Grave business - my financial world

Gasoline prices fell for the 51st straight day, according a survey released Friday by the motorist group AAA.

The average price of regular unleaded decreased to $2.314, a 2.6 cent drop from Thursday. This is the lowest price the nation has seen since February 24, 2007, according to the national survey, which is based on credit card swipes at gas stations.

Over the last 51 days, prices have sunk $1.54, a 40% decrease.

Demand for gasoline has continued to slip, despite the fall in gas prices. MasterCard’s weekly survey of gas station credit card swipes showed demand down 3.9% last week, compared to the same period last year.

Prices have dropped 43.8%, or $1.80, from the record high price of $4.114 a gallon set July 17. The average price per gallon dropped below $3 on Oct. 18, the first time in nearly nine months.

Alaska reported the highest current-state-average gas prices, $3 cash advance usa.391 per gallon costing, while Missouri boasted the cheapest, at $1.990 a gallon.

Gasoline prices have fallen while average crude prices have done the same in the past four months. U.S. crude for December delivery settled at $60.77 a barrel in New York trading on Thursday, down from its high of $147.27 a barrel on July 11.

Only two states, Alaska and Hawaii, have an average price above $3 per gallon, while 37 states report gas prices below $2.50 per gallon.

The AAA figures are state-wide averages based on credit card swipes at up to 100,000 service stations across the nation. Many drivers have reported even lower prices across the country.  

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A former Intel Corp. engineer has been charged with stealing trade secrets worth $1 billion from the chip-maker while he worked for its main rival, Advanced Micro Devices Inc.

Federal prosecutors in Massachusetts alleged this week in a five-count indictment that Biswamohan Pani, 33, illegally downloaded more than a dozen confidential documents from Intel’s computer system in California during a four-day stretch in June. He had already resigned from Santa Clara, Calif.-based Intel, but remained on the payroll and still had access to the company’s computers while he burned unused vacation days.

What Pani’s supervisors didn’t know then is that instead of taking the time to transition to the hedge fund job Pani claimed he had landed, he had actually started working for AMD and for a brief period was on both companies’ payrolls.

Prosecutors say AMD had no knowledge of Pani’s actions and did not benefit. But they say the information Pani downloaded was worth more than $1 billion in research and development costs, and included details about methods for designing microprocessors.

The indictment alleges that Pani "planned to use this information to advance his career at AMD or elsewhere by drawing on it when the opportunity arose, whether with his employer’s knowledge or not everyone approved 1 hour payday loans."

Pani told investigators he had no intention of harming Intel, and was going to give the information to his wife, who also worked for Intel. Pani’s lawyer has declined to comment.

AMD said it is cooperating with investigators.

"AMD has not been accused of wrongdoing, and the FBI has stated that there is no evidence that AMD had any involvement in or awareness of Mr. Pani’s alleged actions," the Sunnyvale, Calif.-based company said in a statement.

Intel (INTC, Fortune 500) owns 80% of the worldwide market for microprocessors, the electronic brains of personal computers. AMD (AMD, Fortune 500) has the rest. Chip designs are among the companies’ most closely guarded secrets.

Pani, who worked at an Intel facility in Hudson, Mass., had been charged with one count of theft of trade secrets in a criminal complaint filed in August in U.S. District Court in Boston. An indictment handed up to the court on Wednesday adds four new counts of wire fraud.

Pani faces a maximum of 10 years in prison if convicted for theft of trade secrets, and up to 20 years on each wire fraud charge. 

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New factory orders fell more than expected in September, marking the second decline in a row, the government announced Tuesday.

The U.S. Census Bureau said orders fell 2.5% to $432 billion in September, a steeper drop than the 0.8% forecasted by a Briefing.com survey of economists.

The month of August was revised to reflect a greater decline, to 4.3%.

The main source of weakness in the report comes from disruptions to refineries due to Hurricane Ike in September and the falling price of petroleum, according to Mark Vitner, senior economist at Wachovia.

"This report is not as bad as meets the eye," Vitner said. "Because refineries were shut down, they couldn’t take orders. Also, the price of petroleum plummeted in September, reducing the dollar values of orders," Vitner said.

According to the report, the value of manufacturers’ shipments for petroleum refineries fell 17.5% in September, following an 8.7% drop in August, and a 0.5% drop in July.

Excluding transportation, orders fell 3.7%, the largest percent decrease since data was reported in 1992.

Shipments fell for the second month in a row, dropping 2.8%, or $12.5 billion, to $432.9 billion. That followed a 3.7% decrease in August. For the year, shipments are up 5.9%.

Unfilled orders are at the highest levels since the the data was reported in 1992. They increased 0.4%, or $3.0 billion, to $829.5 billion, and following a 0 online pay day loans.3% August increase.

That is some cause for optimism, Vitner said. "It’s a very good thing to have a backlog of work, so that even if orders fall off, there’s a back log to keep them operating," he said.

Inventories are down 0.7%, to $558.7 billion, down following four consecutive monthly increases. In August, inventories reported a 0.7% August increase.

Durable goods, which make up more than half of the factory orders report, was revised up to 0.9% from the report issued last week. That brings new orders for manufactured durable goods up $1.8 billion to $207.9 billion, following a 5.5% decrease in August.

The other main component of the report, new orders for manufactured nondurable goods, such as food and tobacco, decreased $13 billion, or 5.5% to $224.1 billion.

In a separate report released Monday, a key index of the nation’s manufacturing activity fell to a 26-year low, sliding into recession territory, according to the Institute for Supply Management.

Last week, the broadest measure of the nation’s economy suffered its biggest decline in seven years. The GDP fell at an annual rate of 0.3%. That compared with a 2.8% growth rate in the second quarter, when growth was boosted by economic stimulus checks and strong exports. 

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It’s almost time to vote. After months of debating the issues, Americans go to the polls on Tuesday to select who they want to serve as the nation’s 44th president.

The election, of course, comes at a critical moment for the U.S. economy — and the next president will play a central role guiding it.

What follows is a sketch of Republican candidate John McCain’s most important proposals for dealing with the financial crisis, housing, taxes, health care and energy. A similar article outlines the proposals of his Democratic rival, Barack Obama. (Click here.)

The next president’s response to the financial and economic crisis will be guided largely by the parameters set in the massive $700 billion financial rescue package passed by lawmakers and signed into law by President Bush in October.

Both candidates voted for that bill, but each also then came out with a flurry of his own proposals to ease the growing strains felt on Main Street as a result of the crisis. McCain’s are primarily tax-focused and aimed at helping cushion Americans in the short-term against the stunning drop in stocks, the anticipated rise in layoffs and troubles making ends meet.

Among the temporary measures he proposed: exempting seniors from having to make withdrawals from retirement savings; reducing the tax rate on any IRA or 401(k) withdrawals they do make; exempting jobless workers from having to pay income taxes on unemployment benefits; and increasing the amount of capital losses investors can claim on their tax return.

As the housing market unraveled over the course of the campaign, the candidates weighed in with a slew of proposals — some of which evolved along with the mortgage crisis.

In March, McCain said, "government assistance to the banking system should be based solely on preventing systemic risk." At the time, he called on lenders to do more for borrowers.

"They’ve been asking the government to help them out," McCain said. "I’m now calling upon them to help their customers, and their nation out. It’s time to help American families."

In October, McCain said $300 billion of the $700 billion federal financial rescue program should be used to buy loans of troubled borrowers and then write them down to affordable levels.

The McCain plan would put the full impact of any losses on the Treasury and none on the lender since the government would simply buy the loans from the lender as is, even if a borrower’s mortgage debt exceeded his home’s worth.

McCain has also called for reform of mortgage giants Fannie Mae and Freddie Mac — two government-sponsored enterprises that the government effectively took over in September. Ultimately, he’d like to see them fully privatized, but in the near-term he wants stronger oversight of the agencies and has supported the government takeover.

He has also proposed creating a task force to assist state attorneys general investigating abusive lending practices and wants more transparency in the lending process loan until payday.

McCain has called for lower taxes for individuals and businesses as a way to spur economic growth and create jobs.

Despite opposing them when first introduced in 2001, McCain has called for all the Bush tax cuts to be made permanent.

In addition, he has proposed increasing the exemption tax filers can claim for dependents.

McCain wants to lessen the bite of the estate tax to a greater degree than his rival and wants to provide the middle class permanent relief from the Alternative Minimum Tax.

The Republican candidate has also proposed having an alternative two-rate income tax system that Americans could choose to use instead of the current one, but the campaign never released any details on the proposal.

In terms of corporate taxes, McCain wants to lower the top corporate tax rate to 25% from 35%.

According to a nonpartisan study of McCain’s tax proposals, every income group, on average, would see a tax cut. But upper-income earners would see the largest breaks under McCain.

McCain’s plan for reforming health care relies heavily on individual choice and the power of the free market. It would not require anyone to have insurance, but it would change the tax incentives for getting it.

Under McCain’s plan, the part of premiums employers pay on behalf of workers would be treated as taxable income to the employee — currently they’re tax-free. But in exchange, he’d offer a refundable tax credit of $2,500 ($5,000 for families) to anyone who buys health insurance, whether at work or not.

The credit would make the health insurance system less employer-centric and give everyone a tax break for getting coverage, not just those with employer plans.

McCain would also let individuals buy insurance plans across state lines to further boost competition in pricing.

He has also called for the creation of a federally subsidized state-administered program to offer coverage for low-income people.

McCain’s energy plan relies on a mix of free-market means, government incentives and a lower corporate tax rate to foster renewable energy.

He favors having a cap-and-trade law to limit carbon emissions. Under McCain’s plan, big energy producers would get their carbon permits for free, rather than pay the government for them. His goal: to let producers hold onto more money to invest in green technologies and reduce emissions by 2050 to a level that is 60% below where they were in 1990.

In terms of nuclear energy, McCain wants to construct 45 new reactors by 2030 to help expand nuclear power production. 

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As six state governors ask Treasury and the Federal Reserve to take "immediate action" to help U.S. automakers, GM’s financing arm says it is wants to become a bank holding company.

General Motors Corp. (GM, Fortune 500) and Chrysler LLC are in talks to combine in order to survive, but financing is one of the biggest obstacles.

On Thursday, GMAC Financial Services said it was holding discussions with federal regulators about becoming a bank holding company.

GMAC is the financing arm of GM, which owns 49% of the company. Cerberus Capital Management LP owns 51% of GMAC.

GMAC said in a statement Thursday it plans to refinance its debt and is in discussions with the Treasury Department, the Federal Deposit Insurance Corp. and other federal regulators.

Meanwhile, GM is lobbying the Bush administration and some members of Congress for $10 billion to $15 billion in aid to help keep the company going and possibly to make the Chrysler deal work. GM could use some of the money to shut down redundant Chrysler operations.

In their letter, the governors of Michigan, Delaware, Kentucky, New York, Ohio and South Dakota reminded Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that the domestic automakers are "particularly challenged" in the down economy and warn that, "as a result, the financial well-being of other major industries and millions of American citizens are at risk."

"The auto industry; their network of suppliers, vendors, dealers and other businesses; and the communities that rely on those businesses face unimaginable challenges - challenges we urge you to help address," the governors wrote. The letter, sent Wednesday, was released Thursday by Democratic Michigan Gov. Jennifer Granholm’s office.

White House spokeswoman Dana Perino said Thursday that the secretaries of the Treasury, Commerce and Energy departments are talking with the automakers.

"We understand that they’ve been facing tough times for a while. They’ve made business decisions that unfortunately have put them in this position. But we also recognize how big the companies are, how many families rely on these companies, and what it would mean for the overall economy," Perino said.

Some industry analysts have said a GM acquisition of Chrysler could cost up to 35,000 jobs nationally and up to 25,000 in Michigan.

A separate analysis released Thursday by Grant Thornton LLP predicted that a GM-Chrysler combination would likely lead to the closure of seven of Chrysler’s 14 manufacturing plants, plus the loss of 12,000 factory jobs and 12,000 administrative ones, some of which already have been announced. An additional 50,000 auto supplier jobs could be lost, it added.

Still, it sees GM’s acquisition of Chrysler as the least painful option, since "if one or the other company were to fail, we would face a much bigger calamity - the collapse of the North American supply base and the potential endangerment of all three Detroit automakers and businesses that depend on them."

Michigan’s governor and senior U.S. senator, speaking at separate events Thursday, said job losses from a merger would hurt the area but would be far worse if Chrysler is auctioned off in pieces or allowed to go bankrupt.

"I certainly support the efforts of trying to get Secretary Paulson to give some federal loans to General Motors so that they can survive," Granholm said.

Sen. Carl Levin said money from the $700 billion set aside to help the financial and credit crunch could help foster a GM-Chrysler deal. The Democrat told reporters Thursday after a meeting with veterans in Port Huron that the purpose of any federal funding is to help a domestic auto industry that’s been battered by the swooning economy creditreports.

"Even without these merger discussions going on, the industry needs an infusion of capital given this economic downturn," Levin said.

GM, Chrysler and Ford Motor Co. (F, Fortune 500) are all having cash troubles amid a sales decline and the slowing global economy, but industry analysts consider Chrysler and GM to be in the worst shape.

GM is burning through more than $1 billion per month and is working to cut $10 billion in costs and raise another $5 billion through asset sales and borrowing, but analysts have said the company could reach the minimum cash levels required to operate sometime next year.

Chrysler is in such bad shape, analysts say, that it could go into bankruptcy next year if it doesn’t take on a partner or isn’t acquired by another automaker.

The mayor of Warren, Michigan’s third-largest city and home to the GM Technical Center, worries what consolidation will mean for Michigan, particularly southeast Michigan.

"If they merge it’s bad. If they don’t, it could be equally bad," Jim Fouts said, noting that the job losses "could have a catastrophic, devastating, potential tsunami effect upon the whole area. … It would be like a 10 on the Richter scale if that thing happens."

Fouts is among the local officials invited to a Friday morning meeting with state economic development officials to continue discussions on what the possible combination of two of the three domestic automakers, all headquartered in Michigan, would have on the state.

"We’ve already had discussions with county officials, education officials, those involved in economic development and work force development," Granholm spokeswoman Liz Boyd said Thursday. "This is all part of that effort to make sure everyone is at the table."

Additional tax breaks for the automakers may be among the options discussed. Warren gets $8 million a year in property taxes from GM and $4 million from Chrysler because the GM Tech Center, a GM powertrain factory and a Chrysler plant that makes the Dodge Ram pickup truck are within its boundaries.

Combined, that represents around 15% of the Warren city budget. Fouts is open to additional concessions.

"If … we have to give them add financial inducements, then so be it," he said.

Fouts said Michigan Economic Development Corp. officials wanted to meet as soon as possible with local leaders, which led him to conclude that a development may be coming soon. But Boyd said the governor and her administration don’t have any indication that a deal is imminent.

"We have no more information than we had yesterday … or the day before," Boyd said.

Speaking to reporters Thursday morning, Granholm mentioned the letter but spoke mostly about preparing state and local officials to help laid off workers with job training and other assistance.

"The question is, can we, as a state, support a smaller auto industry, but a healthier auto industry. And ultimately, we will. We’re going to be all right as a state," the governor said. "But we’ve got to deal with the fallout from people who have been laid off."

The prospect of more lost jobs is bad news for Michigan, which had the nation’s highest average annual unemployment rate in 2006 and 2007 and leads the way so far in 2008. The state’s September unemployment rate of 8.7% was second only to Rhode Island’s 8.8%.

GM shares fell 69 cents, or 10.2%, to $6.07 Thursday. Ford shares rose 12 cents, or 5.6%, to $2.28. 

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Are well-intentioned but misguided accounting rules intensifying the financial crisis?

Those who think so will get a chance to make their case Wednesday, when a Securities and Exchange Commission roundtable explores the role of so-called mark-to-market accounting in the market meltdown of the past year.

Mark-to-market, or fair-value, accounting requires firms to value securities they hold at market prices, rather than the price at which they were purchased or some other value. Regulators put the rules in place to keep companies from hiding losses.

Proponents say only full disclosure will satisfy markets that have gone from skittish to terrified over the course of the past year. "Investors have been clear: they want to see the current fair values of a company’s financial assets," Robert Herz, chairman of the Financial Standards Accounting Board, said in a speech last month in New York.

Critics of mark-to-market say that while it is workable in deep, liquid markets such as those for NYSE-listed stocks, it can actually exacerbate problems for firms holding the complex, rarely traded securities at the heart of the current mess.

When markets are thin or buyers hard to find, these critics say, sticking to mark-to-market can force a bank to write down the value of illiquid assets below the actual cash payments those assets stand to produce over time.

The writedowns can deplete capital - the cushion banks hold against possible losses - and force them to raise new money at disadvantageous terms. That action can send their shares down further, creating more turmoil in markets and potentially leading to more writedowns.

"What mark-to-market did was accelerate all the bad stuff," says Vinny Catalano, president of investment strategy firm Blue Marble Research. "It turned a bad situation into a horrible one."

William Isaacs, a former chairman of the Federal Deposit Insurance Corp., will be among the participants at the SEC hearings Wednesday. He has been among those calling for the repeal of the mark-to-market rules, saying they have led to a $5 trillion reduction in lending by U.S. financial firms.

Isaacs reasons that $500 billion of unnecessary writedowns have wiped out the same amount of capital, which has slashed lending by much more because banks typically lend out $10 for every dollar of capital they hold.

The SEC began studying the accounting matter earlier this month, after Congress called for an investigation of the question as part of its passage of the Emergency Economic Stabilization Act. The agency, which is due to report back to legislators by early January, has opened the issue up for public comments, many of which criticize perceived shortcomings in mark-to-market one hour loans.

"The impact of mark-to-market accounting during this very illiquid market has caused long-term investors that are focused on fundamentals to become speculators that see asset valuations in a MTM ‘death spiral,’" writes Jason Ziegler of Highland Capital Management, a Dallas-based hedge fund that invests in real estate and other assets, in a public comment on the SEC’s mark-to-market study Web site.

"The current accounting standards never anticipated the wide variance and price disconnects that we are experiencing today," American Bankers Association President Edward Yingling wrote last month in a letter to SEC chief Chris Cox, "and there needs to be a more appropriate and accurate measure that approximates the fair value."

Of course, many opponents of the fair value rule have an ax to grind: They believe fair value writedowns are making banks they invest in or work with look less healthy than they really are.

And any policy change that seems apt to get banks lending again is naturally a popular one right now, as the U.S. heads for what is shaping up as the worst recession in almost three decades.

"The pressure on the SEC and the FASB is intense," says Catalano. "This thing has become a real political football."

Still, the public comments filed with the SEC show that even some observers who like the mark-to-market concept believe changes are appropriate.

William Waller, an accounting professor at the University of Arizona, suggests in a public comment filed last week with the SEC that the agency suspend mark-to-market when it comes to balance sheet valuations, while forcing companies to continue posting their mark-to-market values in footnotes. Doing so, he writes, will result in satisfactory disclosure while making banks "less prone to take suboptimal steps to meet capital requirements."

Waller says in an interview that he would typically endorse the mark-to-market rules as they exist. But with markets melting down and the economy heading into a recession, the risks that accounting rules are imposing unnecessary capital constraints on lending institutions can’t be overlooked, he says.

"The economic consequences make this a tough call," Waller says. "This has been an extraordinary period." 

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Anxiety about a worldwide recession made credit even tighter Friday, as banks and companies opted to hang on to their cash rather than risk lending money out.

With confidence waning, investors poured funds into U.S. Treasurys, hoping to find a safe place for their money.

At one point Friday, the yield on the 30-year bond sank to its lowest level in its 31-year trading history, to as low as 3.87%. Other government bonds also rose, sending the 3-month bill’s yield below 1%.

"People are becoming worried about the economic costs of the credit crisis," said Steve Van Order, chief fixed income strategist at Calvert Funds. "Fears are spreading around the globe."

For the past two weeks, central banks around the globe have attempted to stimulate confidence in investors and financial institutions by encouraging lending. They have taken measures to lower interest rates and directly inject capital into the banking system.

However, signs that economies around the world are sinking into a deep, prolonged recession have renewed worries. The British economy appeared to be on the brink of recession Friday, as economic output in the United Kingdom declined for the first time sine 1992.

Lending: Short-term lending rates rose for the second straight day. The overnight Libor rate edged up to 1.28% from 1.21% the day before, according to Bloomberg.com. Libor is a daily average of what 16 different banks charge other banks to lend money in London.

The overnight bank lending rate had been steadily declining for nearly two weeks from nearly 7% after the signing of the bailout package. Despite its recent rise, it still remains below the rate that federal banks charge other banks - which is generally viewed as an encouraging sign for the credit markets. The federal funds rate stands at 1.5%.

But with central banks taking such an active role in stemming the credit crisis, rates will likely continue their drop.

"Rates will continue to come down, because the central banks’ tools will work," said Van Order. "But the central banks have taken over so much control, that it will require them to stay heavily involved for the long haul in order to achieve overall stability."

Longer-term rates actually fell very slightly, yet lending still remained tight. The 3-month Libor fell to 3.52% from 3.54% on Thursday, according to Bloomberg. The 3-month rate has fallen steadily for two weeks since it surged to just below 5% on Oct. 10 - a 10-month high. The rate was under 3% before the recent credit crisis took hold in mid-September http://payday-z.com.

Market gauges: Two key indicators of risk sentiment showed confidence in the market was falling.

The "TED spread" rose to 2.64 percentage points from 2.53 points Thursday. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk.

The higher the spread, the more unwilling investors are to take risks. The spread was 1.21 percentage points before the credit crisis and reached a record high of 4.65 points a little more than a week ago.

Another indicator, the Libor-OIS spread, edged higher to 2.61 percentage points from 2.51 points Thursday.

The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The bigger the spread, the less cash is available for lending.

Treasurys soar: Government debt prices were mostly higher Thursday, as global stocks plummeted. Investors tend to flock to Treasurys in times of economic uncertainty because the safety of lower returns offsets the risks of more lucrative equities.

The benchmark 10-year note rose 2/32 to 102-21/32, and its yield fell to 3.68%. Bond prices and yields move in opposite directions.

The 30-year bond gave up earlier gains to end the day nearly flat from the previous day, at 107-22/32, with a yield of 4.05%. Earlier in the day, prices rallied with the yield dipping below 3.90% for the first time since the 30-year began trading in 1977.

The 2-year note rose 7/32 to 100-31/32, and its yield fell to 1.50% from 1.59% late Thursday.

The yield on the 3-month bill fell to 0.88%, down from 0.94% on Thursday.

The yield on the 3-month Treasury bill is closely watched as an immediate reading on investor confidence. Investors and money-market funds shuffle funds into and out of the 3-month bill frequently, as they assess risk in the rest of the marketplace. A higher yield indicates that investors are slightly more optimistic.

But with so much government action to boost the markets, bonds may not rise much beyond their current levels.

"With all the liquidity injections and moves to prop up the money markets, we’re not going to see yields fall much further," said Van Order. "If you believe the Fed is going to cut rates to 0%, then we could see yields really come down and the 3-month bill around 0%." 

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Recession fears and expectations of sharp interest rate cuts by central banks in Europe sent the dollar soaring against the euro and the pound Friday, but the U.S. currency tumbled against the yen.

The euro fell 1.2% to $1.269 early in the session, but had dropped as much as 3% versus the dollar after the United Kingdom reported the first decline in economic production since 1992.

The British pound also tumbled, collapsing nearly 7% versus the dollar to $1.52, marking the biggest intraday decline since exchange rates became freely floated in 1971. But the pound had recovered by late morning in New York to trade down 1.1% at $1.7583.

Rate cuts on horizon? The British government reported that nation’s gross domestic product, the broad measure of economic activity, fell 0.5% in the third quarter, and British treasury chief Alistair Darling vowed to do what was necessary to support the economy there.

Traders are expecting that the Bank of England and European Central Bank will have to make sharp interest rate cuts in the weeks and months ahead, much steeper than the cuts still available to policymakers with central banks in Japan and the United States.

The key benchmark interest rate of the Bank of Japan is 0.5%, and the U.S. Federal Reserve has already cut its fed funds rate to 1.5%. Meanwhile, the ECB’s benchmark rate stands at 3.75%, while the Bank of England’s rate is 4.5%.

Yen boost: The best performing major currency was the yen, which drove the dollar to a 13-year low of ¥91.10. By late morning in New York, the dollar was trading at ¥93 http://full-free-credit-report.com.18.

The yen was driven higher by equity losses around the globe as investors lost confidence in the world economy. Investors often borrow yen to fund investments in higher-yielding currencies, such as the euro or the pound. When those currencies weaken, and investors reverse their positions, they are forced to buy back the yen, raising its value.

Investors also tend to buy into the yen as a defensive risk-aversion move.

Global stock markets were taking a beating Friday as spooked investors moved quickly to shift assets out of risky equities into perceived safe havens, like the dollar and yen.

"When the stocks are falling across the board and there is a big loss in risk appetite, the dollar rises. So does the the other low yielding currencies like the yen," said Ashraf Laidi, chief foreign exchange strategist for CMC Markets.

"There’s nothing fundamental about any of this," said David Kelly, the chief market strategist for JPMorgan Funds. "What we’re seeing is forced selling by some institutions. One of the ways of looking at what is going on is a mirror image of three to four months ago."

Laidi and Kelly both said those who bet against less expensive currencies like the dollar and the yen earlier this year, seeking higher returns in other currencies, are now forced to unwind those positions. 

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The International Monetary Fund on Wednesday issued a gloomy economic outlook for the United States and the Western Hemisphere, saying U.S. economic growth will be close to zero or even slightly negative for the rest of 2008 and the following few months.

In a new report that uses data from as recent as mid-October, the IMF projects economic recovery in the United States will not begin until the second half of 2009, and will be more gradual than previous recoveries because of the exceptional nature of the asset price adjustments taking place.

In Canada, growth for 2008 will be about 0.3% but is projected to rise to 1.7% for 2009. The report says Canadian banks have weathered the financial crisis fairly well because of more conservative regulation and less reliance on toxic investments.

Overall, the IMF says, growth in the advanced economies as a whole will also be close to zero at least until the middle of 2009.

The IMF now projects a major downturn for the global economy, with growth falling to its slowest pace since the 2001-02 recession as a result of the ongoing credit crisis, along with extremely volatile commodity markets worldwide check cash advance.

The report suggests the massive and increasingly coordinated action of major industrialized countries will ultimately be successful in stabilizing the world economy, but that recovery will not be speedy.

For other areas of the Western Hemisphere, the IMF describes the combination of negative shocks as a "negative feedback loop," meaning that the freeze in global credit markets, weaker external demand, and lower commodity prices are combining to make each of those factors even more painful.

Even with those factors, however, the IMF projects that Latin America and the Caribbean regions will grow at a 3% rate - about average for emerging markets worldwide.

Nevertheless, for countries that have been growing much faster than that, economic conditions will feel much more sluggish. Lower commodity prices will be the significant dampener for these emerging economies that have benefited from higher prices in recent years. 

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The credit markets are showing some tentative signs of defrosting, and shares of several big banks were up Monday morning.

But it’s not all puppies and sunshine in the world of high finance.

Wall Street is turning its gaze to another troubled industry in the financial-services sector: life insurers.

Shares of Prudential Financial (PRU, Fortune 500) sank like - I can’t resist this - a rock on Monday after Goldman Sachs analyst Thomas Cholnoky downgraded the insurance giant to "sell." The stock fell nearly 9% late Monday morning before bouncing back a bit later in the day.

Cholnoky also downgraded shares of MetLife (MET, Fortune 500), to a "neutral" rating. The stock fell about 3% in the morning before rallying in the afternoon. Shares were up about 2% in mid-afternoon trading.

The downgrades initially pushed down the shares of many other life insurers as well. Principal Financial Group (PFG, Fortune 500) was down more than 4% Monday morning but inched slightly higher in the afternoon and Hartford Financial Services (HIG, Fortune 500) sank about 7% in the morning before also climbing into positive territory.

In his note, Cholnoky wrote that "widening credit spreads and a deteriorating mortgage environment are likely to weigh on life insurance company balance sheets for the foreseeable future."

But other analysts who follow the sector said there was not much new news to justify Monday morning’s selloff.

The insurers have already warned of weak results to come, these analysts say, and the stocks have already plunged as a result.

"The companies, for the most part, have reported they expect to take writedowns because of investments in troubled financial services firms whose names we all know," said Steven Schwartz, an insurance analyst with Raymond James.

Randy Binner, an analyst with Friedman Billings Ramsey, agreed, noting that shares of major life insurers are down some 50%. "The most important trend for the group is the credit exposure. But credit has been an issue for the whole year so it would appear to be already priced into stocks," Binner said.

Many of these firms also held stocks and bonds of failed or floundering financial firms, such as Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500), Lehman Brothers, Washington Mutual and AIG (AIG, Fortune 500).

The life insurers have been hit hard by their bad bets. And some have been forced to raise more capital. MetLife announced earlier this month that it planned to sell about $2 billion’s worth of stock while Hartford is receiving a $2.5 billion investment from German financial firm Allianz payday advances.

One analyst points out that investors seem to be worried that the life insurers will need even more cash to ensure that credit-rating firms like Moody’s and Standard & Poor’s don’t downgrade their debt.

"There are concerns over capital raising and questions over whether current levels are sufficient to maintain rating agency ratings and weather the current crisis," said Mark Finkelstein, an analyst with Fox-Pitt Kelton Cochran Caronia Waller.

"The rating agencies do appear to be putting more scrutiny on the group," Finkelstein added.

Still, Binner thinks that several of the insurer stocks, particularly MetLife and Prudential, have been dramatically oversold. And Schwartz said that despite the problems facing many life insurers, he did not expect any of them to fail or wind up in bankruptcy.

That remark appeared to be a jab at Senate Majority Leader Harry Reid (D-Nev.), who helped spark a sector-wide selloff earlier this month after cavalierly suggesting that a major insurer was on the verge of going bankrupt if Congress did not act to pass the bank bailout bill.

If anything, Schwartz said that life insurers might seek to take advantage of the turmoil in the sector and scoop up parts of AIG, which is expected to sell off many assets to pay off the $85 billion it borrowed from the Federal Reserve.

AIG bought SunAmerica in 1998 and American General in 2001, for example, and Schwartz said they both have "attractive life insurance policies."

Binner added that he also wouldn’t be surprised if the big life insurers wind up purchasing parts of AIG. In addition, he said there may even be some big mergers as well. As such, there were reports a few weeks ago that indicated MetLife and Hartford held some preliminary merger talks.

"These companies’ main businesses are life insurance and annuities. They are all consumer focused so it makes sense to have economies of scale," he said.

But Schwartz isn’t as sure that huge deals are in the cards. He conceded that a merger could lead to greater efficiencies at a time when cutting costs is paramount.

However, raising capital is the biggest concern right now for most insurers. So a combination of two companies that each face that challenge might not make sense.

"I’m not sure what merging two insurers does to shore up their balance sheets. If there are two holes, there’s going to be one hole that’s going to be bigger," he said.  

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