chief Executive Officer David Speer said in a May 28 presentation.

The deficit with China, which makes up the largest share of the U.S. trade gap, is a political sticking point. Some U.S. lawmakers accuse China of keeping its currency undervalued to boost exports.

Treasury Secretary Henry Paulson, who has favored diplomacy in place of punitive legislation to urge quicker appreciation of the yuan, last month refrained from calling China a currency manipulator.

China's exchange rate practices ``justifiably remain a focal point for the international community,'' Treasury officials said in a report.

Bloomberg Survey

====================================
Trade
Balance
$ Blns
====================================

Date of Release 06/10
Observation Period April
------------------------------------
Median -60.0
Average -59.9
High Forecast -56.0
Low Forecast -63.0
Number of Participants 70
Previous -58.2
------------------------------------
4CAST Ltd. -60.7
Action Economics -62.0
AIG Investments -62.0
Aletti Gestielle SGR -59.7
Argus Research Corp. -61.0
Banc of America Securitie -62.0
Bank of Tokyo- Mitsubishi -57.9
Barclays Capital -62.0
BMO Capital Markets -59.3
BNP Paribas -62.0
Calyon -59.1
CIBC World Markets -59.0
Citi -59.0
Commerzbank AG -60.5
Credit Suisse -59.0
Daiwa Securities America -60.0
DekaBank -59.9
Desjardins Group -61.0
Deutsche Bank Securities -60.5
Deutsche Postbank AG -59.2
Dresdner Kleinwort -59.0
DZ Bank -59.5
First Trust Advisors -56.3
Fortis -61.1
FTN Financial -59.0
Global Insight Inc. -58.2
Goldman, Sachs & Co. -59.5
H&R Block Financial Advis -57.5
Helaba -60.0
High Frequency Economics -63.0
Horizon Investments -61.0
HSBC Markets -60.0
IDEAglobal -61.0
Informa Global Markets -60.5
ING Financial Markets -58.0
Insight Economics -61.0
Intesa-SanPaulo -60.0
J.P. Morgan Chase -60.0
Janney Montgomery Scott L -60.5
JPMorgan Private Client -58.0
Landesbank Berlin -56.0
Landesbank BW -59.2
Lehman Brothers -57.9
Lloyds TSB -60.0
Maria Fiorini Ramirez Inc -61.0
Merk Investments -57.1
Merrill Lynch -60.5
MFC Global Investment Man -60.0
Moody's Economy.com -59.5
Morgan Stanley & Co. -61.2
National City Corporation -59.9
Natixis -60.7
Nomura Securities Intl. -59.5
Nord/LB -59.0
PNC Bank -59.0
RBS Greenwich Capital -61.0
Ried, Thunberg & Co. -61.0
Schneider Trading Associa -58.6
Scotia Capital -61.0
Societe Generale -59.5
Thomson Financial/IFR -59.3
Tullett Prebon -61.0
UBS Securities LLC -61.0
Unicredit MIB -62.0
University of Maryland -60.0
Wachovia Corp. -58.5
Wells Fargo & Co. -62.0
WestLB AG -59.5
Westpac Banking Co. -59.0
Wrightson Associates -61.0
====================================

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Last Updated: June 10, 2008 00:01 EDT

BL: Fed, Banks Agree on Credit-Swap Changes to Cut Risk of Collapse

By Shannon D. Harrington and Oliver Biggadike
Enlarge Image/Details

June 10 (Bloomberg) -- Regulators and banks agreed to changes aimed at easing the risk of a collapse in the $62 trillion market for credit-default swaps.

Morgan Stanley, Deutsche Bank AG and Goldman Sachs Group Inc. are among the 17 banks creating a system to move trades through a clearinghouse that would absorb a failure by one of the market-makers, the Federal Reserve Bank of New York said yesterday in a statement following a meeting with the firms. A guarantee may encourage more trading of default swaps, said NanaOtsuki of UBS AG, one of the banks involved in the agreement.

``Increasing liquidity as a result of the settlement house would be the key,'' said Otsuki, head of debt and equity research for Japanese financial institutions at UBS in Tokyo. ``Larger trading volume means higher efficiency.''

The central counterparty, more automated trading and settlement and other fixes ``will help improve the system's ability to manage the consequence of failure by a major institution, and we expect to make meaningful progress over the next six months,'' New York Fed President Timothy Geithner said in a speech to the Economic Club of New York yesterday.

Systemic Losses

Concerns that the market could fail erupted in March when Bear Stearns Cos., then the fifth-biggest U.S. securities firm, faced a cash squeeze. The central bank agreed to back an emergency sale of Bear to JPMorgan Chase & Co. in part because of the systemic losses that would have resulted if the firm had filed for bankruptcy, Geithner said.

The Fed has conferred with banks since September 2005 to improve processing and settlement in the market. Ten of the 17 banks at the meeting yesterday were owners of Chicago-based Clearing Corp., which has said it will start guaranteeing credit-default swap trades by September.

Investment firms AllianceBernstein LP, Citadel Investment Group LLC and BlueMountain Capital Management LLC joined the meetings yesterday for the first time.

In addition to a central clearing mechanism, the group agreed to include in standard trading documents a mechanism for settling trades with cash instead of having to physically deliver the underlying securities.

The group will reduce the volume of outstanding contracts through multilateral trade terminations. They also agreed to extend the changes in credit-default swaps to other derivatives contracts backed by equities, interest rates, currencies and commodities.

The group will provide details on its next steps by July 31, the Fed said in its statement.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value should the company fail to adhere to its debt agreements.

To contact the reporters for this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Oliver Biggadike in Tokyo at obiggadike@bloomberg.net.
Last Updated: June 10, 2008 00:17 EDT

BL: Treasuries Tumble After Bernanke Fans Speculation Rates to Rise

By Wes Goodman
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June 10 (Bloomberg) -- Treasuries fell, driving two-year yields up half a percentage point in two days, after Federal Reserve Chairman Ben S. Bernanke pledged to ``strongly resist'' any waning of public confidence in stable prices.

Two-year note yields approached the highest this year after Bernanke said the risk of a ``substantial downturn'' in U.S. economic growth has diminished, prompting traders to increase bets that policy makers will raise interest rates. The trading room at ICAP Australia Ltd. in Sydney erupted in noise after the comments, said Matthew Johnson, the firm's senior economist.

``The Fed is going to keep reminding us that they are worried about inflation,'' Johnson said. ``Bids disappeared for a while. Treasuries are still a sell.''

The two-year note yield rose 22 basis points to 2.93 percent as of 1:31 p.m. in Tokyo, according to bond broker BGCantor Market Data. The price of the 2.625 percent security due in May 2010 fell 13/32, or $4.06 per $1,000 face amount, to 99 13/32. A basis point is 0.01 percentage point.

Two-year rates, among the most sensitive to changes in Fed borrowing costs, may advance to 3 percent this week, Johnson said. The high so far this year was 3.10 percent on Jan. 2. Ten- year rates climbed 5 basis points to 4.06 percent.

Asian stocks and bonds slumped on concern a Fed rate increase will drive global borrowing costs higher. The MSCI Asia-Pacific Index of regional stocks fell 2.1 percent. Japan's five-year bonds slid the most in six weeks, sending their yields up 13.5 basis points to 1.425 percent. The dollar rallied to a three-month high of 106.84 against the yen.

Rate Bets

Futures on the Chicago Board of Trade show an 88 percent chance the Fed will raise its 2 percent target for overnight lending between banks at least a quarter point by December, rising from 62 percent the previous day. A month ago, most of the bets were for no change in rates this year.

The slump in Treasuries surprised economists, who predicted two-year yields would end this month at 2.35 percent, according to the median of 48 estimates in a Bloomberg News survey. The most recent predictions are given the heaviest weightings.

``The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,'' Bernanke said yesterday in a speech to a Boston Fed conference. ``The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.''

`Crushed'

The extra yield that two-year notes offer over the Fed's target interest rate widened to 92 basis points, the most since April 2005.

``Treasuries have gotten crushed,'' said Kenny Borowicz, a bond-futures broker at MF Global Singapore Ltd., part of the world's largest broker of exchange-traded futures and options contracts.

The difference between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes widened to 2.58 percentage points from 2.45 percentage points a week ago. The figure reflects the inflation rate that traders expect for the next decade.

``Treasuries have entered `buy' territory,'' said Adam Donaldson, head of debt research at Commonwealth Bank of Australia in Sydney, the nation's second-largest lender. ``Pressure from inflation and the economic growth slowdown will bear down on equity markets and investors will still shift asset classes to safety.''

Fed officials have cut their benchmark lending rate from 5.25 percent in September to keep a U.S. housing recession and losses from the credit markets from throwing the economy into a recession.

`Complicated Balance'

The Fed faces a ``complicated balance'' of lowering interest rates to spur growth ``without taking too much risk that underlying inflation is going to accelerate over time,'' New York Fed Bank President Timothy Geithner said yesterday after a speech in New York.

``Treasuries will keep falling,'' said Mitsuo Masuda, a manager in Tokyo at the foreign bond section of Sumitomo Life, who helps oversee the equivalent of $28.1 billion in non-yen debt. ``The Fed will raise rates once or twice this year.''

Sumitomo plans to shift some Treasury holdings to euro- denominated bonds later in 2008, he said.

To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
Last Updated: June 10, 2008 00:36 EDT

BL: Bernanke Says Fed to `Strongly Resist' Price Expectations Surge

By Craig Torres and Scott Lanman
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June 10 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said policy makers will ``strongly resist'' any surge in inflation expectations, delivering his clearest message yet the central bank is done lowering interest rates.

Bernanke played down the biggest jump in the unemployment rate in 22 years in May and said the risk of a ``substantial downturn'' receded in the past month. Policy makers will need to pay ``close attention'' to make sure a surge in commodity costs doesn't pass through to broader consumer prices, he said in a speech to a Boston Fed conference late yesterday.

The Fed chief's remarks spurred investors to bet that officials will raise rates later this year and sent two-year note yields to their highest level since January. Bernanke and his colleagues are raising the alarm on inflation after oil costs doubled in the past year and companies from Dow Chemical Co. to tire-maker Titan International Inc. raised prices.

``The Fed is looking for a fine balance in dealing with a weak economy and threat to inflation,'' said Gary Schlossberg, senior economist at Wells Capital Management Inc., which oversees $225 billion. Bernanke's speech ``certainly increases the odds that the next move will be a rate increase,'' he said.

Two-year Treasury yields, more sensitive to Fed rate expectations than longer-dated notes, climbed 22 basis points to 2.93 percent in Asian trading. Traders anticipate the FOMC will keep its benchmark rate at 2 percent this month and raise it as soon as September, futures prices indicate.

`Destabilizing' Threat

Central bankers ``will strongly resist an erosion of longer- term inflation expectations,'' Bernanke said yesterday at the Boston Fed's annual economic conference in Chatham, Massachusetts. Any public anticipation of accelerating price gains ``would be destabilizing for growth,'' he said.

A measure of investors' forecast for consumer price gains in the coming 10 years, derived from the difference in yield between Treasuries and Treasury notes linked to inflation, rose to 2.58 percent yesterday. The gap has averaged about 2.06 percent in the past decade.

A gauge of household expectations for inflation over five years climbed to a 13-year high last month, according to a Reuters/University of Michigan Survey.

The Fed faces a ``complicated balance'' of lowering interest rates to avert a recession ``without taking too much risk that underlying inflation is going to accelerate over time,'' New York Fed President Timothy Geithner said in New York yesterday.

Derivatives Deal

The New York Fed, the central bank's main link with Wall Street, also yesterday announced an agreement with banks on changes aimed at easing the risk of a collapse of the $62 trillion market for credit-default swaps.

Seventeen banks that handle about 90 percent of the trading in the market will create a system to move trades through a clearinghouse that would absorb a failure by one of the market- makers, the New York Fed said.

Geithner said yesterday in his speech that ``our first and most immediate priority remains to help the economy and the financial system get through this crisis.''

Fed officials have cut the benchmark lending rate to 2 percent from 5.25 percent in September. They next meet June 24-25.

The consumer price index rose 3.9 percent in the 12 months ending in April, up from a 2.6 percent gain a year ago. Energy costs have spurred the gains. AAA, the largest U.S. motoring group, said this month that gasoline surpassed an average of $4 a gallon (3.79 liters) for the first time. Oil prices reached a record $139.12 on June 6.

`Inflationary Impulses'

``The inflationary impulses that we have are beginning to dampen our economic activity,'' Dallas Fed President Richard Fisher said in an interview with CNBC television yesterday. ``Nobody at the Fed wants to countenance inflation.''

Bernanke said ``the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.'' While risks to growth were still to the ``downside,'' he added that federal tax rebates, past rate cuts and record exports should underpin the expansion.

The unemployment rate rose to 5.5 percent in May, the most in more than two decades, as the U.S. lost jobs for a fifth month. Bernanke called the jobless figures ``unwelcome,'' though he added that recent economic data had ``only modestly'' affected the outlook for growth and employment.

``Inflation has remained high, largely reflecting sharp increases in the prices of globally traded commodities,'' Bernanke said. Though ``the pass through of high raw materials costs to the prices of most other products and to domestic labor costs has been limited,'' officials will need to monitor for any change in the situation, he said.

Bernanke's speech ``was a marginal move toward more focus on inflation risks,'' said JPMorgan Chase & Co. economist Michael Feroli, who attended the conference. ``It notched down a little bit the concern on growth and notched up a little bit the rhetoric on inflation expectations.''

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Scott Lanman in Washington at .
Last Updated: June 10, 2008 00:20 EDT

BL: Asian Stocks Decline to Two-Month Low; Macquarie, ICBC Tumble

By Chua Kong Ho
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June 10 (Bloomberg) -- Asian stocks fell, driving the benchmark index to a two-month low, as widening credit-market losses and the prospect of higher borrowing costs fanned concern earnings will decline.

Macquarie Group Ltd. and Babcock & Brown Ltd. plunged in Sydney after Lehman Brothers Holdings Inc. reported a $2.8 billion loss and Federal Reserve Chairman Ben S. Bernanke said policy makers will ``strongly resist'' inflation. Industrial & Commercial Bank of China Ltd. tumbled after the nation's banks were ordered to increase reserves for the fifth time this year.

``It's going to take several years before the credit problems work themselves through the system,'' said Robert Rountree, Singapore-based director of investment marketing at Prudential Asset Management, which oversees $55 billion of assets in Asia. ``Markets are reacting to the fear factor of rising interest rates.''

The MSCI Asia Pacific Index lost 1.8 percent to 144.63 at 1:05 p.m. in Tokyo, poised for its lowest since April 18. More than four stocks dropped for each that rose. All 10 industry groups declined, with a measure of financial stocks down the most.

Japan's Nikkei 225 Stock Average retreated 0.8 percent to 14,071.01. South Korea's Kospi Index fell 1.8 percent. The country's entire cabinet including Prime Minister Han Seung Soo offered to resign to take responsibility for the government's handling of beef imports.

Australia's S&P/ASX 200 Index lost 2.4 percent, set for its biggest decline since March 20. China's CSI 300 Index dropped 6.5 percent to the lowest since April 2007. Hong Kong's Hang Seng Index slumped 3.4 percent.

Catching Up

Australia, China and Hong Kong were closed yesterday for holidays, when MSCI's Asian gauge lost 2 percent after crude oil surged more than $10 a barrel on June 6 and U.S. unemployment jumped the most since 1986.

The benchmark Asian index has dropped 8 percent this year amid signs of slowing expansion in the U.S. and $389 billion of writedowns and credit losses.

Most U.S. stocks declined yesterday, led by banks and technology companies, after speculation the Fed will raise interest rates overshadowed improving sales at McDonald's Corp. and a rally in energy producers. Financial shares fell 2.3 percent to a five-year low. Standard & Poor's 500 Index futures dropped 0.4 percent recently.

Bernanke, speaking late yesterday in Boston, pledged to ``strongly resist'' any waning of public confidence in stable prices. He said the risk of a ``substantial downturn'' in U.S. economic growth has diminished, prompting traders to increase bets that policy makers will raise interest rates.

Banks Decline

His comments helped drive U.S. Treasuries down, with two- year yields rising half a percentage point in two days to their highest since January.

Macquarie Group slumped 7.5 percent to A$51.78, the most since March 13. Babcock & Brown, Australia's second-largest investment company, tumbled 7.9 percent to A$10.35.

Lehman, the fourth-largest U.S. securities firm, raised $6 billion to help survive the collapse of the mortgage market after reporting a second-quarter loss. The European Central Bank said yesterday large European banks face ``dampened'' profits and more asset writedowns, putting the financial system at more risk than six months ago.

HSBC Holdings Plc, Europe's biggest bank, fell 2.1 percent to HK$128.60 in Hong Kong.

China's banks tumbled after the central bank said they must put aside a record 17.5 percent of deposits as reserves from June 25. It's the fifth time this year that policy makers have raised the reserve ratio to curb inflation at close to a 12-year high.

ICBC, China Merchants

Industrial & Commercial Bank, the country's largest, tumbled 6.3 percent to 5.50 yuan, the most since Jan. 22. Shanghai Pudong Development Bank Co. dropped 8.2 percent to 26.27 yuan and China Merchants Bank Ltd. tumbled 8.2 percent to 25.82 yuan.

In Sydney, Foster's Group Ltd. rose 3.7 percent to A$5.59, the most since May 15. Chief Executive Officer Trevor O'Hoy quit after Australia's beer and winemaker cut earnings forecasts and said it will write off as much as A$770 million ($730 million) at its wine unit.

PT Indosat, Indonesia's second-largest phone company, surged 20 percent to 6,750 rupiah, the most in more than nine years, after Qatar Telecom QSC agreed to pay S$2.4 billion ($1.8 billion), a 31 percent premium, for a controlling stake.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
Last Updated: June 10, 2008 00:27 EDT

BL: China Stocks Tumble to 14-Month Low on Bank Reserve Increase

By Zhang Shidong
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June 10 (Bloomberg) -- China's stocks fell to a 14-month low after the central bank told lenders to set aside a record amount of money in reserve to curb credit growth and inflation.

Industrial & Commercial Bank of China Ltd. led banks lower as the increased reserves reduces the amount of money available for lending. China Vanke Co. dropped on speculation the policy will limit property developers' access to financing for real estate purchases. Air China Ltd. retreated on concern surging oil prices will increase fuel costs.

``The tightening measure and record crude-oil prices have both reinforced the belief that corporate earnings will slow down further,'' said Zhang Ling, who manages $1.1 billion at ICBC Credit Suisse Asset Management Co. in Beijing. ``There is very sour sentiment in the market, with everything seeming to be on the negative side.''

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, declined 226.41, or 6.5 percent, to 3,263.09 at the 11:30 a.m. local-time break, set for the lowest close since April 19, 2007. Financial stocks accounted for 29 percent of the gauge's decline. All of the CSI 300's 10 industry groups fell. Stocks resumed trading today after a holiday yesterday.

The CSI 300 Index has fallen 39 percent this year, the world's second-worst performer among the major benchmarks tracked by Bloomberg, on concern government measures to tame inflation will erode earnings.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, dropped 5.7 percent to 3,140.80, taking its drop this year to 40 percent. The Shenzhen Composite Index fell 6.7 percent to 941.73.

Accelerating Inflation

Industrial & Commercial Bank, the nation's biggest listed lender known as ICBC, slumped 6.8 percent to 5.47 yuan. China Construction Bank Corp., the country's second-largest, fell 5.9 percent to 6.56 yuan. China Merchants Bank Co., the nation's biggest dual-currency credit-card issuer, lost 8.2 percent to 25.82 yuan.

China banks must put aside a record 17 percent of deposits as reserves starting June 15, rising to 17.5 percent from June 25, the People's Bank of China said on June 7. It's the fifth time this year that the central bank has raised the reserve ratio. The move will drain about 422 billion yuan ($61 billion) from the financial system, according to calculations by Bloomberg.

The central bank raised interest rates six times last year to curb inflation that accelerated to 8.5 percent in April, running at close to an 11-year high.

Vanke, the nation's biggest listed property developer, slid 9.1 percent to 17.88 yuan. Poly Real Estate Group Co., China's second-largest developer by market value, tumbled by the 10 percent daily limit to 15.94 yuan.

Oil Refiners

Air China, the world's biggest airline by market value, dropped 8.7 percent to 11.15 yuan. China Southern Airlines Co., the nation's biggest carrier by fleet size, lost 10 percent to 9.32 yuan. Jet fuel accounted for about 40 percent of Chinese airlines' costs in 2007, according to their annual reports.

Crude oil in New York jumped $10.75, the most ever, to a record of $138.54 a barrel on June 6. It recently traded at $134.93 a barrel in after-hours trading. Jet fuel prices jumped 6.5 percent yesterday, taking gains this year to 57 percent.

China Petroleum & Chemical Corp., Asia's biggest oil refiner, dropped 4.5 percent to 12.86 yuan. PetroChina Co., the nation's second-biggest refiner, lost 3.2 percent to 16.62 yuan.

China's government controls prices of gasoline, diesel and jet fuel for local consumption, restricting the ability of oil refiners to pass rising crude oil costs on to customers.

Elsewhere, Aluminum Corp. of China Ltd., the nation's biggest maker of the lightweight metal, slumped 9 percent to 16.65 yuan. The stock was cut to ``neutral'' from ``buy'' by Chris Ding, an analyst at China International Capital Corp., because of higher-than-expected production costs.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net
Last Updated: June 10, 2008 00:17 EDT

Briefing: Stock Market Update

Updated: 09-Jun-08

Market Snapshot
Dow 12280.32 +70.51 (+0.57%)
Nasdaq 2459.46 -15.10 (-0.61%)
SP 500 1361.76 +1.08 (+0.08%)
10-yr Note -21/32 3.99%
NYSE Adv 1111 Dec 2004 Vol 1.36 bln
Nasdaq Adv 913 Dec 1952 Vol 2.13 bln

Industry Watch
Strong: aluminum; coal & consumable fuels; oil & gas drilling; automobile mfg.; airlines; oil & gas exploration & producers; auto parts & equip; gas utilities; oil & gas equip & services; restaurants
Weak: thrifts & mortgage finance; photo products; divsfd financial services; real estate mgt & dev; regional banks; investment banking & brokerage; forest products; residential reits; divsfd banks; education services
Moving the Market

* Lehman Brothers reports massive $2.8 billion second quarter loss, will raise $6.0 billion in new capital
* April pending home sales unexpectedly rise 6.3%
* McDonald's May same-store sales growth tops expectations
* NY Fed President Geithner says global inflation will probably require tighter policy

16:25 ET
Mixed Finish to Choppy Day
Dow +70.51 at 12280.32, Nasdaq -15.10 at 2459.46, S&P +1.08 at 1361.76

[BRIEFING.COM] After a volatile day of trade Monday, the major indices ended the session in mixed fashion. The S&P 500 gained one point, as strength in energy (+2.7%) helped offset weakness in financials (-2.3%).

This result is somewhat disappointing, considering the S&P 500 could only muster a 0.1% gain after falling more than 3% on Friday -- especially taking into consideration that the session's economic data topped expectations and that crude prices posted a steep decline.

Large-cap tech was under pressure, which caused the Nasdaq to fall 0.6%. A better-than-expected same-store sales report from McDonald's (MCD 59.33, +2.38) and speculation that Alcoa (AA 42.17, +2.95) could be a takeover target helped lift the Dow to a 0.6% gain.

Selling interest within financials was fueled by a disappointing earnings preannouncement from Lehman Brothers (LEH 29.62, -2.67). Lehman expects a massive $2.8 billion second quarter loss and plans to raise $6.0 billion in new capital in common and preferred stock offerings -- which is on the high end of previous speculation. The $4.0 billion common stock offering was priced at $28 per share, a 13% discount to Friday's closing price. The firm also priced a $2.0 billion public offering of 2 million shares of 8.75% noncumulative mandatory convertible preferred stock.

The financial sector traded as high as 0.8% in a rebound bid following Friday's decline of roughly 5%, but plummeted to a new five-year low after New York Fed President Geithner said global inflation will probably require tighter policy.

This isn't an earth-shattering revelation since Geithner is simply stating the obvious. Nevertheless, his remarks fit neatly with commentary of late from other Fed officials who are sounding more hawkish about keeping inflation in check than they have in the recent past.

There were some positive items on Monday. Crude oil fell 2.9% to $134.54 as investors took some profits following Friday's 8.4% spike. The dollar gained 0.65% in the wake of hawkish Fed comments, which also played a role in crude's retreat. A Saudi official said the current price of oil is not supported by fundamentals, although OPEC has been expressing this view long before oil hit $100.

In economic news, April pending home sales unexpectedly rose 6.3% on a seasonally adjusted annual rate, according to the National Association of Realtors. Economists expected sales to fall 0.4%.

In corporate news, Honeywell (HON 54.81, +0.80) announced that it signed a definitive agreement to sell its Aerospace Consumable Solutions business to B/E Aerospace (BEAV 29.96, +2.98) for $1.05 billion. Honeywell feels the Consumables Solutions unit no longer fits with Honeywell Aerospace's focus on advanced technologies.

Apple (AAPL 181.61, -4.03) traded in a volatile manner leading up to and following its unveiling of the new iPhone, which is set for release on July 11. AT&T (T 37.56, -0.65), which will remain the exclusive carrier of the phone, got clipped after announcing it expects the phone will pressure its margins and earnings.
..Nasdaq 100 -0.5%. ..S&P Midcap 400 -0.1%. ..Russell 2000 -0.7%.

15:35 ET
Financials Retreat to Multi-Year Low
Dow +28.14 at 12243.78, Nasdaq -28.04 at 2446.52, S&P -5.10 at 1356.10

[BRIEFING.COM] The financial sector extends its losses, falling 3.2% to session lows. The sector hit 302.68, which marks a new five-year low.

Meanwhile, enthusiasm fades over Apple's (AAPL 178.18, -7.40) new iPhone, as its stock trades with a loss of more than 4%. On a related note, AT&T (T 37.10, -1.12) announced that it plans to offer the next generation iPhone, and will remain the exclusive carrier. The company expects the deal to pressure its margins and earnings, which sent its stock and telecom (-2.2%) into negative territory.

14:55 ET
Apple Unveils New iPhone
Dow +28.82 at 12236.92, Nasdaq -30.17 at 2443.70, S&P -4.90 at 1355.80

[BRIEFING.COM] The stock market is posting a slight loss, as continued weakness in financials (-2.5%) is preventing the market from making it back to positive territory.

The tech sector (-0.7%) pares a portion of its losses as Apple (AAPL 180.85, -4.79) CEO Steve Jobs unveils the new iPhone 3G at an Apple conference. Jobs said the new iPhone will have a better battery life and a built-in GPS. The phone will be available in 22 countries on July 11. The eight gigabyte version will be priced at $199 and the 16 gigabyte will be priced at $299. Apple stock is down 2.6% this session, but is well off its low when it was down 5.3%.

14:30 ET
Crude Extends Decline
Dow +36.47 at 12245.23, Nasdaq -32.94 at 2441.62, S&P -4.31 at 1356.18

[BRIEFING.COM] The major indices fall to session lows and then recover a bit, with the Dow briefly touching negative ground.

Meanwhile, crude oil prices are trading at session lows. Crude is down 3.0% to $134.35 per barrel. Commodities as whole are down 0.8%, although corn gained 1%, hitting a record high for the third straight session.

14:00 ET
Market Follows Financials Lower
Dow +35.90 at 12244.82, Nasdaq -36.27 at 2439.02, S&P -5.64 at 1356.19

[BRIEFING.COM] A fresh wave of broad-based selling interest sends the major indices to session lows. The Dow is holding onto a slight gain, although its advance is modest. Strength in energy (+1.8%) is unable to offset weakness in the two largest sectors -- tech (-1.2%) and financials (-2.2%).

Within the financial sector, 83% of stocks are posting a loss. Thrifts & mortgage stocks (-5.5%) are posting the largest decline, with Washington Mutual (WM 6.69, -0.85) down 11% and MGIC Investment Corp (MTG 10.62, -0.71) down 6.3%.

13:30 ET
Inflation Remarks Undercut Market
Dow +48.61 at 12261.10, Nasdaq -27.74 at 2447.76, S&P -0.77 at 1360.32

[BRIEFING.COM] The major indices have suffered a sharp contraction in the the past half-hour after news wires ran headlines that noted New York Fed President Geithner said global inflation will probably require tighter policy.

This isn't an earth-shattering revelation since Geithner is simply stating the obvious. Nevertheless, his remarks fit neatly with commentary of late from other Fed officials who are sounding more hawkish about keeping inflation in check than they have in the recent past.

The added understanding that Dallas Fed President Fisher was doing an interview at the same time with CNBC, and voiced his support for Geithner's remarks, also contributed to the knee-jerk selling interest.

The financial sector, down 0.7% at the last report, is now down 1.7%.

13:00 ET
Market Shows Split Personality
Dow +100.06 at 12209.80, Nasdaq -12.20 at 2462.38, S&P +6.62 at 1367.32

[BRIEFING.COM] The split nature of today's stock market persists with the Nasdaq holding in negative territory and the blue chip averages sporting gains.

The advance in the broader market has been spearheaded by the energy and materials sector, but unlike Friday's broad-based sell-off, the participation on the upside today isn't that pronounced. This evidence presents itself in the advance-decline line at the NYSE, which actually favors declining issues by a small margin at this juncture.

As far as participation goes, the financial sector (-0.7%) is the most conspicuous laggard. Its performance will be watched closely in afternoon trading since the sector has the influence either to help the broader market build on today's modest gains or to see those gains evaporate.

12:30 ET
Financials Drift Toward Low
Dow +91.76 at 12301.24, Nasdaq -16.61 at 2457.95, S&P +5.80 at 1366.44

[BRIEFING.COM] Investors are hesitant to send the market higher, as the major indices continue to trade in a mixed and choppy fashion. Financials (-0.5%) are trading near session lows, although some financial names are showing strength.

Global commercial finance company CIT Group (CIT 9.92, +0.73) is getting a nice boost after announcing this morning that it has agreed to a $3 billion long-term committed financing facility provided by Goldman Sachs. CIT believes the transaction will help strengthen its balance sheet. The company has been hit hard by the credit market turmoil, with its stock down 84% from its 52-week high.

11:55 ET
Modest Gains at Midday
Dow +82.68 at 12291.72, Nasdaq -15.95 at 2458.61, S&P +5.24 at 1365.88

[BRIEFING.COM] The stock market is posting a modest gain at midday. A better-than-expected housing report and a drop in crude prices are fueling the buying interest. However, weakness in tech and financials is limiting the broader market's advance.

A second quarter earnings preannouncement from Lehman Brothers (LEH 29.97, -2.32) topped headlines this morning. The struggling Wall Street firm expects a massive $2.8 billion second quarter loss and plans to raise $6.0 billion in new capital in common and preferred stock offerings -- which is on the high end of previous speculation. The $4.0 billion common stock offering was priced at $28 per share, a 13% discount to Friday's closing price. The firm also priced a $2.0 billion public offering of 2 million shares of 8.75% noncumulative mandatory convertible preferred stock.

This news has weighed on the financial sector, which is underperforming with a loss of 0.2%.

Meanwhile, the tech sector (-0.6%) is facing selling pressure as shares of Apple (APPL 183.61, -2.03) and Google (GOOG 555.13, -11.87) fall. The weakness in large-cap tech is causing the Nasdaq 100 to retreat 0.6%.

The rest of the stock market is faring better, with seven of the ten economic sectors posting a gain. The energy and materials sectors are leading the way with advances of 2.6% and 1.5%, respectively. A bit of a rebound bid following Friday's steep losses, as well as a 1.3% drop in crude prices is helping to lift the market.

Also giving the market a boost is word that April pending home sales unexpectedly rose 6.3% on a seasonally adjusted annual rate, according to National Association of Realtors. Economists expected sales to fall 0.4%.

In corporate news, Honeywell (HON 55.43, +1.42) announced that it signed a definitive agreement to sell its Aerospace Consumable Solutions business to B/E Aerospace (BEAV 28.95, +1.97) for $1.05 billion. Honeywell feels the Consumables Solutions unit no longer fits with Honeywell Aerospace's focus on advanced technologies.

Dow component McDonald's (MCD 59.20, +2.25) said its global same-store sales rose 7.7% in May, topping the Briefing.com consensus estimate of 3.6%. International comparable sales rose 16.0%, or 9.1% in constant currencies. U.S. comparable sales rose 4.2%.

11:30 ET
Financials Pare Losses
Dow +105.19 at 12314.76, Nasdaq -14.88 at 2459.55, S&P +6.97 at 1367.70

[BRIEFING.COM] The major indices are on the rise, but continue to trade in mixed fashion. Large-cap tech is taking a toll on the Nasdaq 100 (-0.8%).

Financials (+0.1%) have managed to make it back to positive ground, although the sector's advance is slight.

11:00 ET
Large Cap Tech Struggles
Dow +70.43 at 12280.97, Nasdaq -19.75 at 2454.86, S&P +4.24 at 1364.92

[BRIEFING.COM] The Dow and S&P 500 give up a portion of their gains, while the Nasdaq extends its loss.

Technology stocks Apple (AAPL 181.97, -3.67) and Google (GOOG 553.95, -13.05) are acting as the biggest drags. Financials (-0.3%) have retreated into the red after being up as much as 0.8%. Lehman Brothers (LEH 29.50, -2.79) is the main laggard, and AIG (AIG 33.53, -0.40) is also under pressure after The Wall Street Journal reported major shareholders are not happy with current management.

Diversified technology and manufacturing company Honeywell (HON 55.20, +1.19) is outperforming this session. The company announced that it signed a definitive agreement to sell its Aerospace Consumable Solutions business to B/E Aerospace for $1.05 billion. Honeywell feels the Consumables Solutions unit no longer fits with Honeywell Aerospace's focus on advanced technologies.

10:30 ET
McDonald's Lifts Dow
Dow +100.63 at 12314.43, Nasdaq -8.30 at 2466.26, S&P +7.06 at 1368.17

[BRIEFING.COM] The major indices are trading in mixed fashion. The Dow is handily outperforming the Nasdaq and S&P 500.

Dow component McDonald's (MCD 59.48, +2.53) said its global same-store sales rose 7.7% in May, topping the Briefing.com consensus estimate of 3.6%. International comparable sales rose 16.0%, or 9.1% in constant currencies. U.S. comparable sales rose 4.2%.

10:05 ET
Pending Home Sales Unexpectedly Rise
Dow +81.25 at 12290.09, Nasdaq -12.98 at 2461.58, S&P +4.87 at 1365.64

[BRIEFING.COM] Just hitting the wires, April pending home sales unexpectedly bounced 6.3% on a seasonally adjusted annual rate, according to National Association of Realtors. Economists expected sales to fall 0.4%. The reading is the highest since October, but is still 13% below one year ago.

The major indices get a boost from the better-than-expected report, although the Nasdaq is in the red. The tech sector (-0.5%) is facing selling pressure, with Apple (AAPL 181.83, -3.81) in negative territory as the Apple Worldwide Developers Conference kicks off. Barron's reported this morning that production of the new iPhone is behind schedule.

The energy (+1.6%) and materials (+1.3%) are providing leadership.

09:40 ET
Stocks Higher Despite Lehman's Loss
Dow +41.44 at 12251.41, Nasdaq +0.83 at 2475.51, S&P +4.45 at 1365.03

[BRIEFING.COM] Stocks open on a modestly higher note, although the gain is slight compared to last Friday's massive losses. Crude prices have eased 2.3% to $135.48 per barrel.

Lehman Brothers (LEH 29.49, -2.80) is once again a focal point this morning. The struggling Wall Street firm preannounced a massive $2.8 billion second quarter loss and plans to raise $6.0 billion in new capital in common and preferred stock offerings -- which is on the high end of previous speculation. The $4.0 billion common stock offering was priced at $28 per share, a 13% discount to Friday's closing price. The firm also priced a $2.0 billion public offering of 2 million shares of 8.75% noncumulative mandatory convertible preferred stock.

Moody's lowered Lehman's credit ratings to negative from stable, citing the second quarter loss and decline in hedge effectiveness.

09:16 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: +5.0. Nasdaq futures vs fair value: flat.

09:01 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: +3.1. Nasdaq futures vs fair value: +5.0. Futures continue to indicate a higher open to the trading day, but the positive opening is slight, especially when considering the scope of Friday's losses. McDonald's reported May same-store sales rose 7.7%, topping the 3.6% Briefing.com consensus estimate. Financial services company CIT Group (CIT) is getting a lift in premarket action on word that the company it has agreed to a $3 billion long-term committed financing facility with Goldman Sachs (GS).

08:32 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: +2.5. Nasdaq futures vs fair value: +5.2. Stock futures suggest a slightly higher start to the trading day. In deal news, Honeywell (HON) announced that it signed a definitive agreement to sell its Consumables Solutions business to B/E Aerospace (BEAV) for $1.05 billion.

08:05 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: +1.5. Nasdaq futures vs fair value: +3.8. Futures point to a modestly higher open for the stock market following last Friday's steep losses. As previously speculated, Lehman Brothers (LEH) preannounced a massive $2.8 billion second quarter loss, and announced plans to raise $6 billion in capital. Stock futures dipped on this news, but have since recovered. Meanwhile crude has slipped 1.0% to $137.14 per barrel, which follows its record run last Friday.

06:23 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: +2.5. Nasdaq futures vs fair value: +5.5.

06:21 ET
Market is Closed

[BRIEFING.COM] FTSE...5912.80...+6.00...+0.1%. DAX...6795.84...-7.97...-0.1%.

06:21 ET
Market is Closed

[BRIEFING.COM] Nikkei...14181.38...-308.06...-2.1%. Hang Seng...Holiday.........

16:25 ET
Stocks Plummet as Oil Soars
Dow -394.64 at 12209.81, Nasdaq -75.38 at 2474.56, S&P -43.37 at 1360.68

[BRIEFING.COM] Unless you were long oil futures, there was nothing pretty about Friday's session, which was governed by a relatively disappointing employment report for May and a stunning rise in oil prices.

According to the Bureau of Labor Statistics, nonfarm payrolls declined by 49,000 positions in May, hourly earnings rose 0.3% and the average workweek held steady at 33.7 hours. These numbers, however, weren't the problem for the market. An unemployment rate that jumped to 5.5% from 5.0% was.

Careful examination of the data revealed that the jump in the unemployment rate was not a reflection of lower employment levels (or an indication that the nonfarm payroll data are misleading). It was due either to a large number of people re-entering the labor force and being counted as unemployed, or to a one-month aberrant swing in the data. Our bet would be on a combination of the two.

Notwithstanding this interpretation, the jump in the jobless rate is certain to weigh on consumer sentiment and the stock market didn't like the thought of that as it relates to consumer spending behavior. That consideration got Friday's trade started on a negative note, but it wasn't long before the employment report took a backseat to oil prices and another unsettling outing by the financial sector.

Crude futures set records on two fronts today. First, the $10.75 increase in prices marked the largest, single-day price gain ever, eclipsing the prior record which stood for all of 24 hours. Secondly, oil prices closed at a new record high of $138.54 per barrel, eclipsing the prior record of $133.17 reached May 21.

The spike in prices was a response to a dollar that weakened following the employment report, saber-rattling in Israel toward Iran, and a view from Morgan Stanley that oil prices could hit $150 -- by July 4!

In the face of this oil price spike, equity investors found little incentive to step up and buy on the weakness.

The energy sector spent a good bit of its time in positive territory today, but even it succumbed to selling pressure late in the session that culminated in all ten economic sectors recording a loss and the S&P 500 falling 3.1%.

Hard hit were oil-sensitive groups, such as the transports and the retailers. There just wasn't any leadership. For some perspective, the energy sector, which declined 1.6%, was the best-performing sector today. All other sectors dropped at least 2.0%, yet none fell more than the financial sector, which declined 5.0%.

Weakness in the financials was driven by a Wall Street Journal report that the SEC is investigating Dow component AIG (AIG 33.93, -2.48) for its swaps accounting and growing concerns about rising consumer loan defaults that hit the bank stocks extra hard.

The retreat in the equity market and the jump in the unemployment rate drove a healthy bid at the back end of the Treasury yield curve. The yield on the benchmark 10-year note, which hit 4.04% Thursday, closed the week at 3.93%.

The S&P 500 was up 0.3% for the week entering Friday's session, but with the drubbing on Friday, it ended the week down 2.8%.
..Nasdaq 100 -3.2%. ..S&P Midcap 400 -2.6%. ..Russell 2000 -3.0%.

BL: U.K. Housing Weakness Stays Close to Most Widespread Since 1978

By Svenja O'Donnell

June 10 (Bloomberg) -- U.K. house prices fell in May as the squeeze on mortgage lending kept declines close to the most widespread level in at least three decades, the Royal Institution of Chartered Surveyors said.

The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 92.9 percentage points, the group said today. That compares with 94.7 percent the previous month, which was the most since the series began in 1978. The reading for London was minus 90, close to 14- year low of minus 92 recorded in April.

Banks approved the fewest home loans in at least nine years in April, preventing more homebuyers from making property transactions. Two-year U.K. notes fell the most in 10 years yesterday as traders bet accelerating inflation will force the Bank of England to raise interest rates even as the economy faces the threat of a recession.

``While demand remains weak and housing transactions continue to evaporate, there is a very real danger to the wider economy,'' Jeremy Leaf, a spokesman for RICS, said in a statement.

Every region tracked by RICS showed prices declining over the past three months. In London, more real-estate agents have reported price drops than gains for seven consecutive months.

`Financial Woes'

``Financial woes are still the main worry affecting the housing market in central London,'' said Benson Beard, an estate agent with Bective Leslie Marsh in the capital. ``It is likely to remain this way until the end of the year.''

Revenue at shops open at least a year still rose 1.9 percent from a year earlier in May, the first gain in three months, the British Retail Consortium said today. The group, representing 80 percent of stores, conducted its survey from May 4 to May 31.

The danger of inflation, which jumped the most since 2002 in April to reach the government's 3 percent upper limit, has raised the prospect that the Bank of England may need to lift its benchmark rate from the current 5 percent. U.K. two-year notes fell yesterday after data showed prices charged by factories rose 1.6 percent from April, the most since at least 1986.

Increases in borrowing costs may exacerbate the housing- market downturn, which is worsening as banks halt lending. House prices fell 2.5 percent in April, the most since at least 1991, Nationwide said on May 29.

The cost of home loans with a 5 percent down payment rose to the highest in more than eight years in April, according to central bank data. Mortgage approvals fell to 58,000, the lowest level since records began in 1999.

``If transactions remain 50 percent lower than they were last year this has real repercussions for the wider economy,'' Simon Rubinsohn, chief economist at RICS, said in an interview with Bloomberg Television. ``It's still pretty scary stuff.''

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
Last Updated: June 9, 2008 19:01 EDT

BL: WTI Prices Don't Reflect International Oil Market, Study Says

By Margot Habiby

April 13 (Bloomberg) -- Wholesale West Texas Intermediate crude oil, the U.S. benchmark, is no longer a gauge of the international oil market and may not be for years, according to a Lehman Brothers Inc. report today.

Prices of the grade, which is traded on the New York Mercantile Exchange futures market, are being depressed by a lack of storage at Cushing, Oklahoma, where WTI is delivered, competing supplies from Canada, refinery outages and difficulty in moving the oil elsewhere, the report said.

West Texas Intermediate prices ``represent local fundamentals for crude oil in the U.S. mid-continent, putting a question mark over the value of this inland U.S. crude as a world market for hedging speculation,'' said the Lehman analysts, led by New York-based Edward Morse.

The grade can still be useful when it comes to pricing crude oil far out into the future, though ``it's lost its utility'' for near-term pricing, the report said.

``WTI is not going to disappear as a U.S. benchmark,'' said Morse in an interview. ``It has a lot of liquidity.''

Until new pipelines are built or old ones are reversed to take oil out of Cushing, ``WTI will likely trade at a discount to waterborne crudes, ignoring freight, and Cushing is likely to be flush with inventory,'' the report said.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
Last Updated: April 13, 2007 13:55 EDT

BRIEFING: Stock Market Update

Updated: 06-Jun-08

Market Snapshot
Dow 12209.81 -394.64 (-3.23%)
Nasdaq 2474.56 -75.38 (-3.05%)
SP 500 1360.68 -43.37 (-3.19%)
10-yr Note +29/32 3.93%
NYSE Adv 562 Dec 2584 Vol 1.44 bln
Nasdaq Adv 548 Dec 2343 Vol 2.20 bln

Industry Watch
Strong: gold
Weak: homebuilding, tires and rubber, thrifts and mortgage, oil and gas refining, consumer finance, computer and electronics retail, diversified banks, auto parts, casino and gaming, IT consulting

Moving the Market:
* May unemployment rate jumps to 5.5% from 5.0%, drives concerns about consumer spending retrenchment
* Morgan Stanley says oil could hit $150 by July 4; oil prices soar
* All 10 economic sectors trading with a loss

16:25 ET
Stocks Plummet as Oil Soars
Dow -394.64 at 12209.81, Nasdaq -75.38 at 2474.56, S&P -43.37 at 1360.68

[BRIEFING.COM] Unless you were long oil futures, there was nothing pretty about Friday's session, which was governed by a relatively disappointing employment report for May and a stunning rise in oil prices.

According to the Bureau of Labor Statistics, nonfarm payrolls declined by 49,000 positions in May, hourly earnings rose 0.3% and the average workweek held steady at 33.7 hours. These numbers, however, weren't the problem for the market. An unemployment rate that jumped to 5.5% from 5.0% was.

Careful examination of the data revealed that the jump in the unemployment rate was not a reflection of lower employment levels (or an indication that the nonfarm payroll data are misleading). It was due either to a large number of people re-entering the labor force and being counted as unemployed, or to a one-month aberrant swing in the data. Our bet would be on a combination of the two.

Notwithstanding this interpretation, the jump in the jobless rate is certain to weigh on consumer sentiment and the stock market didn't like the thought of that as it relates to consumer spending behavior. That consideration got Friday's trade started on a negative note, but it wasn't long before the employment report took a backseat to oil prices and another unsettling outing by the financial sector.

Crude futures set records on two fronts today. First, the $10.75 increase in prices marked the largest, single-day price gain ever, eclipsing the prior record which stood for all of 24 hours. Secondly, oil prices closed at a new record high of $138.54 per barrel, eclipsing the prior record of $133.17 reached May 21.

The spike in prices was a response to a dollar that weakened following the employment report, saber-rattling in Israel toward Iran, and a view from Morgan Stanley that oil prices could hit $150 -- by July 4!

In the face of this oil price spike, equity investors found little incentive to step up and buy on the weakness.

The energy sector spent a good bit of its time in positive territory today, but even it succumbed to selling pressure late in the session that culminated in all ten economic sectors recording a loss and the S&P 500 falling 3.1%.

Hard hit were oil-sensitive groups, such as the transports and the retailers. There just wasn't any leadership. For some perspective, the energy sector, which declined 1.6%, was the best-performing sector today. All other sectors dropped at least 2.0%, yet none fell more than the financial sector, which declined 5.0%.

Weakness in the financials was driven by a Wall Street Journal report that the SEC is investigating Dow component AIG (AIG 33.93, -2.48) for its swaps accounting and growing concerns about rising consumer loan defaults that hit the bank stocks extra hard.

The retreat in the equity market and the jump in the unemployment rate drove a healthy bid at the back end of the Treasury yield curve. The yield on the benchmark 10-year note, which hit 4.04% Thursday, closed the week at 3.93%.

The S&P 500 was up 0.3% for the week entering Friday's session, but with the drubbing on Friday, it ended the week down 2.8%.
..Nasdaq 100 -3.2%. ..S&P Midcap 400 -2.6%. ..Russell 2000 -3.0%.

15:25 ET
A Leadership Void in the Market
Dow -346.60 at 12252.80, Nasdaq -61.82 at 2487.62, S&P -34.94 at 1368.31

[BRIEFING.COM] At the moment, it's setting up to be a clean sweep with all 10 economic sectors registering a loss. Even the energy sector (-0.3%) has slipped back into negative territory as the spike in crude prices has resuscitated worries about demand destruction.

Separately, there hasn't been anything today that can seemingly resuscitate the financial sector. It is down 4.1% and on the brink of registering a 20% loss for the year.

15:00 ET
Buyers Few and Far Between
Dow -336.10 at 12266.96, Nasdaq -65.60 at 2484.02, S&P -33.96 at 1370.03

[BRIEFING.COM] It's more of the same for the stock market, which can't seem to escape the sight of record high oil prices nor the recognition of how quickly the latest price spike unfolded.

The major indices are all down 2.0% or more.

The S&P 500 for its part is down 2.2% for the week, which is a move that fits with a volatile trading pattern. In the last five weeks, beginning with last week, the S&P has been: +1.8%, -3.5%, +2.7%, -1.8% and +1.2%.

14:30 ET
Oil Prices Set Record Highs
Dow -340.17 at 12260.94, Nasdaq -66.51 at 2484.75, S&P -34.00 at 1369.02

[BRIEFING.COM] The major indices all broke to new lows in the past half-hour with oil prices challenging, and then conquering, the mark of a $10 increase in a single session.

Today's move has shattered the record set yesterday of the biggest, single day move in oil prices. Oil is currently up $11.13 in a fast market at $138.95.

There is a large swath of red on stock monitors today, with gold and oil-related stocks among the handful of winners whose prices are distinguished with green print.

14:00 ET
Oil and Financials Lead in Different Ways
Dow -284.73 at 12315.74, Nasdaq -50.67 at 2499.27, S&P -26.99 at 1376.70

[BRIEFING.COM] The market is fixated on oil today and understandably so. Crude futures have soared to record highs, having gained 13% between their low yesterday and their high today.

With the remarkable price action today, stock market participants haven't seen much point thus far in trying to buy on today's weakness.

While the spike in oil prices is weighing heavily on the broader market, it's having a pronounced impact on the Dow Jones Transportation Average today, which is down 3.2%. The financial sector, though, still carries the label of being the worst-performing in today's session with a current decline of 3.7%.

13:30 ET
Oil Spikes to New All-Time High
Dow -288.96 at 12314.19, Nasdaq -49.71 at 2500.07, S&P -49.76 at 1376.99

[BRIEFING.COM] The stock market continues to struggle as oil prices continue to rise. In the past half-hour, crude futures took another leg higher, clearing their all-time high of $135.09 and running to $137.70, up $9.91, or 7.8%.

Prices have since cooled some, but the latest move has put traders on alert for a "limit up" stoppage of trade.

According to NYMEX, the crude limit is $10.00 per barrel ($10,000 per contract) for all months. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by $10.00 per barrel in either direction.

Presently, oil is trading up $8.88 at $136.64.

12:55 ET
Market Trying to Find Support
Dow -271.13 at 12330.96, Nasdaq -42.27 at 2508.71, S&P -24.86 at 1379.09

[BRIEFING.COM] With a retest of today's lows having been met with some support, there has been a slight pickup in buying efforts (emphasis on the word 'slight').

In the past half-hour the energy sector, up 0.2%, has climbed back to positive territory while the remaining sectors have simply worked off a modicum of their losses.

Crude oil continues to play the role of spoiler, though. At $134.44, it is sitting close to its highs for the day. Where it goes from here will most likely play an influential role in where the major indices go in afternoon trading.

12:30 ET
Midcaps Show Some Moxie
Dow -278.37 at 12326.16, Nasdaq -43.50 at 2506.18, S&P -26.15 at 1377.90

[BRIEFING.COM] The indices continue to trade near their lows for the session as buyers have found little incentive to step up to this point.

On a comparative basis, the S&P 400 Midcap Index is faring the best among the major averages. Currently, it is down 1.6% versus a 1.9% drop for the S&P 500.

This relative strength isn't anything new for the Midcap Index this year. Aided by the support from many of its energy-related components, it is up 2.9% year-to-date versus a 6.2% decline for the S&P 500, a 7.1% loss for the Dow and a 5.5% decline for the Nasdaq.

12:00 ET
Oil, Jobs Report Weigh on Sentiment
Dow -264.13 at 12340.49, Nasdaq -43.00 at 2506.94, S&P -24.94 at 1379.12

[BRIEFING.COM] We noted yesterday in our wrap-up of the day's bullish action that stock market sentiment changes in a hurry these days and that the May employment report would be the next test of sentiment.

The market looks to have failed that test, although a relatively disappointing employment report is a distant second to the primary cause of failure, which is an astounding spike in crude prices.

Briefly, the Bureau of Labor Statistics reported a 49,000 decline in nonfarm payrolls in May (consensus -60K), a 0.3% increase in hourly earnings and an average workweek that held steady from the prior month at 33.7 hours.

The headline that rattled investors, though, was the unemployment rate popping to 5.5% from 5.0%. Careful examination of the data reveals, however, that the jump in the unemployment rate is not a reflection of lower employment levels (or an indication that the nonfarm payroll data are misleading). It is due either to a large number of people re-entering the labor force and being counted as unemployed, or to a one-month aberrant swing in the data. Our bet would be on a combination of the two.

Notwithstanding this interpretation, the jump in the jobless rate is certain to weigh on consumer sentiment and the stock market doesn't like the thought of that as it potentially relates to consumer spending behavior. Accordingly, the consumer discretionary sector, down 2.6%, has been hit hard in Friday's trade.

Losses in the consumer discretionary sector have been exacerbated by the 5.1% increase in oil prices to $134.30 per barrel that has been driven by a weakening dollar, geopolitical concerns, and a view from Morgan Stanley that prices could hit $150 by July 4.

It is the move in oil that has had the biggest effect on trading, as the indices have been languishing at noticeably lower levels throughout the morning while oil prices have been holding near their high, which is within close proximity of the all-time high of $135.09 reached on May 22.

An added weight on the broader market has been the poor showing from the financial sector, which is down 3.1% on broad-based selling pressure. A Wall Street Journal report that the SEC is investigating the swaps accounting by AIG (AIG 34.11, -2.30) and growing worries about consumer loan defaults have been the main forces behind today's selling in the volatile financial sector.

At this point, all ten economic sectors are in negative territory; meanwhile, the Treasury market is benefiting from some safe-haven trading that has seen the yield on the 10-year note fall to 3.94% from 4.04% yesterday.

11:30 ET
Indices Hit New Session Lows
Dow -272.37 at 12331.61, Nasdaq -44.71 at 2505.23, S&P -25.40 at 1378.68

[BRIEFING.COM] The major indices moved to new session lows as oil prices pushed back to their highs for the day.

Currently, oil is up $6.59, or 5.1%, to $134.37. The move puts the commodity less than a buck away from the all-time high of $135.09 reached on May 22.

Yesterday oil prices hit $121 and change. Arguably, the velocity of the rebound bid has been as bothersome to the stock market as the actual price of oil itself.

11:00 ET
Bears Are Calling the Shots
Dow -217.39 at 12387.63, Nasdaq -36.11 at 2514.82, S&P -20.63 at 1383.42

[BRIEFING.COM] On Thursday the bulls controlled the market. Today it is the bears who have command of the trading action, as evidenced by an advance-decline line at the NYSE that favors decliners by a 4-to-1 ratio and nine out of ten economic sectors sporting a loss in excess of 1.0%.

Similarly, 29 of 30 Dow components are down for the day. The lone winner is Chevron (CVX 100.42, +0.43), which is garnering support from the spike in crude prices.

Separately, the May employment report has prompted some buying at the back end of the Treasury yield curve, as the jump in the jobless rate will presumably help curtail wage hike demands which, in turn, should help keep inflation pressures in check. The 10-year note is up 16 ticks with its yield at 3.98%.

10:30 ET
Financials Lead Market Losses
Dow -220.32 at 12377.53, Nasdaq -35.01 at 2514.68, S&P -19.97 at 1383.55

[BRIEFING.COM] What a difference a day makes. Yesterday the Dow gained 214 points. Today it has essentially given back the entirety of that gain as the market sells off in the face of rising oil prices and a relatively disappointing employment report for May.

Outside of the energy sector, there isn't any leadership from a sector standpoint. Eight of the nine remaining sectors in negative territory are down more than 1.0%. The volatile financial sector leads the pack with a decline of 2.7%.

Weakness in AIG (AIG 34.42, -1.99), which The Wall Street Journal said was being investigated by the SEC for its swaps accounting, and broad-based weakness across the banking stocks, which are down on loan default concerns, has served as the main source of weakness for the financials.

10:00 ET
Market Under Oil Pressure
Dow -168.29 at 12433.79, Nasdaq -26.05 at 2523.89, S&P -12.34 at 1391.73

[BRIEFING.COM] A spike in oil prices has been the biggest weight on the market this morning. Currently, they are up 5.0% at $134.20, but remarkably, they are up 10% from yesterday's low.

A weaker dollar, geopolitical concerns, and Morgan Stanley's view that prices could hit $150 by July 4 are all contributing to the spike. Not surprisingly, the top performers list for the S&P 500 is littered with oil-related industry groups.

The dollar index had been trading higher earlier, but reversed in the wake of an employment report that led many traders to conclude the Fed won't be raising interest rates soon. The pullback has been a source of support for gold prices, too, which are up 2.1% to $893.60/oz.

09:40 ET
Market Slides on Oil Spike
Dow -151.44 at 12458.38, Nasdaq -28.23 at 2521.66, S&P -12.76 at 1391.23

[BRIEFING.COM] The stock market is down sharply in the early-going, with yesterday's rally getting beaten back by bothersome headlines related to the May unemployment rate, which jumped to 5.5% from 5.0%, and oil prices, which are up 5.5% to $134.38, after Morgan Stanley said oil prices could hit $150 - by July 4!

Together, the jump in the jobless rate and the spike in oil prices are feeding concerns about a consumer spending retrenchment. Fittingly, the consumer discretionary sector, down 1.8%, is among the biggest laggards at this juncture.

Only one sector - energy (+2.1%) - is trading higher right now.

09:17 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: -9.3. Nasdaq futures vs fair value: -12.5.

09:05 ET
.
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: -8.5. Nasdaq futures vs fair value: -11.2. The futures market has been beaten back on the employment report and is signaling a lower start for stocks when trading begins. Rising oil prices, up 2.7% to $131.40, are acting as another buying deterrent.

08:39 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: -8.2. Nasdaq futures vs fair value: -13.2. The futures market takes a dip in response to the May employment report, which contained the unsettling headline showing the unemployment rate jumped to 5.5% from 5.0%. Nonfarm payrolls were down 49K, which was a bit ahead of the consensus estimate that called for a 60K decline. Hourly earnings rose 0.3%, above the view that they would be up 0.2%.

08:24 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: +0.2. Nasdaq futures vs fair value: +3.5. The broader market is indicated to open roughly flat, but that is ahead of the jobs report which is due shortly and carries market-moving sway.

07:58 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: +0.2. Nasdaq futures vs fair value: -2.8. There isn't much conviction in the futures trade at this juncture as the market awaits the release of the May employment report at 8:30 AM ET. Economists expect a decline of 60K in nonfarm payrolls, which would be the fifth straight monthly decline. The unemployment rate is expected to tick up to 5.1% from 5.0%, hourly earnings are anticipated to be up 0.2%, and the average workweek is expected to have held steady at 33.7 hours.

06:22 ET
Market is Closed

[BRIEFING.COM] S&P futures vs fair value: -0.9. Nasdaq futures vs fair value: -2.3.

06:22 ET
Market is Closed

[BRIEFING.COM] FTSE...6024.30...+29.00...+0.5%. DAX...6937.76...-4.07...-0.1%.

06:22 ET
Market is Closed

[BRIEFING.COM] Nikkei...14489.44...+148.32...+1.0%. Hang Seng...24402.18...+146.89...+0.6%.

16:15 ET
Market Stages Broad-Based Rally
Dow +213.97 at 12604.45, Nasdaq +46.80 at 2549.94, S&P +26.85 at 1404.05

[BRIEFING.COM] It was a big day in the stock market Thursday as a broad-based rally effort followed some pleasing same-store sales reports for May, encouraging initial claims data, and an M&A deal of size and significance in the telecom services sector.

The day was not without its trials. Oil prices spiked more than $5.00 to $127.79 per barrel, the 10-year note yield rose above 4.00%, and Standard & Poor's lowered its financial strength ratings on bond insurers Ambac Financial (ABK 2.62, +0.13) and MBIA (MBI 6.04, +0.41) to 'AA' from 'AAA'.

The negatives, though, barely registered as the bulls held sway over today's proceedings.

Wal-Mart (WMT 59.80, +2.12) and the retailers set the tone before the open when their same-store sales reports proved to be better than expected. Wal-Mart was the headline leader in that respect, posting a 3.9% increase, excluding fuel. The company had forecast same-store sales to be flat to up 2%.

For June Wal-Mart is expecting same-store sales to be up 2% to 4% due in part to an expected benefit from the spending of stimulus checks.

Wal-Mart's forecast set an optimistic mood for the market that was enhanced when the Department of Labor reported initial claims fell 18,000 in the week ended May 31 to 357,000. The latter was well below the consensus estimate of 375,000 and was certainly not a recession-like level of claims, which would typically be above 400,000.

All ten economic sectors participated in today's gains. The materials sector, which surged 3.4% after steel maker Nucor (NUE 80.54, +6.40) raised its second quarter guidance, led the way. It was followed by telecom services, which jumped 2.9% on the report that Verizon (VZ 38.96, +1.98) agreed to acquire Alltel for a total consideration of $28.1 billion. The acquisition will enable Verizon to supplant AT&T (T 39.46, +0.96) as the nation's largest mobile phone operator.

The indices did hit a small air pocket in afternoon trading when oil prices accelerated to the upside on the dollar's weakness and technical buying interest. Strikingly, oil touched $121.61 at its low today before closing NYMEX trading at $127.79 per barrel, up 4.5%.

At the same time oil prices were surging in the afternoon trade, Standard & Poor's announced it was cutting its ratings on Ambac Financial and MBIA. Those stocks, and the market, suffered a knee-jerk dip, but regrouped in quick fashion on the idea that the downgrades had already been accounted for in stock prices.

The market's resilience in the face of the downgrades spurred a renewed wave of buying interest that culminated with the indices closing at, or near, their best levels of the day.

Presumably, the market's behavior after the downgrades was viewed by some traders as an anecdotal signal that the financial sector may be close to a bottom, or at a point at least where it is believed its long-term upside potential outweighs its near-term downside risk.

Sentiment can change in a hurry these days, but clearly, the prevailing mood on Thursday was a positive one.

The next test of sentiment comes Friday with the release of the May employment report.
..Nasdaq 100 +1.7%. ..S&P Midcap 400 +2.3%. ..Russell 2000 +2.6%.

R: U.S. has few options as oil nations tighten grip
Fri Jun 6, 2008 3:32pm EDT

By Chris Baltimore - analysis

WASHINGTON (Reuters) - Resource nationalism in oil producing countries is cordoning off valuable supplies and the United States has precious few options to battle the trend amid a looming supply crunch.

As U.S. oil prices CLN8 marched above $135 a barrel last month -- and settled up 8.4 percent at a record-high $138.54 on the New York Mercantile Exchange on Friday -- international firms have found themselves faced with tougher terms and shut out of the globe's most promising oil basins, a trend known as "resource nationalism."

The United States -- the world's biggest oil consumer -- stands mostly powerless as national oil companies like Venezuela's PDVSA and Russia's Gazprom block access to key oil reserves and demand a larger share of the profits in exchange for allowing international oil companies to drill.

"There are few good foreign policy options because oil really is our economic jugular," said Anne Korin, co-director of the Institute for the Analysis of Global Security, a nonprofit energy think tank.

Conventional wisdom in past years has been that when oil prices rise high enough, oil companies will have the profit motive to spend the billions of dollars needed to bring new supply sources online.

UNCONVENTIONAL WISDOM

But resource nationalism has turned such wisdom on its head, investment bank Goldman Sachs said in a recent report.

Resource nationalism "imposes significant policy constraints on the free flow of capital, labor and technology that are substantially limiting supply growth," Goldman Sachs said in its report, which also called for benchmark U.S. oil prices to average $141 a barrel in the second half of 2008.

Such constraints have reduced oil supply growth by 1 percent per year, even while the global economy grows at nearly 4 percent, the bank said.

In recent congressional testimony, a top executive with ConocoPhillips (COP.N: Quote, Profile, Research) said resource nationalism was "the biggest constraint" blocking access to new oil supplies.

High oil prices have emboldened big oil producers to tighten their grip on their oil resources.

In Venezuela, President Hugo Chavez's nationalization crusade has forced out two of the world's largest energy companies and the OPEC nation is preparing a "windfall" oil tax to boost its share of profits from its fields.

Under President Vladimir Putin, Russia brought more than half of its oil industry back under state control, wrestling control away from global majors like BP Plc (BP.L: Quote, Profile, Research) and Royal Dutch Shell (RDSa.L: Quote, Profile, Research) as the Kremlin tightened its grip.

Limiting access to oil reserves can lead to oil output declines, but not always.

In Venezuela, oil production by state-owned PDVSA has sagged since a crippling 2002 strike, where half its employees walked off the job to protest Chavez's rule.

But other big producers that limit foreign access -- notably Saudi Arabia and Brazil -- buck the trend of declining output.

Saudi Arabia, the world's biggest oil exporter and de facto leader of OPEC, has consistently managed to boost supply through the efforts of state-owned Saudi Aramco.

In Brazil, state-owned Petrobras is recognized for its deepwater drilling expertise, which it will need to develop the giant Tupi field -- the biggest deep-water find ever.

LIMITED OPTIONS

Options to address rising producer influence include making oil access a precondition to joining the World Trade Organization and rethinking nuclear and weapons technology deals with big OPEC producers like Saudi Arabia, experts say.

But one option that is not on the table is U.S. military action to secure hydrocarbon resources.

Though some observers have said U.S. occupation of Iraq was aimed in part at securing oil supplies, the reality has been markedly different, with oil production still lagging below pre-war levels due to attacks on export pipelines.

"Even if you take over the fields, you're not going to get the oil," Korin said. "That's the deal here."

The United States should up the ante in negotiations with big oil suppliers like Saudi Arabia, and use its prized weapons and nuclear energy technology as leverage to extract oil supply concessions, said James Woolsey, a former Director of Central Intelligence during the Clinton administration.

"We've got to let them know that our dander is up," Woolsey said. "We are not going to take it anymore."

The United States already missed a golden opportunity to extract more energy access pledges when it allowed Saudi Arabia to enter the World Trade Organization, Korin said.

"Other OPEC countries that are clamoring to enter the WTO -- we should hold that up and say 'no way unless you leave OPEC,'" Korin said.

But an aggressive U.S. foreign policy response could make things worse if supplier nations respond by tightening their grip even further, said Robbie Diamond, president of Securing America's Future Energy.

"Going at resource nationalism itself is in some ways pointless, and could hurt us more," said Diamond, whose nonpartisan group wants to reduce U.S. oil import dependence.

"It really is for the United States to do what is tried and true and boring: Reduce demand and increase supply," Diamond said.

(Reporting by Chris Baltimore, editing by Matthew Lewis)

Sounds good to me...let's do it.

DPDW L2:

BL: U.S. Stocks Drop as Unemployment Rate Jumps; AIG Shares Tumble

By Michael Patterson

June 6 (Bloomberg) -- U.S. stocks fell the most in two months after the biggest jump in the unemployment rate since 1986 and a $6-a-barrel rise in oil prices heightened concern that the economy will sink into a recession.

General Electric Co. and Citigroup Inc. led the retreat after the Labor Department said the jobless rate increased to 5.5 percent in May. American International Group Inc. tumbled to a 10-year low on a Wall Street Journal report that regulators are investigating whether the insurer overstated the value of contracts tied to mortgages. J.C. Penney Co., General Motors Corp. and Continental Airlines Inc. dropped as Morgan Stanley predicted crude may climb to $150 within a month.

The Standard & Poor's 500 Index lost 26.02, or 1.9 percent, to 1,378.03 at 11:18 a.m. in New York and is down 1.5 percent in the week. The Dow Jones Industrial Average dropped 285.7, or 2.3 percent, to 12,318.75. The Nasdaq Composite Index decreased 45.92 to 2,504.01. Almost eight stocks declined for each that rose on the New York Stock Exchange.

``The writing is on the wall that we're in for a softer labor market, which is going to bode negatively for the consumer,'' said Greg Woodard, a portfolio strategist at Manning & Napier, which manages $18 billion in Fairport, New York. ``You have to position a portfolio for below-trend growth in the U.S.''

Broad Retreat

Every industry in the S&P 500 except for energy companies retreated as a weakening job market added to concern that consumers buffeted by falling home values and higher fuel costs will pull back spending.

The S&P 500 had rebounded 10 percent through yesterday from a 19-month low in March as better-than-forecast reports on gross domestic product, inflation and manufacturing spurred speculation the economy will avoid a recession. Today's retreat erased most of a rally yesterday spurred by an unexpected decrease in jobless claims and sales at Wal-Mart Stores Inc. and Costco Wholesale Corp. that topped analysts' estimates.

Economists predicted the jobless rate would rise to 5.1 percent from 5 percent in April, according to a Bloomberg News survey. The Labor Department said payrolls fell by 49,000 in May after a revised drop of 28,000 drop in April, a net decrease that was in line with economists' forecasts.

The Morgan Stanley Cyclical Index, a gauge of companies that rely the most on economic expansion to boost profits, dropped 2.5 percent as 29 of 30 shares in the group retreated. The Dow Jones Transportation Average, created by Journal co-founder Charles Dow in 1884 to foretell economic trends, lost 2.7 percent.

`Protracted Affair'

GE, which relies on economic growth to increase earnings at its businesses ranging from jet engines to locomotives and turbines for power plants, declined 80 cents to $30.26. Citigroup, which got about 39 percent of its 2007 revenue from its U.S. consumer business, lost 77 cents to $20.45.

``The recovery for the U.S. economy will be a protracted affair,'' Jack Malvey, the New York-based chief global fixed- income strategist at Lehman Brothers Holdings Inc., said yesterday in an interview on Bloomberg Radio. ``We're in a new phase here where there's questions about the real fundamentals of a variety of industries including financials.''

AIG dropped $2.61, or 7.2 percent, to $33.80 for the steepest slide in the Dow average. The SEC is examining how the New York-based company accounted for credit-default swaps, contracts conceived to protect bondholders against default, including those backed by subprime mortgages, the Journal reported.

Officials at the Justice Department have asked the SEC for information, meaning a criminal investigation may follow, the Journal reported, citing unidentified people with knowledge of the matter. Chris Winans, an AIG spokeswoman, declined to comment on the Journal report.

Brokerages Slide

The AMEX Securities Broker/Dealer Index lost 2.5 percent as all 11 of its companies retreated. Morgan Stanley led the retreat, tumbling 4.7 percent to $42.49.

National City Corp., Ohio's biggest bank, dropped 38 cents to $4.97 on concern that the company's soured home loans have attracted new scrutiny from U.S. regulators. The company's banking operations signed a confidential ``memorandum of understanding'' with the U.S. Comptroller of the Currency that effectively puts the bank on probation, the Journal said today. A National City spokeswoman said the lender doesn't comment on rumor and speculation.

`Further Negatives'

Credit-card companies declined as the jobs report heightened concern that consumer defaults will increase. American Express Co., the biggest U.S. credit-card company by purchases and cash advances, dropped $1.91 to $45.52. Capital One Financial Corp., the McLean, Virginia-based bank and credit-card issuer, retreated $2.87 to $46.75.

``The unemployment increase is going to feed into further negatives for consumer confidence,'' said Charles Smith, who helps manage $1.2 billion as chief investment officer at Fort Pitt Capital Group in Pittsburgh. ``That's what the market's worried about.''

J.C. Penney, the third-largest U.S. department-store chain, declined $1.52 to $39.04. GM, the country's biggest automaker, fell 59 cents to $16.46. Continental, which said yesterday it will cut 3,000 jobs and reduce its fleet by 18 percent to fight rising fuel costs, dropped $1.16 to $14.04.

$150 Forecast

Crude oil for July delivery surged 4.9 percent to $134 a barrel in New York as demand grew for a hedge against a weakening dollar and Morgan Stanley said prices may reach $150 within a month because of accelerating Asian consumption.

The dollar fell to a one-week low against the euro on the government jobs data.

Energy producers posted the only advance among 10 S&P 500 industries as the jump in crude prices boosted the outlook for profits in the industry. Chevron, the second-biggest U.S. oil producer, gained 39 cents to $100.38. The S&P 500 Energy Index added 0.6 percent, bringing its two-day gain to 4.8 percent, the largest in two years.

National Semiconductor Corp. jumped $1.52 to $24.18. The company posted a 7.7 percent decline in net income last quarter to $83.2 million, or 34 cents a share, topping the 26 cents estimated by analysts in a Bloomberg survey. This prompted Morgan Stanley to raise its share-price estimate 7.7 percent to $28.

For related news:

To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.
Last Updated: June 6, 2008 11:26 EDT