Today's TIDBITS

Comments on Mortgage Bail-Out Plans

From Bloomberg: “U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets. ``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' … ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.'' Paulson's remarks are an acknowledgement that the pitch he

made to Congress for the bailout hasn't delivered what was promised. Paulson sold the rescue plan as a way to rid bank balance sheets of illiquid mortgage assets, and he may encounter resistance from Congress for the remaining $350 billion in TARP funds after using most of the first half to buy bank stakes.”

From RBSGC: “Paulson has abandoned buying troubled mortgage assets under TARP. Exactly who gave him the right to change the plan? We don't doubt there are compelling reasons Treasury has changed course -- injecting capital rather than simply buying assets -- but if you were in Congress you might feel a bit duped that the approved half of the $700 bn bailout wasn't used for what you voted for. And you might be a bit more cautious in approving the second half. We're probably missing a point and obviously(?) Paulson had absolute authority to do with the money as he pleased. Indeed in this environment the extreme and untested becomes the norm, so this may be why the market took his decision in stride ("headline fatigue" according to one friend). Still, something doesn't sit well…”

From FTN: “The White House has a new plan to modify mortgages using Fannie and Freddie. Some mortgages will be modified so that payments are no bigger than 38% of income. Participation by mortgage holders in the plan will be voluntary, as Treasury is unwilling to violate the contracts under which mortgages were bundled and sold. Loan servicers would be paid $800 for every modified loan to cover administrative costs. The program will be open only to borrowers who owe more than 90% of the value of their house, who are not in bankruptcy and who are 90 days behind. These are similar to the HOPE for Homeowners plan, which to date has helped only a handful of people…the positive market reaction to the announcement may be misplaced, not only because it is near-impossible to construct an effective bailout for homeowners without encouraging new foreclosures and undermining mortgage contracts, but also because house prices are not going to rebound even when foreclosures stop. Much of the house price appreciation during the boom was speculative and will not return. The announcement was met with immediate criticism from FDIC head Sheila Bair, who said the plan does not go far enough. Bair is said to be on Obama’s shortlist for Treasury Secretary, in part because she has pushed the Bush White House to be more generous with loan modifications. Bair wants to use $40 billion of TARP money to refinance homeowners into cheaper loans. The Treasury is opposed to the idea, because it would encourage more foreclosures. Barney Frank wants to rewrite loan contracts to make modifications easier. Others think bankruptcy judges should be allowed to forgive a portion of mortgage principal and modify mortgage rates. Treasury warns that these changes would boost mortgage rates on all new loans, because they undermine the collateralization of loans. A semi-collateralized mortgage loan would presumably be financed at a rate closer to the rates for uncollateralized debt, like credit cards.”

From Deutsche Bank: “The FHFA Loan Modification program aims to change the payment through 3 ways - reducing the interest rate, extending the life of the loan or deferring principal payments. While previous agency loss mitigation methods were focused on not having to buy loans out of MBS, under conservatorship capital issues are minimal. While details are not completely clear, the loan mods may require loans being bought out of MBS, and could increase prepayments. The expected implementation date of Dec 15th implies that changes could be imminent. Note that Freddie Mac estimates a 60% workout possibility for troubled borrowers, so the impact is likely to be large. We estimate that Fannie Mae's existing Homesaver program (which involved loss mitigation without having to buy out loans) was responsible for about $12 bn workouts for Q308. Prepayments totaled $40.6 bn for fixed rate mortgages; troubled loans are thus significant in size. Moreover the total increase in non performing loans was about $18 bn, so the workouts appear to be a significant portion of this figure.”

Expect More Discussion than Resolution of Financial Woes at G20 Meeting

From AP: “World leaders are heading for a clash of expectations at this weekend's summit on the global economic crisis. Europeans are looking urgently for broad changes and tighter universal banking regulations…President-elect Obama, the leader who soon will assume the job of trying to keep the U.S. economy from capsizing, won't even be at the table. Saturday's 20-nation gathering will include leaders of the Group of Eight big industrial democracies - the U.S., Japan, Germany, France, Britain, Russia, Canada and Italy - as well as other major economies, including China, India, Brazil, Saudi Arabia and Australia….Bush convened the emergency session after receiving heavy pressure from Sarkozy …It is to be the first of a series of such gatherings to map out a coordinated response to the world's worst financial crisis in decades, one that began with losses in U.S. housing markets and quickly spread overseas…The summit offers Bush what may be a last chance on the world stage to move beyond a legacy of war emergencies and bank bailouts by helping to launch what he called a possible new framework for "democratic capitalism." But he warned that it should not come at the expense of "free markets, free enterprise and free trade."…"I'm not sure that even an Obama team wants to see the United States' style and method of capitalism and financial markets converted. We value our flexibility here, and I don't think we're willing to capitulate to as much regulation as the Europeans are suggesting, particularly the French." Stakes are high for the summit, even if chances for real progress are tenuous. With international investors already spooked, any perceived failure at the summit could send world markets tumbling anew… Obama is interested in the meeting and thinks it is a good idea. But…"there's only one president at a time, and we will stay up to date and briefed on what's going on but will not be a participant." That also keeps Obama from being tarnished by a less-than-successful summit or from having a hand in proposed solutions that don't pan out.”

From Bloomberg: “President-elect Barack Obama named former Secretary of State Madeleine Albright and former Republican Representative Jim Leach as his emissaries at the international economic summit in Washington. Albright and Leach will be available for unofficial meetings with representatives of industrial and emerging countries who

will be at the summit …The meeting is being held to coordinate government responses

to the worst financial crisis in 80 years. European leaders including French President Nicolas Sarkozy and British Prime Minister Gordon Brown have called for restructuring the international regulatory system to deal with the credit crisis. They will consider steps ranging from raising bank-capital standards to regulating hedge funds…the Bush

administration views the Obama team's participation appropriate and welcome.”

From Nikkei: “Japan is willing to tap its foreign exchange reserves to provide … yen to the International Monetary Fund in order to help the organization boost emergency loans to emerging countriesime Minister Taro Aso is to make the proposal at the global financial summit that will take place between leaders of the Group of 20 industrialized and emerging nations starting Friday in Washington…Japan hopes to contribute to stabilizing the global economy by supporting aggressive lending by the IMF. Under the draft proposal, Japan will offer to lend part of its foreign exchange reserves of 980 billion dollars…so that the IMF can smoothly procure money should it experience a shortage of funds. Although the amount is still undecided, the maximum is expected to be about 10% of Japan's foreign exchange reserves. At the summit meeting, Japan plans to call on other countries with ample foreign exchange reserves, such as China and Middle Eastern oil-producing nations, to provide funds as well.”

CFTC Chairman Proposes New Regulatory System

From AP: “The head of the federal agency that oversees commodities trading wants to replace it and the Securities and Exchange Commission with three new regulators to better deal with an increasingly complex financial system. "I believe the United States should scrap the current outdated regulatory framework in favor of an objectives-based regulatory system consisting of three primary authorities: a new systemic risk regulator, a new market integrity regulator and a new investor protection regulator," said Walter Lukken, acting chairman of the Commodity Futures Trading Commission. The CFTC oversees futures and options trading in commodities, including oil, natural gas and agricultural products…The new systemic risk regulator "would have the responsibility of policing the entirety of the financial system for 'black swan' risks" and would take preventive action in those cases, he said…. the House and Senate may form a special joint committee to draft the most sweeping changes to the financial regulatory system since the 1930s….unregulated corners of the industry, such as hedge funds and derivatives, could be subject to federal regulation for the first time. So could insurance companies, which are now supervised only at the state level. Industry lobbyists are seeking to use the overhaul to streamline what they see as overlapping regulators that operate on outdated distinctions among commercial banks, thrifts and investment banks….Under that plan, the Federal Reserve would take on the unwieldy role of ultimate cop in charge of financial market stability. Other agencies, such as the market watchdog SEC and the CFTC, would see their influence diminished. Some experts have expressed concern about concentrating too much power at the Federal Reserve while also streamlining or consolidating the duties of other regulators, saying that a safety net of checks and balances could be lost. Lukken said that under his scheme the new market integrity regulator would oversee the safety and soundness of key financial institutions, including exchanges, investment firms and commercial banks, while the new investor protection regulator would oversee business conduct across all firms in the marketplace.

Such a setup would focus on financial risks at all levels and would be "a radical departure" from the current regulatory structure, he said.”

China Focusing on Domestic Economy

From AP: “Preparing for a Washington summit to discuss a response to the global financial crisis, China indicated Tuesday its focus will be its own economy - not paying to bail out others…Beijing made the outlines of its strategy clear with the announcement of a multibillion-dollar package to stimulate its economy with more spending on construction, tax cuts and social programs, with no mention of efforts abroad… a Chinese Foreign Ministry spokesman said Beijing's priority is to "put our own house in order" and ensure domestic stability. "I believe this is the most effective contribution China can make to tackling this financial crisis. It will help to maintain the sound and steady development of the world economy," …Beijing was ready to make "concerted efforts" with other governments but gave no indication what that would include…the government says its resources are limited and it has to focus on domestic economic challenges.

Chinese leaders are alarmed at a sharp drop in economic growth, which fell to 9 percent in the most recent quarter. That is the highest for any major economy, but below last year's 11.9 percent and dangerously slow for a government that needs robust growth to satisfy a public that has come to expect steadily rising incomes. On Tuesday, the government's challenges were highlighted by the release of trade data that showed growth in foreign sales fell in October, adding to damage for struggling exporters that already are suffering from weak foreign demand. China's global trade surplus rose to a new monthly high of $35.2 billion but that masked a slowdown in export growth. Exports rose 19.1 percent - down sharply from July's 26.9 percent before the slowdown hit in earnest. Import growth also fell sharply, reflecting weakening domestic demand. The politically sensitive trade gap with the United States widened by 13.6 percent to $17.5 billion, according to the national customs agency. But its figures showed the global surplus for the first 10 months of the year is only about 1 percent bigger than for the same period last year. A downturn in export orders already has led to layoffs and factory closures….The government has tried to reduce China's reliance on exports by encouraging its own consumers to spend more. Retail sales are growing at annual rates of more than 20 percent but are still small as a share of the economy. Exporters and the companies that supply them employ tens of millions of people. Weaker demand for Chinese goods is expected to cause economic ripples to spread worldwide as China's manufacturers buy less imported factory machinery, industrial components and raw materials such as steel made with foreign iron ore. In a positive sign, the government reported Tuesday that October's inflation rate eased to 4 percent, down from September's 4.3 percent. That will ease the risk of new price rises as Beijing tries to boost growth by pouring money into the economy. The 4 trillion yuan ($586 billion) stimulus plan includes higher government spending on airports, highways and other projects, tax cuts for exporters and more aid to farmers and the poor. … The government has promised more bank lending for small businesses and consumers.”

From CITI: “At least the Chinese consumer doesn't appear to be slowing faster than expected. On the assumption that the data is accurate, the latest retail sales data show a 'slowing' in the annual pace of sales to 22% YoY in October from 23.2% in September. Note that this data was recorded before the recent announcement of the latest fiscal package.”

From MNI: “Actual foreign direct investment (FDI) in China in the first 10 months totaled 81.096 bln usd, up 35.06 pct year-on-year, the commerce ministry said.”

From Barclays: “…China is predominantly an importer of grains (and was a net importer of all agricultural commodities in September’s trade data)..”

From Euro Pacific Capital: “Asian markets were initially energized by China's announcement of a near $600 billion economic stimulus package for its own economy. Although I have never been a fan of government-fueled stimuli, the relative wisdom of the plan hinges on the source of funds the Chinese government decides to utilize. Their best choice would be the country's nearly $2 trillion in foreign reserves, the largest portion of which is held in U.S. Treasury and agency debt. This pile of dollars, which really amounts to no more than a subsidy for U.S. consumers, does nothing to benefit Chinese citizens. If it does decide to employ this ocean of cash, China will become a net seller of U.S Treasuries just as the U.S. Government itself will be pushing up its issuance of new Treasury bonds into record territory. With two huge sellers and few major buyers (just about every major creditor nation having problems of their own), the Federal Reserve will become the only reliable customer. As a result, not only will the Fed monetize our own economic stimulus packages, but will be forced to provide the same service to the Chinese. Most economists feel that China will maintain the status quo by borrowing or printing the funds for their own stimulus while continuing to hoard its trillions of existing U.S. dollars. Most also believe that the Chinese will substantially increase their dollar holdings in order to finance America's never-ending string of bailouts and its ballooning Federal deficit, which is soon to pass $1 trillion annually. These optimists are in for a rude awakening. The Chinese cannot follow such a course without unleashing intolerable inflation at home. Selling down their vast reserves of U.S. debt and using the proceeds for domestic infrastructure projects (or anything else for that matter) is a vastly superior stimulus mechanism than "lending" to Americans so we keep "buying" their products. When Chinese authorities finally figure this out the United States will suffer the consequences.”

Politics and Stocks

From Merrill Lynch: “…the stock market tends to perform slightly better under Democratic administrations than under Republican administrations. They examined the record back to 1932, and found that the stock market appreciates roughly 47% during the four years of a Democratic President (or about 10.1% per year) versus about 29% during a Republican President’s four-year tenure (about 6.6% annually). The calculations include President Bush’s current term to date… The time period used in a study can affect the absolute returns cited above, but all findings seem to support the notion that the stock market performs better under Democratic Presidents than under Republican ones. For example, Brian Belski (Chief US Sector Strategist) looked at performance back to 1921 and found that the S&P 500 rose 8.9% under a Democratic President versus only

3.8% under Republican leadership. Brian points out that the performance spread in the year after an inauguration is particularly dramatic. The S&P 500 historically rose about 21% during the 12 months after the inauguration of a Democratic President versus -6.4% during the first year of a Republican Presidency.”

MISC

From Bloomberg: “Harvard’s Feldstein…says “we’re just at the beginning” of U.S. recession…sees U.S. unemployment rate going to 8% or higher…”

From S&P: “Standard & Poor's Ratings Services is evaluating whether the guarantees of qualifying debt of U.S. banks, thrifts, and their holding companies under the Federal Deposit Insurance Corp. (FDIC) Temporary Liquidity Guarantee Program (TLGP) should be seen as equivalent to a rating substitution, which would permit us to rate the debt at the 'AAA' rating of the U.S. government… it is uncertain whether the FDIC's payment of interest and principal under its guarantee would have to be made on a timely basis… although the FDIC guarantees the ultimate repayment of guaranteed debt, there appears to be a potential for a significant delay in payment beyond the terms specified in the debt, even though ultimate repayment is expected. Accordingly, in our view, the program would result in, at most, limited rating elevation for guaranteed obligations. Unless the current proposal is amended to provide a guarantee of timely payment of interest and principal, we would be unable to rate the debt of financial institutions qualifying for the FDIC guarantees at the 'AAA' rating of the U.S. government.”

From FTN: “American Express, which was granted Bank holding Company status over the weekend, has requested $3.5bn in capital from TARP. But TARP itself may need some help. CNBC this morning was talking about “a rescue plan for the rescue plan.” Paulson says he wants to use $250bn for bank capital infusions and the rest for buying mortgages. But Treasury is burning through that first $250bn faster than expected, and some economists expect as much as $450bn in further capital losses. $250 billion may not be enough. Treasury may be addressing that reality in its latest TARP-related announcement that new applicants for capital may have to bring private-sector matching funds to the table. This would stretch the TARP capital further. Also, Neel Kashkari, who oversees the TARP program, apparently used his entire 30 minute time slot at SIFMA’s TARP conference to talk about the bank capital plan. When asked about using TARP to buy mortgages, he said it was up to Secretary Paulson if and when TARP would be used to buy securities.”

From Bloomberg: “General Electric Co. said the U.S. government agreed to insure as much as $139 billion in debt for lending arm GE Capital Corp., the second time in a month it has turned to a federal program designed to help companies during a global credit crunch. Granting GE Capital, which isn’t a bank, access to a new Federal Deposit Insurance Corp. program may reassure investors and help the unit compete with banks that already have government protection behind their debt…”

From Barclays: “It was just a month ago that global stock markets ended one of the worst weeks in history. On 10 October, the S&P500 ended the week at 899, while yesterday it closed at 898, unchanged over the month but with wild swings of ±10% in the interim. The initial stages of financial market stabilisation appear to be materialising. However investors remain extremely risk averse. Our equity risk indicator suggests that sentiment remains exceptionally weak with the probability of an equity market sell-off standing at 82%, little changed from the previous month's 81… investors remain sceptical after the raft of financial support packages, it seems that the next phase will require clarity over global fiscal packages before sentiment can improve enough to provide a floor for equities.“

From BMO: “With nearly 90% of S&P 500 companies reporting Q3 earnings, results are on pace for a 17% y/y drop, marking the fifth consecutive quarter of declining year-over-year earnings—that matches the length of the 2001 earnings recession.”

From The Financial Times: “The global economy is entering a slowdown of epic prop­ortions comparable with the period after the 1929 crash, John Thain, chairman and chief executive of Merrill Lynch, warned on Tuesday…Mr Thain also said the economic problems afflicting the US, where housing prices and other asset values were falling, would wreak havoc across the world. “There is no such thing as decoupling,” he said, referring to the popular theory that emerging markets could sustain reasonable growth even while the world’s leading economies suffered recessions. “All equity markets are linked. Each individual economy will be more or less affected, depending on reliance on global trade and commerce.””

From CITI: “More recession signs in the data this morning, even if it was broadly as expected. Euro area industrial production fell -1.6%mom in Sept (cons -1.8%) while UK unemployment rose again in October (+36.5k) at a similar pace to September (+36.3k) but marginally less than the consensus expectations of 40k. Separately, Spanish inflation fell as expected to 3.6% YoY in October from 4.5%, reinforcing our view that euro area inflation in on course to return to target relatively quickly.”

From Merrill Lynch: “Not only are holiday shoppers telling pollsters they will be spending less this season, but they also intend to be spending their hard-earned cash on more practical items such as clothing rather than pricey discretionary items such as

iPods and Xbox, according to a report in this week's BusinessWeek. Some parents are going one step further to the practical side and giving savings bonds.”

From Merrill Lynch: “Container traffic at US ports is on track to shrink 7.1% in 2008, to the lowest since 2004, according to Port Tracker. This is a scaled back estimate from last month and is driven by a vastly more pessimistic retail sales outlook into year end.”

From Merrill Lynch: “In a strange turn of events, National Wholesale Liquidators, a company that specialized in purchasing odd-lots of brand name manufacturers, filed for

bankruptcy protection -- a company that should be benefiting from the US consumers’ trend towards getting small. If a company that specializes moving in severely discounted merchandise cannot make it in this tight retail market, it bodes very ill for full-price retailers, in our opinion.”

From FTN: “Pressure is mounting for an auto bailout…Pelosi wants to use TARP money, but a second, stand-alone bailout plan may be drawn up instead. Critics say the Big Three should be allowed to go into bankruptcy, which would free them from pension and healthcare liabilities. But Obama and Pelosi, both friends of the UAW, are opposed to any solution that would hurt auto workers. If the Big Three were to close their doors outright, it would cost as many as 1 million auto workers and auto parts workers their jobs, taking the unemployment rate to 9.5% or so. But freeing the companies from their pension and healthcare obligations would immediately level the playing field with other car makers.”

From The Financial Times: “Harvard, the world's wealthiest university, is considering spending cuts in the face of possible "unprecedented" losses to its endowment earnings…."We must recognise that Harvard is not invulnerable to the seismic financial shocks in the larger world," Ms Faust wrote. "Our own economic landscape has been significantly altered."…Harvard's endowment before the economic crisis was nearly $37bn....Ms Faust did not say exactly how much the endowment had lost recently, but she cited a Moody's projection of a 30 per cent drop in the value of college and university endowments this fiscal year. For Harvard, that would translate to an $11bn loss.”

From Merrill Lynch: “The need for substantial fiscal stimulus on top of monetary and financial stimulus has some investors worried about inflation. They have suggested that the US is “printing money” and, as a result, inflation is on the horizon. A basic economic rule of thumb is that money growth alone is unlikely to fuel inflation. The fuel for inflation is the combination of monetary growth and credit growth. Right now, credit growth is dormant even though the monetary aggregates are expanding. That suggests to us that, despite the notion that the US is “printing money,” portfolios should be structured for deflation rather than inflation.”

From SunTrust: “Emerging market currencies like the Indian rupee, Turkish lira, and South Korean won all closed lower today. The 2.4% drop in the rupee was the largest single day drop since 1996. The South Korean won fell over 2% as job growth data was worse than expected. Reports also showed that Asia’s fourth largest economy will grow only 3.1% next year, down from 4.2% this year.”

End-of-Day Market Update

From SunTrust: “Markets are suffering from bailout fatigue. American Express received approval to become a bank holding company and is asking for $3.5 bln from TARP. The auto-makers are walking through Congress passing around a tin cup. Equities are wallowing in a sea of uncertainty. The Dow has lost 1,200 points since election day (-13%). Markets are looking for some clarity on who will fill key positions in the new administration. Meanwhile, the Treasury market, instead of backing up due to increased issuance, continues to press higher in price, lower in yield. The t-bill market is at nosebleed levels, worse than anytime in the crisis so far. Inside 90 days, all issues are in single digits. The 2 yr note yields 1.17. The newly auctioned 3-yr note is trading at an 18 bp profit vs Monday's auction. The new 10-yr was not outstanding, but a decent auction, considering its size. The note came at 3.783 with good indirect bidder participation of 36%. Financial shares are hurting again today. Citi is trading below $10. Goldman is off another 10% today, 30% since election day.”

From CITI: “NO TRADITIONAL PLAYERS (PENSION FUND, REAL MONEY) SEEM ALL THAT EXCITED TO BUY A 4-4.25% BOND. REGARDING PAULSON COMMENTS, THE IMMEDIATE REACTION WAS THAT THIS IS BAD FOR BANK EARNINGS- LITTLE DID WE KNOW IT WOULD MEAN A 10% DOWNMOVE IN MOST FINANCIALS TODAY OR -35% FOR THE MONTH OF NOV FOR MOST PLAYERS (EX-JPM). CDS IS STABLE AS THE GENERAL FEEL IS THAT BANKS WILL GET THE CAPITAL NECESSARY TO STAY ALIVE BUT IT WILL TAKE A LONG TIME TO BECOME PROFITABLE AGAIN. IN OTHER WORDS, "ELIMINATION OF SYSTEMIC TAIL RISK". OVERALL, IN THE BIGGER PICTURE, IT SEEMS LIKE THE TREASURY'S ACTIONS ARE A TRAIL OF UNINTENDED CONSEQUENCES; (1) THE TARP. PAULSON STATEMENT TODAY SAYING THAT THEY WILL NOT BUY THE REAL BAD ASSETS ON BANKS BALANCE SHEETS THROUGH THE TARP MEANS THAT EQUITY STAKES IN FINANCIALS ARE GETTING CREAMED, WHILE THEIR CDS IS HOLDING AS IT IS NOW A CAPITAL-INJECTION PROGRAM AND NOT AN ASSET-PURCHASE ONE (EXPLAINED ABOVE). (2) INSURING BANKS. 3YR FDIC GUARANTEE ON BANK DEBT CRUSHED AGENCY DEBT VALUES WHICH HAVE ONLY BEEN SAVED BY THE THOUGHTS OF MORE EXPLICIT GUARANTEES OF THE GOVERNMENT (3) TAF AND TSLF TRULY MADE THE FED THE LENDER OF LAST RESORT. THIS HAS CAUSED FINANCIAL INSTITUTIONS TO GO TO THE GOVT AND NOT TRADE WITH EACH OTHER. WHY IS LIBOR LOWER? FED FUNDS ARE EFFECTIVELY ZERO AND YOU CAN MAKE THE ARGUMENT THAT WHAT DROVE IT HIGHER IS THE EXACT THING THAT DROVE IT LOWER. NO VOLUME AND A SUSPECT SURVEY SYSTEM.”

From Bloomberg: “U.S. stocks fell for a third day as Best Buy Co.'s warning of a ``seismic'' slowdown in spending and the Treasury's plan to use bailout funds to bolster consumer credit stoked concern the economic slump is deepening… The Standard & Poor's 500 Financials Index slid to a 12-year low as the Treasury scrapped plans to buy mortgage assets and shifted focus to consumer credit….Best Buy's forecast cut is ``a further sign of the retrenchment of the consumer and spending that's slowing very, very rapidly across the board.'' The S&P 500 fell 5.2 percent to 852.32 and lost 8.5 percent

over the past three days. The Dow Jones Industrial Average retreated 410.67 points, or 4.7 percent, to 8,283.29. The Nasdaq Composite Index lost 5.2 percent to 1,499.21, a five-year low. Almost 23 stocks fell for each that rose on the New York Stock Exchange. The S&P 500 is less than 0.5 percent above its lowest close in five years. The measure reached that level, 848.92, on Oct. 27 and rallied 18 percent in the following six days. Most of those gains have now been erased as companies from Blackstone Group Inc. to News Corp. reported weaker earnings and commodity prices tumbled. The stock benchmark is down 45 percent from its October 2007 record. The index is ``almost certain'' to revisit its October low, according to JPMorgan Chase & Co. strategist Thomas

J. Lee, who said such ``retests'' occurred in 86 percent of the bear markets since 1900… Energy companies in the S&P 500 lost 7.2 percent as a group, while raw-material producers declined 6.3 percent collectively. Oil sank 5.3 percent to $56.16 a barrel … amid decreased energy demand.”

Prices as of 4:30PM (Based on Bloomberg)

Three month T-Bill yield fell 27 bp to 0.15%

Two year T-Note yield fell 9 bp to 1.15%

Ten year T-Note yield fell 9 bp to 3.65%

30-year FNMA current coupon fell 16 bp to 5.44%

Dow fell 411 points to 8283

S&P fell 47 points to 852

Dollar index rose 0.40 points to 87.47

Yen at 94.9

Euro at 1.25

Gold fell $19 to $713

Oil fell $3.60 to $55.75