Home prices fell in August for the 25th consecutive month and prices in 10 major markets plunged a record 17.7% year over year, according to a key index of real estate values released Tuesday.
The S&P Case-Shiller Home Price 10-city index dropped 1.1% for the month. The 20-city index recorded a record year-over-year decline of 16.6% with a 1% fall in August.
The indexes compare the sale prices of the same homes each year to determine price trends and are considered one of the most accurate home price gauges.
The hardest hit of all 20 cities on a year-over-year basis was Phoenix, where prices plummeted 30.7% during the past 12 months. Las Vegas prices plunged 30.6% and Miami sank 28.1%.
The cities that held up the best were Dallas, which saw a decline of just -2.7%, Charlotte NC (down -2.8%) and Boston (off -4.7%). No city showed a price gain during the last 12 months.
In August, San Francisco saw the biggest price declines, down 3.5%. Phoenix (-2.9) and Las Vegas (-2.4) also reported sizable losses for the month. Two cities showed gains in August; Cleveland prices rose 1.1% and Boston prices inched up 0.1%.
Price declines picking up
Of course, the August indexes don't reflect the financial market meltdown that hit in September and severely restricted access to credit, according to Richard DeKaser, chief economist for National City Corp (NCC, Fortune 500). He believes the pace of price declines has picked up since then.
"There are two explanations for these steeper declines," he said, "neither of which are encouraging. One is that the difficulty in obtaining credit has further constricted demand. The second is that home sellers are finally capitulating on prices. They've been holding out for months, refusing to sell except at their prices. Now they're throwing in the towel."
Indeed, the California Association of Realtors reported last week that home sales volume jumped a whopping 97% in September compared with the same period a year ago. But the median price of an existing home has fallen 41%.
If that trend spreads to other states, price weakness could last for many more months, even as sales volume picks up. What happens after that largely depends on the confidence bolstering effect of the government economic stimulus packages, according to DeKaser.
"I'm optimistic," he said. "More credit will be available and inventories will be reduced. The deterioration will give way to a more balanced market."
A diverse group of roughly a dozen regional banks announced Monday that they will get more than $18 billion in federal funds under the bailout program aimed at resuscitating the ailing sector.
Varied by size, region and specialty, most of the banks made their participation in the program known Monday morning although some disclosed it early as Sunday evening.
Among the first were two major Ohio-based players KeyCorp (KEY, Fortune 500) and Huntington Bancshares (HBAN), both of which said they had been approved to get money as part of the the Treasury's Capital Purchase Program. They will receive a total of $3.9 billion.
Others include Capital One Financial Corp. (COF, Fortune 500), Valley National Bancorp (VLY) and three Southern franchises - First Horizon National (FHN), Regions Financial (RF, Fortune 500) and SunTrust (STI, Fortune 500). Combined, the five will receive $11.7 billion.
Both the Seattle-lender Washington Federal (WFSL) as well as First Niagara Financial Group (FNFG), a small community bank headquartered just outside of Buffalo that operates some 114 branches said they would each get roughly $200 million.
Baltimore-based Provident Bancshares (PBKS) also was among those getting federal funds, as was City National (CYN), a Los Angeles bank, which got nearly $400 million from the government.
Collecting $1.9 billion was Northern Trust (NTRS, Fortune 500), a Chicago firm, which caters to affluent individuals and institutions.
Others outlined plans to apply for the program. Fifth Third Bancorp (FITB, Fortune 500), based in Cincinnati, said late Sunday that it applied for $3.4 billion and that it expects "our application will be approved shortly by Treasury."
In an effort to spur banks to lend to one another and loosen credit for consumers and businesses, regulators unveiled plans earlier this month to inject $250 billion into banks.
Nine of the country's largest financial institutions - including Citigroup, Bank of America, Goldman Sachs and Wells Fargo - were initially chosen to receive $125 billion. They are expected to take hold of the money sometime this week.
The remaining $125 billion was put up for grabs among thousands of other banks and thrifts nationwide.
PNC grabbed some of that money Friday when it announced it would get $7.7 billion from the government by selling preferred stock and related warrants, when it announced plans to buy embattled lender National City.
Regulators have stressed that there is plenty of money to go around for those banks that need capital, but it remains unclear just which banks and thrifts would be eligible.
In exchange for capital, banks must give up a stake to the U.S. government, but they also have to agree to pay a dividend on those shares and keep pay packages of their top executives in check. To top of page
Goldman Sachs will cut 10% of its workforce, or 3,260 jobs, a source familiar with the investment bank's plans told CNN Thursday.
Financial firms have eliminated an estimated 110,000 jobs over the past year, through September, according to the latest employment figures from the Department of Labor.
But the pain has been particularly acute on Wall Street. Investment banks and brokerages there have shed about 11,000 jobs, according to the latest figures from the New York State Department of Labor.
Goldman Sachs (GS, Fortune 500) was one of eight leading banks in the nation that signed up for a government plan that would invest up to $250 billion in ailing financial institutions.
Sources familiar with the bailout plan said in mid-October that Goldman Sachs stood to receive $10 billion of that money to help stabilize the former stand-alone investment bank.
Goldman Sachs and Morgan Stanley (MS, Fortune 500) were the last remaining investment banks on Wall Street before federal officials granted the firms' requests to become bank holding companies last month.
The decision to become commercial banks came as rival brokerages Bear Stearns and Lehman Brothers collapsed in the fallout of the nation's credit crisis. The move allows both institutions to create commercial banking operations that can take deposits
Russia's top energy official said Wednesday that the nation may set aside an oil reserve to influence global prices - but won't cut output, news reports said.
Deputy Prime Minister Igor Sechin, who is in charge of the energy sector, said the government was considering creating an oil production reserve "which would allow it to work more efficiently with prices on the market."
Sechin would not name the amount of the reserves, but said they should be "enough to reach efficient pricing parameters," Russian news agencies reported.
He confirmed that Russia would not cut oil output, unlike OPEC nations which are expected to slash production by 1 million barrels.
OPEC Secretary General Abdullah al-Badri, in Moscow for talks with Russian officials, said Tuesday that he would not ask Russia to cut oil production as global prices fall. Analysts had said Russia was unlikely to agree to coordinated production cuts, given that it already is battling falling output as West Siberian oil fields mature.
Russia, the largest oil producer outside of the OPEC oil cartel, has seen its stock markets battered in recent weeks on the back of deepening fears of a global recession and plunging oil prices. The price of oil has more than halved since peaking at $147.
Given the recent wave of lay offs, people around the country are contemplating their next step. Hiring has slowed. Job seekers are taking an average 4.5 months today to land a new gig, according to the Bureau of Labor Statistics. So more adults are thinking now is the time to return to the classroom.
So far this year the number of GMAT tests taken by hopeful biz school students is up 15% from 2006, according to the Graduate Management Admission Council. Applications for graduate school at Arizona State University have jumped by double digits, said ASU President Michael Crow at a recent New York panel dinner of college and university presidents.
But the credit crunch has made it tougher even for students to borrow. So will grad school hopefuls be able to get a loan?
Yes, says Kal Chany, author of "Paying for College without Going Broke" and president of the Manhattan based financial aid advisory firm Campus Consultants, as long as you know where to look. "If you're willing to sign on the dotted line and you don't have a dime, you can still go to law, medical or business school."
Skip private loans. You may be tempted to first turn to the private bank you borrowed from in college. Bad idea. That company may not offer graduate loans anymore, as many have exited the market altogether. The remaining lenders have tightened standards so severely that students with credit scores below 700 often will not qualify, says Kevin Walker, president and CEO of simpletuition.com, an online student loan comparison Web site. Even students with scores above that often need a co-signer with a score at least that high - rarely the case a few years ago, he says.
What's more, you'll generally pay higher fees and interest rates on private loans than you will with federal aid. Today private rates average about 13%, four percentage points or more above federal loans, estimates Mark Kantrowitz, publisher of FinAid.org, a financial aid information Web site. They are also typically variable, meaning you'll owe more when interest rates rise.
Start with Stafford loans. Fortunately, it is now possible to fully fund graduate school without any private money. In 2006 the government began providing graduate students enough federal aid to cover the entire cost - even living and transportation expenses. This government aid charges fixed interest rates.
To secure this assistance, first complete the FAFSA, the Free Application for Federal Student Aid. Your school may also require a separate form to apply for its aid, so be sure to ask. (Graduate students are typically considered independents, so even if the aid forms require your parents' financial details, their assets generally do not lower your federal aid, says Chany.) This information is used to determine if you qualify for need-based aid, such as Perkins or subsidized (the government pays the interest while you are in school) Stafford loans. Take them if you get them.
All students, regardless of need, can borrow up to $20,500 (medical students have higher maximums) total in subsidized and unsubsidized Stafford loans. These loans come with a fixed low rate of 6.8%, although you will typically have to pay a 3-4% fee, says Walker.
Finish with PLUS loans. If you need more than that, look to a graduate PLUS loan. It charges a fixed interest rate of 7.9% if your school allows you to borrow directly from the government, or 8.5% if you must go through a private bank. (Don't be confused. You are still securing a government-backed loan, but getting it from a private company.) Your school's financial aid office can recommend lenders.
You can borrow enough money in PLUS loans to fully cover the remainder of your education, including books and living expenses. Better yet, nearly all students will be approved for this loan - no co-signer needed. "There is a credit check, but as long as you don't have adverse credit history, you will qualify," says Chany. So you cannot be 90 days or more late on a debt payment (180 days on mortgage or medical bills) or have had a foreclosure, bankruptcy or tax lien in the previous five years. If you clear that test, consider yourself fully funded. To top of page
Stocks rallied Monday morning as investors welcomed signs that the lending market is improving and comments from Federal Reserve chief Ben Bernanke that the Congress should consider another stimulus plan.
The Dow Jones industrial average (INDU) rose over 200 points in the early going, while the Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) also gained.
Also helping in the early going: a surprise rise in the September index of leading economic indicators.
Wall Street has been on a roller coaster ride. Last week the Dow posted its biggest ever one-day point gain as well as its second-biggest point loss ever. For the week, the blue-chip index and broader S&P 500 index ended nearly 5% higher.
The mood was upbeat overseas as investors cheered the latest moves in the worldwide effort to strengthen the banking sector. Shares in Europe and Asia advanced.
European shares rose in morning trading after the Netherlands said it would inject $13.4 billion into ING. Asian markets finished the session higher after South Korea said it would guarantee up to $100 billion in foreign-currency loans and pump billions into the banking sector.
Eyes on the economy: Fed chairman Bernanke was testifying about the economic outlook and financial markets at a House panel. In his prepared remarks, he urged Congress to consider a second economic stimulus plan to prevent a longer-lasting slowdown.
In economic news, the Conference Board released its report on leading economic indicators for September. This broad, general reading on the economy rose 0.3% versus forecasts for a drop of 0.3%, according to a consensus of economists from Briefing.com. LEI posted a revised decline of 0.9% the prior month.
Company news: Exelon (EXC, Fortune 500) said late Sunday it had made an all-stock bid worth $6.2 billion for NRG Energy (NRG, Fortune 500). The deal would create the biggest U.S. power company.
Yahoo (YHOO, Fortune 500) could be on the move after a report in the Wall Street Journal said the Internet portal is expected to disclose major cost cuts when it reports quarterly earnings Tuesday.
The Wall Street Journal also reported that General Motors' (GM, Fortune 500) hopes of a takeover of Chrysler are fading, because GM doesn't have enough money to make it happen.
The defense contractor Halliburton (HAL, Fortune 500) announced third-quarter earnings that beat expectations, at 76 cents per share. The toy company Hasbro (HAS) also beat projections, with earnings of 89 cents per share.
The toy company Mattel (MAT, Fortune 500) missed expectations, with 66 earnings per share. The drug maker Novartis (NVS) also missed projections, with earnings of 92 cents per share.
After the bell, American Express (AXP, Fortune 500) and Netflix (NFLX) are expected to report earnings. Analysts expect the credit card company to report earnings of 59 cents per share, according to consensus from Thomson FirstCall, and the DVD rental company is projected to report 31 cents per share.
Oil, currency: Crude gained $1.17 to $73.02 a barrel on the New York Mercantile Exchange. OPEC is expected to cut production quotas at a meeting later this week.
The dollar slipped against the euro and the British pound but rose against the yen.
Stock prices have plunged in recent weeks. So have oil prices.
Most Americans probably see the former as terrible news and the latter as a ray of sunshine at a dark time.
But both could contribute to a growing concern among economists - deflation.
Simply put, deflation is the opposite of inflation: It's when prices for a wide range of products start falling, rather than rising.
And while consumers struggling with the high cost of gas and food might think the idea of deflation sounds attractive, economists almost universally agree that it would be very bad news.
"When prices start to fall because of lack of demand, they can go well below the cost it takes to produce products," said Bernard Baumohl, executive director of the Economic Outlook Group. "Companies have no alternative than to cut back production and lay off a lot of workers. That cuts demand more. You get this vicious downward spiral in prices."
Most economists point out that the current economic conditions do not yet suggest that deflation is present, or even imminent.
The Consumer Price Index, the government's key inflation measure, did show no rise in prices in September. But prices are still up 4.5% over the past 12 months.
Baumohl puts the risk of deflation about 10% to 15%, and no more than 20%. But he said only a month ago he would have thought the risk of deflation was less than 5%.
The credit market crisis, combined with the recent stock market declines and the plunge in home values over the past two years, is setting off the deflationary alarm bells for economists.
Paul Kasriel, chief economist with Northern Trust in Chicago, said most bouts of deflation have started with sharp declines in assets such as stocks or homes. That has tended to lead to a loss of value of collateral for loans and ultimately, large losses by lenders and very tight credit.
"I still don't think deflation is going to happen," said Kasriel, who puts the chance at between 10% and 30%. "But these are the initial conditions that lead to it."
In the United States, the worst period of deflation was the Great Depression.
While a recent CNN poll found 59% of Americans thinking that another depression is likely, most economists dismiss the threat of a depression. But they say deflation is something that gets them worried. And they are very careful using the word.
This week, San Francisco Federal Reserve Bank President Janet Yellen broke a taboo among Fed officials when she said in a speech that the economy "appears to be in a recession."
But in the same speech, she was reluctant to use the word deflation, even though she danced around the concept. She said falling commodity prices, job losses and weak demand for products were likely to "push inflation down to, and possibly even below, rates ... consistent with price stability."
Her reluctance to say deflation, even in a speech notable for the use of the word recession, doesn't surprise economists.
"Deflation is very scary, scarier than a recession, because once you get into it, it's hard to get out of," said David Wyss, chief economist for Standard & Poor's.
Wyss said deflation doesn't have to lead to a 1930s style depression, with double-digit declines in economic activity and unemployment of 25%.
But it can lead to the kind of extended economic pain seen in Japan's so-called "lost decade," a period that left Japan with little economic growth from the early 1990s until the middle of this decade.
"The Japanese had deflation during their lost decade when their banks were unable to create credit," said Kasriel.
The Fed's attention to the rising threat of deflation is encouraging, Kasriel said. The central bank has pumped hundreds of billions of dollars into the financial system to try to spur lending and support spending and prices.
This is a sign that inflation is no longer a concern for many Fed policymakers.
"It maybe premature to worry about deflation but it's long past the time to talk about inflation," Wyss said.
Kasriel added that American consumers should be concerned about deflation as well - even if lower prices sound like a good "problem."
"Sure, you feel like you're on top of the world when you pay less than $3 for gas," Kasriel said. "But it's not because we've discovered new oil reserves. It's because demand is very weak. It's a symptom of a global recession rather than a cause for hope of a quick recovery in the economy."
When you stash your cash away, you probably don't give that much thought to the risks involved. After all, it's safe, liquid cash - not shares of Lehman Brothers.
But with financial hurricanes pounding the markets and your portfolio, you want to be sure the money you need in the next year or two is tucked away in a truly safe haven.
So which of your cash accounts meet this definition? Not as many as you once believed. As it turns out, even money-market funds aren't as safe as you may have assumed.
But there has also been a scare in so-called cash alternatives, which are marketed to investors seeking slightly higher yields than traditional cash accounts provide.
Case in point: ultrashort bond funds. These funds invest in debt securities with extremely short maturities, ranging from three months to a year.
This should put them just one notch higher on the risk scale than money funds, which hold securities with average maturities of 90 days or less. Ultrashort bond funds, therefore, are designed to yield a bit more than money funds but with only a little extra risk.
At least that was the theory. Not only has the average ultrashort bond fund lost about 5% over the past year vs. a 2.6% average gain for taxable money funds, but some portfolios have been outright disasters.
Toxic cash funds
Among the funds that have stumbled badly: Schwab YieldPlus has lost a staggering 33.7% of its value over the past 12 months, while Fidelity Ultra-Short Bond fell 10.5%. Other hard-hit funds, including SSgA YieldPlus and Evergreen Ultra Short Opportunities, have been liquidated, and more are expected to close.
How is it possible that a bond fund that's supposed to be like cash suddenly loses as much as a stock?
In an effort to boost yields in this low-interest-rate environment, many of these portfolios invested in securities that were - you guessed it - backed by subprime mortgages. And when the subprime market imploded last year, the funds began sinking into the red.
At that point investors fled, which only worsened the losses since managers were forced to sell toxic securities at fire-sale prices to come up with enough cash to meet redemptions.
"These failures really call into question the future of the ultrashort bond fund category," says Morningstar analyst Miriam Sjoblom. "Investors looking for stability really should look elsewhere."
All of which may have you wondering where you can still find safety plus a decent yield - at least decent enough to outshine money funds and maintain your money's purchasing power.
Here are a couple of options, with the lowest-risk choice described first.
Cash-alternative alternatives
Bank CDs and money-market accounts For absolute safety, you can't beat the FDIC guarantees on CDs and money-market accounts managed by banks (not to be confused with money funds run by mutual fund companies).
Even if your bank goes under, you'll be covered for losses of up to $250,000 per person per financial institution. And even though the Federal Reserve has started reducing short-term interest rates, you can still find attractive yields, says Greg McBride of Bankrate.com.
Stable-value funds If you have a 401(k), you probably have a stable-value fund in your menu. Recently yielding about 4% on average, stable-value funds invest mainly in high-quality short- to intermediate-term bonds, which are guaranteed by insurers against loss, as well as interest-bearing contracts from insurance companies.
Are there any assurances these funds won't get burned by, say, mortgage securities? No, but the underlying investments are backed by insurers.
While that might give limited comfort in this financial melt-down, keep in mind that most stable-value funds invest not only in a diversified portfolio of debt but also in securities covered by several different insurers.
What's more, many 401(k) plans place trading restrictions on stable-value funds to prevent market timing. You can leave the fund, but you may have to park that money in a stock fund for a few months before being allowed back in.
As a result, your fellow shareholders won't be able to create the same problems they did in ultrashort bond funds by forcing managers to sell at the worst possible time.
Stable-value funds have historically beaten intermediate government bond funds by more than two percentage points a year and intermediate bonds by half a point - and with far less risk, according to a study by the University of Pennsylvania's Wharton School.
Of course, there's no guarantee they'll continue to do so. But the study's co-author David Babbel, professor emeritus of insurance and risk management at Wharton, says, "Stable-value funds are still the best bet for the fixed-income portion of your 401(k).
Drill-baby-drill!"
With the price of oil falling below $75 a barrel Wednesday - down about 49% from last summer's highs - the industry's battle cry is sounding less and less convincing.
But falling oil prices are not the only reason why the air is coming out of the drilling balloon. The credit crunch has hampered oil company's ability to fund big-ticket drilling projects. Meanwhile, the prices that producers pay for raw materials and labor remain high.
"Any project that assumed oil would average $100 over the next 10 to 20 years is being seriously reconsidered at this time," said Richard Ward, senior cost analyst at IHS Cambridge Energy Research Associates (CERA).
As recently as July, tapping deep water sources and extracting crude from Canadian oil sands - two very expensive production methods - were seen as economically viable ways to deal with the energy crisis. At that time, the price of oil was above $140 a barrel.
Now that the price has fallen below $75 a barrel, and could go even lower, many experts say the future of these projects is uncertain.
Prices. Oil companies are quick to point out that big drilling projects are long-term investments, which are not based on today's oil price, but on what they think the price will be in the future.
Indeed, some deep water projects have a life span of 20 to 30 years. And some producers expect to be mining Canada's oil sands for up to 40 years.
"Companies in the industry know that prices are volatile," said Ron Planting, an analyst at the American Petroleum Institute. "They probably did not plan projects that would only work at $140 a barrel."
Greg Stringham, a spokesman for the Canadian Association of Petroleum Producers, said most oil companies have kept their price scenarios below $100 a barrel.
While producers have had to make "massive adjustments to their budgets" in light of the decline in oil prices, companies are not backing out, Stringham said.
Mickey Driver, a spokesman for Chevron Corp. (CVX, Fortune 500), said the company has not "changed the scope of our current capital program," and that "we take a long-term view in our business planning."
A spokesman for Royal Dutch Shell (RDS.A) declined to comment because the company is in a 'quiet period' before they release quarterly results.
Still, if prices remain low for a prolonged period of time, many analysts expect oil companies to start cutting losses on some high-end projects.
For example, projects based in the Canadian oil sands, where it can cost about $70 to extract one barrel of marketable oil, could be among the first to feel the impact.
If the price of oil falls firmly below $60 a barrel, "you may see some consolidation in the Canadian oil sands," Ward said.
Given rapidly declining prices, tight credit conditions, high input costs and weakening demand - the outlook for bold new oil exploration is grim.
Companies that aren't able to weather a protracted low oil price scenario may find themselves selling operations.
"Expect some forced and unforced deals to be done," said Neal Dingmann, senior energy analyst at Dahlman Rose & Co. in Houston.
Credit. Falling oil prices are not the only economic challenge facing the oil industry.
Stringham points out that the credit crisis has hampered many oil producers ability to get affordable funding for big drilling operations.
While the credit markets have begun to show signs of a tentative thaw, the current climate remains difficult for borrowers.
Many of the oil industry's big offshore drilling projects are "highly levered," Dingmann said. And as long as credit remains tight, those projects will be on hold, he said.
Costs. In addition to credit concerns, oil companies are facing high costs for raw materials and labor.
Over the last four years, capital costs have increased more than 100% for the average exploration project, according to IHS/CERA data.
A sharp increase in the price of steel has been one of the biggest problems. The raw material is used to build drills, pipelines and tankers that make oil exploration possible.
Until recently, steel prices have been climbing along with copper and other key industrial materials.
But as the global economy slows, particularly in the developing world, steel prices on the London Metal Exchange have come down 60% from their July peak. And that could spell relief for oil producers.
Labor is another story.
The oil business is "the epitome of the boom-bust market," said Stephen Schork, independent analyst and publisher of the industry newsletter The Schork Report.
When the market was booming at the turn of the last century, labor was not a problem. But much of the industry's workforce left the business at the end of the last boom and went on to other careers, Schork said.
Given the dim prospects for a boom in the near future, those workers are not likely to return.
"They definitely have manpower shortage in the sector," Schork said.
Oil prices climbed above $84 a barrel on Tuesday on hopes the economic fallout from the financial crisis would be curbed by U.S. and European government pledges to pump capital into the banking sector.
Light, sweet crude for November delivery on the New York Mercantile Exchange was up $3.37 to $84.56 a barrel in electronic trading by middayn Europe. The contract rose $3.49 to settle at $81.19 on Monday.
Boost for banks
Markets have cheered signs that governments plan to inject money into major banks in an effort to recapitalize the ailing sector.
Tokyo's benchmark Nikkei 225 index jumped 14.25 percent Tuesday -- its largest ever one-day gain -- after the Dow Jones industrial average on Monday rose over 11%, its biggest daily rally since 1933.
"The bailout announcements have eased some of the deep-seated fear of a global meltdown and instilled a degree of confidence in markets," said Peter Luxton, analyst at Informa in London.
He warned, however, that oil prices are unlikely to rally much higher in coming days as doubts over global demand in the longer-term remain very much on traders' minds.
Oil fell to a 13-month low on Friday, settling at $77.70. Crude is down 44% since reaching a peak in mid-July as the credit crisis has steadily eroded the growth outlook for world economies.
Bailout plan
To counter any further trouble in the banking sector, the U.S. plans to spend an initial $250 billion of a $700 billion bailout buying stock in private banks, industry and government officials said Monday night. President Bush planned to announce the details later Tuesday.
That followed Monday's news that European governments were putting up over $2 trillion to safeguard their own banks and kick start credit markets back to life.
But analysts say the meltdown in financial markets may have already done its damage to global economic growth.
"The outlook for oil prices is still very much bearish as the risk of global recession -- or at least a global slowdown -- remains," said Luxton, who expects prices to drop to the $60 to $70 a barrel region next year.
He said prices may hover around the current levels until mid-November, when the OPEC meeting will be held. OPEC warned it intends to cut production to stop the decline in oil prices, but markets are uncertain how effective that will be.
"Demand is driving oil markets now," said Luxton.
He noted OPEC has a poor record of boosting prices with production cuts during economic downturns.
Meanwhile, other analysts are revising down forecasts. Goldman Sachs on Monday cut its year-end crude price forecast from $115 a barrel to $70.
Trading markets
In other Nymex trading, heating oil futures rose 5.28 cents to $2.39 a gallon, while gasoline prices gained 6.44 cents to $1.98 a gallon. Natural gas for November delivery rose 7.7 cents to $6.77 per 1,000 cubic feet.
In London, November Brent crude rose $2.92 to $80.38 a barrel on the ICE Futures exchange.
Oil prices bounced back above $80 a barrel Monday after a group of European countries tried to restore economic confidence by promising to bail out major banks.
The sliding global economy pulled oil prices to a 13-month low on Friday as investors worried that cash-strapped businesses and consumers were cutting back on fuel consumption.
U.S. crude for November delivery settled up $3.49 to $81.19 a barrel in New York on Monday, following a pledge by euro-zone nations to provide capital and guarantee loans.
The Treasury Department also began laying out plans Monday to implement the government's $700 billion program to restore bank confidence and get money flowing through the economy again. The plan was signed into law 10 days ago.
There were also pledges by 15 Eurozone nations and the U.K. to stabilize their respective banking systems.
Demand problems: However, even if the efforts of the world's governments succeed in shoring up the global financial system, it may not restore demand right away, according to Rachel Ziemba, energy analyst at RGE Monitor.
Monday's rebound "may be a lull before the storm," said Ziemba. "Even if we have the stabilization of the financial markets and get the interbank markets flowing again, we're still likely in a global recession," she said.
"Chances are more than 50/50 that the world will see a global slowdown of some sort," added Chris Lafakis, associate economist with Moody's Economy.com.
Government efforts may contain the financial fallout, but demand for oil will probably continue to decline - just not as much, according Lafakis.
Demand for crude has tumbled as businesses and consumers in the United States, the world's largest oil user, began to cut back. Energy spending is often one of the first areas to see cuts when money is tight, according to analysts.
A government inventory report last week said that demand for gasoline had fallen by 5.3% over the four weeks ended Oct. 3, compared to a year earlier.
Goldman lowers forecast: The decline in demand prompted Goldman Sachs to cut its oil price forecast for 2008 to $70 from $115 a barrel. The bank also slashed its forecast for 2009 year-end prices to $86 from $123 a barrel.
"We clearly underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," wrote Jeffrey Currie, senior energy economist at Goldman Sachs in a research note.
Falling demand was one of the factors in oil's fall from a record high of $147.27 a barrel in mid-July.
Gasoline: Retail gasoline prices have also followed suit, falling more than 4 cents to a national average of $3.206 a gallon from Sunday according to a daily survey by motorist group AAA.
Falling crude prices have sent gasoline down from a record average of $4.114 a gallon in July, and some experts have speculated that it could soon swing below $3 a gallon.
Gasoline prices extended their slide, dropping more than 4 cents a gallon and coming within 25 cents of breaching the $3 level, according to a daily survey of credit card swipes.
The decline comes as hurricane seson winds down. oil prices get roiled by anxiety over weakening demand and consumers remain wary about when the economic crisis will abate.
The average price of unleaded regular fell to $3.247 a gallon nationwide, down 4.4 cents from $3.291, according to the Daily Fuel Gauge Report issued by motorist group AAA. That brings the two-day total decline to 10.3 cents.
The price has now tumbled nearly 87 cents, or 21%, below the record $4.114 set July 17. And it's down about 43 cents from a month ago, but still remains some 49 cents, or 19%, higher from a year ago.
The average price has droppped below $3 a gallon in six states: Iowa, Kansas, Minnesota, Missouri, Ohio and Oklahoma, where gas was selling for $2.83 a gallon, on average.
Gasoline is highest in Alaska, at $4.133 a gallon, with Hawaii - at $4.079 - the only other state above $4 a gallon.
Gasoline prices had surged during the highly traveled summer season and as a series of hurricanes battered oil refineries in the Gulf of Mexico. But with hurricane season nearly over, prices began their slide.
Oil prices also have been moving sharply lower amid fears that the economic crisis, which has deepened globally, will have a severely adverse effect on demand.
Crude plunged to a 13-month low on Friday, ending down $8.89 to $77.49 a barrel. That's a far cry from the $147.27 a barrel seen in July.
And since oil prices make up about half of the price of gasoline, the slide in crude s good news for drivers.
The survey is conducted for AAA by Oil Price Information Service from credit card swipes at more than 85,000 service stations nationwide.
The National Association of Realtors says pending home rose 7.4% from July to August, an unexpected piece of positive news for the battered U.S. housing market.
The group said Wednesday its seasonally adjusted index of pending sales for existing homes rose to 93.4 from an upwardly revised July reading of 87. The reading was the highest since June 2007.
Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 84.9.
The index, which sunk to a record low of 83 in March, stood at 85.8 in August 2007.
The price of oil fell Wednesday after the government reported a sharp increase in the nation's supplies of crude and gasoline.
Light, sweet crude for November delivery was down $3.15 to $86.93 a barrel on the New York Mercantile Exchange. Oil had traded down about 75 cents just before the government figures were released.
In its weekly inventory report, the Energy Information Administration said the nation's stockpiles of crude oil rose by 8.1 million barrels last week. Analysts were expecting crude stocks to have fallen 1 million barrels, according to a survey of industry experts by energy research firm Platts.
Supplies of gasoline rose by 7.2 million barrels, compared to estimates of a 2 million barrel increase. And distillates, used to make heating oil and diesel fuel, fell by 500,000 barrels.
Distillates supplies were forecast to rise by 1 million barrels.
The price of oil rose above $90 earlier Wednesday after the Federal Reserve lowered its benchmark interest rate to 1.5% from 2%. The move was part of a coordinated effort by central banks worldwide to combat the credit crisis.
Stocks opened lower despite the Fed's emergency move. But the major indexes recovered in late morning trade.
The oil market has closely followed the stock market recently as investors look for signs of economic recovery that could signal renewed demand for oil and gas.
Silicon Valley operates on potential. Employers may not like it, but talented engineers switch jobs like Pony Express horses so they can be at a company that has a shot at dominating the future. Google (GOOG, Fortune 500) and Apple (AAPL, Fortune 500) (after the return of Steve Jobs) were those kinds of companies. Today, places like Facebook have people lined up knocking on the door to get in.
In health science, Menlo Park, Calif.-based Pacific Biosciences is a company that startup people are willing to leave hefty jobs for because it sits on so much potential. "I can poach people from any company in the Valley," CEO Hugh Martin says with a smile, "and I am."
PacBio as it's known, is building a next generation gene-sequencing machine. The goal of the three-and-a-half-year-old company is to bring gene sequencing to the masses, making it fast and cheap enough to really deliver on the promise of personalized medicine. If PacBio can get it right, it will change healthcare as we know it. That's part of the reason its parking lot is overflowing with new employees (there are more than 200 people at the company). The other reason is that if it can pull it off, the company's investors and its employees stand to make a bundle.
Over the summer, PacBio raised $100 million in funding in its fifth round of financing. The company added Deerfield Management, Intel Capital and other new investors to its initial venture capital backers, which included, among others, Mohr Davidow Ventures and Kleiner Perkins Caufield & Byers. The money is being put toward commercializing the company's technology, which to simplify greatly, eavesdrops on the natural process of DNA replication to ultimately recreate all 6 billion base pairs contained in a complete human genome.
The key for PacBio is to scale up the speed and accuracy of its sequencer to rival nature. So far so good, says PacBio CTO Steve Turner. The PacBio machine has been working out on a little virus called PhiX174, which contains 5,800 base pairs, and has been the first organism to be fully sequenced by the startup's technology.
"The virus we are using for these tests is like a piece of exercise equipment," Turner says. "We can use it over and over to improve the system." The first commercial sequencing machine from PacBio is set to hit the market in 2010.
A day after the House's surprise defeat of a $700 billion financial rescue bill, talk grew louder about alternative government steps that could help battered credit markets and stave off broader problems in the economy.
Among the proposals policymakers are discussing: Change rules to ease the capital burdens on banks; make more FDIC insurance available to bank customers; and cut short-term interest rates.
"Every little bit helps," said Lyle Gramley, a former Federal Reserve governor who is now with policy research firm Stanford Group. "When you're in a situation we're in now, you use any tools that might work."
In fact, the first changes came late Tuesday afternoon in announcements by two principal agencies.
The Securities and Exchange Commission and the Federal Accounting Standards Board issued new guidance to companies about how to value securities when the market for them vanish.
The issue - how to put a value on assets that nobody wanted to buy - is central to the credit crisis. Banks and securities firms have written down $500 billion worth of mortgage-backed securities as home prices fell and foreclosures rose.
According to the new guidance issued Tuesday, when the market for such securities dries up, companies can value them based on their estimated future cash flow. Some experts blame the previous rules, known as mark-to-market, for the credit crisis.
"The SEC has destroyed about $500 billion of capital by their continued insistence that mortgage-backed securities be valued at market value when there is no market," said William Isaac, a former chairman of the FDIC. "It's way below their economic value. And because banks essentially lend $10 for every dollar of capital they have, they've essentially destroyed $5 trillion in lending capacity."
But others argue the accounting change will come at a cost. They say without those strict rules, investors would be more reluctant to invest in banks - and make it even tougher for the banks to attract new capital.
"Does that make you less attractive as a public company? Absolutely," said Art Hogan, chief market analyst at Jefferies & Co.
The SEC wasn't the only regulator busy taking action on Tuesday. The Federal Deposit Insurance Corp. proposed raising the cap on bank deposits insured by the FDIC.
"A temporary broadening of the FDIC's guarantee will provide some additional needed confidence in the marketplace," said Sheila Bair, FDIC chairman.
Presidential candidates Barack Obama and John McCain had called for raising the limits earlier in the day.
The current limit - $100,000 in most instances - has been unchanged since 1980 despite inflation. It protected as much as 82% of deposits in 1991 but today it only covers 63%.
Raising the cap could stem a potential run on deposits by bank customers, particularly businesses, who fear losing their money. Such fears led to the collapse of Washington Mutual (WM, Fortune 500) and Wachovia Bank (WB, Fortune 500) in the past week.
Kicking the tires on other fixes
The SEC and FDIC changes announced Tuesday are not the only ideas being discussed in Washington and among economists. Some others:
Change federal requirements that force banks to keep a certain level of cash on hand for every dollar they lend out.
Give banks the chance to exchange loan notes for FDIC notes, which be more valuable and allowing the banks more flexibility to make loans.
Purchase on a massive scale mortgage-backed securities issued by finance giants Fannie Mae and Freddie Mac.
Extend limits on short sales of financial sector stocks.
Cut the fed funds rate - the Federal Reserve's target for short-term lending - perhaps all the way to zero, or in coordination with rate cuts by other central banks around the globe.
Clearly, the controversial $700 billion bailout package - which would give the Treasury Secretary authority to buy distressed assets - is not the only way to unfreeze troubled credit markets.
But it's also true that none of the proposals is without downsides and dissenters.
Gramley, the former Fed governor, questions the wisdom of getting rid of mark-to-market accounting. He would rather see the FDIC and other regulators relax their rules governing the ratio banks must maintain between capital and loans on their books. Those rules are choking off credit to good customers, he said.
Gramley said he knows of a businessman with strong credit and a $20 million net worth who was rejected for a renewal of a $1.8 million business loan.
"The bank told him, 'Our regulators are requiring us to improve our capital ratios, but we can't raise capital because the market is shot,' " Gramley said.
Former FDIC chairman Isaac argues that changing capital ratio requirements or easing other regulations would only lead to deeper problems down the road. "That simply doesn't play well," he said.
Big bailout still looms
Meanwhile, the Bush administration's push for its big rescue plan continued on Tuesday.
"The alternatives are good - I don't think they do any harm," said Brian Gardner, the Washington analyst for KBW, an investment firm specializing in financial services. "But none of them are as powerful as the rescue package would be."
The Senate plans to vote on the $700 billion bank rescue plan Wednesday evening. Stocks rallied on Tuesday as investors believed that Congress will still approve the bill. Credit markets stayed very tight and banks are still reluctant to lend to one another.
And even advocates of the bailout plan concede that the alternate measures may yet be needed if passage of the bill does not unfreeze credit markets.
"It doesn't fix everything," said Hogan. "It doesn't force the institutions to lend to each other or lend to consumers and businesses. That's why they'll hold onto these alternatives. I think you need to keep dry powder if you have to use them in the future."
The backlash against the bailout worked. The House rejected the controversial $700 billion rescue plan on Monday.
But considering that the Dow plummeted nearly 800 points - its worst one-day point drop in history - will there now be a backlash against the backlash?
"Many of the folks writing their congressmen last week to say they were against the plan may have looked at their 401(k)s this morning and are rethinking their position," said Bill Knapp, investment strategist with MainStay Investments, an asset manager based in New York.
Talkback: Should Congress pass a new version of a bailout or just do nothing?
Sure, stocks rebounded a bit Tuesday. But make no mistake. If Congress doesn't come up with some new plan to address this credit crisis, we could be faced with more gut-churning market drops.
I stated last week why I thought the bailout was a necessary evil and I still feel that way.
I understand why people are angry. I'm angry. I am not happy that the government is in this position because of reckless behavior by banking executives, investors, lax regulation by the government and, yes, even consumers.
And I even can concede that there is a lot of merit to the claims by critics that we should let the market sort out the country's credit problems. In free markets, companies should be allowed to fail. And clearly, the market and government let Lehman Brothers fail.
However, in the wake of the Lehman bankruptcy, things just got worse and more dominos fell ... AIG, Washington Mutual, Wachovia, etc.
The crisis is now so pronounced that doing nothing is not really a viable option. And what infuriates me to no end is the refusal by some members of Congress and taxpayers to recognize that the consequences of doing nothing will mean more economic hardship for all Americans, not just bank CEOs, traders and New York City.
Let Wall Street burn. Let Wall Street die. Let Wall Street go bankrupt. That's what people opposed to the bailout are saying over and over.
Don't get me wrong. Wall Street deserves a lot of the blame for the mortgage mess. But it's overly simplistic and flat-out wrong to suggest that this is just a New York or Wall Street problem.
There are a lot of companies that have either already collapsed or are nearing the precipice of failure as a result of the credit crunch ... and many of them are located far from lower Manhattan. That means many jobs are on the line and they aren't just the jobs of traders, blue-blood investment bankers and CEOs.
Washington Mutual (WM, Fortune 500), which became the largest bank to fail in history last week, is based in Seattle and has more than 2200 branches across 15 states. Wachovia (WB, Fortune 500), which dumped its banking assets to Citigroup (C, Fortune 500) in a fire sale Monday, is headquartered in Charlotte, N.C.
National City (NCC, Fortune 500), which many investors are betting could be the next bank to go under, is based in Cleveland. Shares of two other big Ohio banks - Cleveland's KeyCorp (KEY, Fortune 500) and Cincinnati-based Fifth Third (FITB, Fortune 500) - also got pummeled Monday.
SunTrust (STI, Fortune 500), which lost nearly a quarter of its value Monday, is an Atlanta institution. Regions Financial (RF, Fortune 500) plummeted more than 40% on Monday. That bank is based in Birmingham, Ala.
A bank bailout plan of some sort might not stop other banks from going under but it could certainly help minimize the pain in the industry.
"If we had a bailout, it would lessen the likelihood of further bank failures. We may have some more down the pipeline but we would have less with a bailout," said Robert Dye, senior economist for PNC Financial Services Group in Pittsburgh.
If more banks get scooped up by larger rivals or just flat-out go under, that could lead to more job losses in the financial industry. That's not good news for the broader economy.
Fears about more bank collapses have also led to chaos in the credit markets as banks are afraid to lend to each other, which makes them less willing to extend credit to businesses. That, eventually, will be felt by consumers.
"The core of the problem is with credit markets, which is one step removed from Main Street. The average guy and gal is not seeing this yet but if you are a business, you are facing highly elevated costs to borrow money," Dye said.
"And Main Street will definitely feel this eventually. We'll also see higher rates for credit cards and other consumer loans. The cost of credit will rise dramatically," Dye added.
Dye also said that if more businesses start to feel a major cash pinch, they are very likely to cut back on hiring and may even start to layoff workers.
That would add to the this year's 600,000 job losses. In turn, that could intensify the economic slowdown by causing sharp pullbacks in consumer spending.
On top of all that, the current stock market chaos does nobody any good.
I'm not trying to cheerlead the market higher. Many stocks, particularly in the banking sector, should be trading much lower.
But the credit crisis has spilled over into the broader market, hitting shares of many quality companies that are still financially healthy. As a result, $1.2 trillion in stock market value was wiped out in the wake of Monday's sell-off.
That's bad news for more than just hedge fund managers - it hurts the millions of Americans that actively manage their investment portfolios as well as the millions more who have 401(k)s or IRAs for retirement as well as 529 plans to save for their kids' college tuition.
"It's easy to point the finger at the credit crunch being just a Wall Street problem. But it's much more pervasive than that so that's why it's imperative that this be addressed," said Knapp, the investment expert. "If a rescue plan doesn't pass we will see markets sell off further."
Dye agreed. He said the biggest problem with the bailout is that it would in some fashion, allow some companies off the hook for egregiously bad decisions. Nobody is happy about that.
But doing nothing just so that Wall Street can suffer is not the answer either.
"People don't want to reward bad behavior. But we don't want to cut off our nose to spite our face here," Dye said. "This will hurt Main Street very quickly."
