U.S. Market plunges, U.S. Dollar extends losses

Fri Jul 11, 2008

NEW YORK - Stocks tumbled Friday as investors focused on troubles at
mortgage companies Fannie Mae and Freddie Mac and watched oil prices
climb further into record territory. The Dow Jones industrials fell more
than 170 points and neared the 11,000 mark for the first time in two
years.

Investors seemed unimpressed by a statement from Treasury Secretary
Henry Paulson, who said the government's focus is ensuring that Fannie
Mae and Freddie Mac remain as presently constituted to carry out their
mission.

The government-chartered companies at times each lost more than 40
percent on growing speculation that a government bailout is needed. A
collapse of the two financiers would cause further shock to the financial
system, and trigger more losses to banks and brokerages with
significant holdings of mortgage-backed securities.

Global banks and brokerages have scrambled to sell assets and raise
capital in an effort to offset nearly $300 billion of write-downs linked
to the credit crisis.

Citigroup Inc. announced Friday it will sell its German retail banking
operation to France's Credit Mutuel for $7.7 billion.

Meanwhile, oil continued its ascent on supply concerns. A barrel of oil
vaulted to a record above $147.

The confluence of negative news offset a mostly positive quarterly
report from General Electric Co. The conglomerate that owns
everything from television network NBC to jet engine plants reported
second-quarter profits that met analysts' expectations. However, the
outlook across its business lines was mixed.

In midmorning trading, the Dow fell 173.83, or 1.55 percent, to 11,055.19.
It last traded below 11,000 on July 25, 2006.

Broader stock indicators also lost ground. The Standard & Poor's 500
index fell 19.58, or 1.56 percent, to 1,233.81, and the Nasdaq composite
index fell 33.03, or 1.46 percent, to 2,224.82.

Light, sweet crude rose $5.08 to $146.73 per barrel on the New York
Mercantile Exchange. Behind the rise are concerns about a disruption
to tight global supplies amid tensions over Iran's launch of test missiles
and the possible renewal of oil-related violence in Nigeria.

Bond prices fell. The yield on the benchmark 10-year Treasury note,
which moves opposite its price, rose to 3.83 percent from 3.80 percent
late Thursday. The dollar was mixed against other major currencies,
while gold prices rose.


U.S. Dollar extends losses

LONDON - The dollar was weighed by news that the U.S. government
may have to step in to salvage troubled mortgage lenders Fannie Mae
and Freddie Mac with state ownership.

After doubts emerged this week about the capitalization needs of the two
government sponsored bodies, the news that the government may
intervene to return the two companies to public ownership made markets
nervous.

"Traders may look to further limit any exposure to the dollar as we move
into the weekend break," particularly ahead of economic data later today,
said James Hughes at CMC Markets.


NEW YORK, July 11 (Reuters) - The dollar extended losses versus the euro and yen on Friday, as the U.S. stock market opened sharply lower and investors continued to fret about the widening impact of the credit crisis.

The euro rose to $1.5940, the highest since April 23, according to Reuters data. The dollar slipped below 106 yen to 105.74, down 1.2 percent on the day.

"Unlike the turmoil of a year ago, which was accompanied by a rise in the dollar as carry trades unwound, today's turmoil is solely triggered by U.S.-specific events," said Ashraf Laidi, chief market analyst at CMC Markets in New York.

He said the Federal Reserve may have to consider cutting interest rates again, which would likely push the euro above $1.60.

U.S. stocks opened, with the major indexes .DJI .SPX .IXIC down more 1.5 percent on the day.

(Reporting by Gertrude Chavez-Dreyfuss and Steven C. Johnson; Editing by James Dalgleish)

Financial Market Summary Wednesday, July 11, 2008

By Benjamin Train
President of the Online Consultancy Network

The rising price of oil and the eminent collapse of the financial markets and World currencies will continue to paint the landscape of World financial and stock markets for the next two years. For the first time in years, sheltered retirement saving plans in the U.S. like 401k and IRA's are now declining in value. As oil threats and World populations increase the demand for oil cause price increases, you can expect that the making of goods and the delivery costs of goods will continue to climb. That in turn, will reduce potential profit margins in a broad number of businesses that are listed on financial markets as equities. So look to see continued declines in stock prices.

Precious metal mining stocks, base metal mining stocks and oil companies should continue to increase in value, if they can continue to see ore and oil prices increases, to cover their overhead in the coming year. However, profit margins will decline and venture/development investor funds may limit or reduce growth in some areas.

Here are just some of the influences that will threaten oil prices in the coming years. Deflation of the U.S. dollar, and potential wars with oil produing and exporting countries.

Some article excerpts for your review:

OPEC Warns Against Military Conflict with Iran
http://www.iht.com/articles/2008/07/10/business/opec.php

The head of the Organization of Petroleum Exporting Countries warned Thursday that oil prices would see an "unlimited" increase in the case of a military conflict involving Iran, because the group's members would be unable to make up the lost production. "We really cannot replace Iran's production - it's not feasible to replace it," Abdalla Salem El-Badri, the OPEC secretary general, said during an interview.

Iran, the second-largest producing country in OPEC, after Saudi Arabia, produces about 4 million barrels of oil a day out of the daily worldwide production of close to 87 million barrels.

The country has been locked in a lengthy dispute with Western countries over its nuclear ambitions. In recent weeks, the price of oil has risen higher on speculation that Israel could be preparing to attack Iranian nuclear facilities. The saber-rattling intensified this week with missile tests by Iran. That has further shaken oil markets because of concerns that any conflict with Iran could disrupt oil shipments from the Gulf region. "The prices would go unlimited," Badri said during the interview, referring to the effect of a military conflict. "I can't give you a number."


Israel Hints at Readiness to Strike Iran
http://www.breitbart.com/article.php?id=D91R2K500&show_article=1

Israel's defense minister has hinted at readiness to attack Iran, saying his country "proved in the past that it won't hesitate to act when its vital security interests are at stake." But Ehud Barak added "the reactions of (Israel's) enemies need to be taken into consideration as well." Tensions with Iran intensified after Tehran launched war games and long-range missile tests this week, warning Tel Aviv would be "set on fire" if Israel attacks Iran over its nuclear program. Israel suspects Iran is building nuclear weapons. Iran denies that, but its president has often said Israel should be "wiped off the map." In 1981, Israel bombed an unfinished Iraqi nuclear reactor. Israel also hit a suspected nuclear facility in Syria in September.


Rice says U.S. will Defend Gulf
http://www.breitbart.com/article.php?id=D91R5IKO0&show_article=1


Condoleezza Rice flexed America's muscles in the Middle East Thursday, forcefully warning Iran the U.S. won't ignore threats and will take any action necessary to defend friends and interests in the Persian Gulf.

A fresh Iranian missile test prompted a show of force from Israel as well. Rice used some of the administration's most direct language yet to make clear the U.S. is strengthening its military presence to counter Iran in the strategic Gulf region and is prepared to use force. She also referred to U.S. arms sales to Gulf allies and military aid to Israel as protections against any threat from Iran.

The chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, noted Iranian testing of a longer-range missile, representing a "capability that raises the ante in the long run in that part of the world."

Rice's remarks were part of a rising rhetorical and strategic face-off between Iran on one side and the United States and Israel on the other. The posturing has raised concerns worldwide about a possible shooting war.

The most likely scenario for that would be an Israeli strike to reduce or eliminate the threat that Iran could soon field a nuclear weapon. Israel could theoretically launch an air strike against one or more of Iran's known nuclear sites and at least set back the timetable for a bomb.

On Thursday, Israeli Defense Minister Ehud Barak said his country "proved in the past that it won't hesitate to act when its vital security interests are at stake." Also Thursday, Israel displayed its latest spy plane in what defense officials said was a show of strength in response to Iranian war games and missile tests.

Last month, Israel's military sent warplanes over the eastern Mediterranean for a large military exercise that U.S. officials described as a possible rehearsal for a strike on Iran's atomic project.


US mortgage firms' shares slump
http://news.bbc.co.uk/2/hi/business/7502184.stm

Shares in US mortgage firms Freddie Mac and Fannie Mae have fallen by more than 40% in early trading amid concerns for the future of the companies.

Investors are concerned that the government may have to step in to rescue them, a move that would wipe out the value of existing shares.

But the US Treasury said it would back the firms in their "current form".

The companies are behind half of all US mortgages and have been hard hit by the slowdown in the housing market.

The two companies play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.

As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.

Freddie Mac shares fell $4.03, or 50%, to $3.97, at the start of trading. Shares of Fannie Mae fell $6.09, or 46%, to $7.11.

'Unthinkable'

There has been a sense of unfolding crisis surrounding the companies this week according to the BBC's New York Business Correspondent Greg Wood.

He added that it would be unthinkable that they could be allowed to fail.

While no longer government owned, Fannie Mae and Freddie Mac are government sponsored, leading many to suggest that the Bush administration will be forced to step in.

'Important mission'

In response to reports that the Treasury was planning some kind of government-led rescue, Treasury Secretary Henry Paulson said: "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission."

Mr Paulson said the Treasury was "maintaining a dialogue with regulators and with the companies".

He stressed that their regulator continues to work with them "as they take the steps necessary to allow them to continue to perform their important mission".

However analysts were disappointed with his remarks.

"It is designed more to signal policy intent than manage market expectations," said Michael Woolfolk of Bank of New York Mellon.

"He left his cheer-leading outfit in the drawer."

Following Mr Paulson's remarks, Fannie Mae shares were trading 35% lower and Freddie Mac's shares were 40.5% down.

Earlier this week, Freddie Mae and Fannie Mac's regulator stressed that the firms were "adequately capitalized".

The Office of Federal Housing Enterprise Oversight said they had large liquidity portfolios, access to the debt market and over $1.5 trillion in unpledged assets.