By Adam Samson

Published August 08, 2011

| FOXBusiness

After closing out the worst week since 2008, Wall Street was once again pummeled on Monday after global sovereign debt and economic fears sent traders fleeing equities with few shelters in sight.

Today’s Markets

The Dow Jones Industrial Average plunged 635 points, or 5.6%, to 10,810, the S&P 500 tumbled 79.9 points, or 6.7%, to 1,119 and the Nasdaq Composite dipped 174.7 points, or 6.9%, to 2,358. The FOX 50 sank 50.7 points, or 5.9%, to 814.

Volatility has been extremely high in recent trading sessions. The selloff over the past two weeks has been so furious in fact that “its force now rivals almost anything we’ve seen in the post war era,” according to Daniel Greenhaus, chief global strategist at BTIG. The VIX, often referred to as a fear gauge, spiked 45% to a 52-week high.

The selloff was broad, with every major sector taking deep losses.  In a sign of the depth of the selling, 98% of the volume on the New York Stock exchange was in declining shares. The Dow closed below 11,000 for the first time since October 2010, and every blue chip ended in the red.

Financial shares like Dow-component Bank of America (BAC: 6.51, -1.66, -20.32%) and Citigroup (C: 27.95, -5.49, -16.42%) took the biggest hit.  The cost to insure the debt of major banking institutions skyrocketed as concerns spread that the institutions may need to seek fresh capital. Bank of America quickly spoke out against the concerns, saying it has sufficient capital, but it couldn’t stem the 19% slide its stock took.

Despite the steep retreat from equities, some market participants were optimistic that markets are in the process of bottoming out.

“We’re experiencing the market bottom right now,” Paul Dietrich, CEO and co-chief investment officer at Foxhall Capital Management, told FOX Business. He cited leading indicators like auto sales and sales tax revenues.

“I think we’ll bounce around the bottom for a while but I believe over the next quarter or two you will start seeing a movement up of consumer spending.”

For the first time in history, S&P cut America’s top-notch credit rating one notch to AA-plus from AAA after the close of trading on Friday.  The ratings company also said Monday it would slice Fannie Mae and Freddie Mac’s debt rating because the mortgage companies directly rely on the U.S. government.

S&P’s move came as a result of concerns over the country’s substantial public debt burden and deep divides within Congress that almost sparked an unprecedented default on U.S. sovereign debt.  Moody’s Investor Service, another ratings company, affirmed American’s AAA rating, while Fitch is still performing a review.

Many large investors noted the short-term impact of the downgrade may be muted, however, it could foreshadow deeper economic issues.

BlackRock said in a release the move by S&P “does not imply a fundamental increase in risk” and shouldn’t prompt investors to “change their behavior solely on the downgrade.”  However, the company that manages $3.7 trillion in assets warned that “continued economic weakness and regulatory uncertainty … may provide a signal to some investors to reassess their risk appetite.”

A round of disappointing economic data, capped with a mixed monthly employment report has weighed heavily on sentiment in recent weeks.  There are only a handful of data releases scheduled for the first half of the week, however, traders are expected to pay close attention to the Federal Reserve’s statement on Tuesday to see if the central bank signals another round of quantitative easing.

Market participants will also be watching a slew of economic data slated for release by China overnight, according to Peter Boockvar, managing director at Miller Tabak+Co. China is one of the world’s largest economies and can have a drastic impact on global markets.

Global Governments Act

Meanwhile, global governments acted on Sunday to try to stem market fears across the world.  The European Central Bank said it was prepared to “actively implement” a program by which it would purchase Italian and Spanish debt.  European credit markets have been rattled as debt worries have cascaded from smaller economies like Greece to more substantial ones like Italy.

The Group of 7 finance ministers also made a statement late Sunday, saying it was prepared to take whatever steps are necessary to calm global markets that were slammed last week.

Still, many market participants questioned what actions global governments would be able to take to tame tumultuous markets. The statement by G7 “sought to bolster confidence but offered only consoling words,” analysts at Barclays Capital wrote in a note to clients.

The selloff on Monday comes on the heels of the steepest retreat for Wall Street since the financial crisis in 2008. The broad S&P 500 plunged 7.2%, the Dow shed 5.8%, and the Nasdaq plunged 8.1%.

In a sign of the uneasiness on Wall Street, gold, seen as a safe haven, has continually leaped to record highs.  The precious metal soared $61.40, or 3.7%, to $1,713 a troy ounce — breaking the $1,700-mark for the first time. In fact, gold prices surpasses platinum prices for the first time since 2008 on Monday.

Energy markets followed equity markets deep into the red.

Light, sweet crude dipped $5.57, or 6.4%, to a new 2011 closing low of $81.31 a barrel. Wholesale RBOB gasoline slid 11 cents, or 4.1%, to $2.69 a gallon.

The U.S. dollar gained 0.15% against a basket of world currencies, while the euro plummeted 1.2% against the greenback.

Prices at the pump moderated somewhat last week following the selloff in the futures markets.  A gallon of regular costs $3.66 on average nationwide, down from $3.71 last month, but considerably more than the $2.78 drivers paid last year, according to the AAA Fuel Gauge report.

Corporate News

Berkshire Hathaway made a $3.3 billion bid for Transatlantic Holdings (TRH: 48.31, +3.07, +6.79%), topping two other takeover offers.

Foreign Markets

The English FTSE 100 slid 3.4% to 5,069, the French CAC 40 tumbled 4.7% to 3,125 and the German DAX plunged 5% 5,923.

In Asia, the Japanese Nikkei 225 plummeted 2.2% to 9,098 and the Chinese Hang Seng sank 2.2% to 20,491.

By Jim Angle

Published August 08, 2011 | FoxNews.com

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President Obama and his Democratic allies have made clear they want additional tax revenues to be part of deficit reduction. Republicans have made clear they will not accept any increases in tax rates.

But there’s one possible strategy for both sides to get their way: cutting subsidies and deductions in the tax code.

“This is where the revenue deal is to be done,” said Donald Marron, director of the Tax Policy Center and a former economic adviser to President George W. Bush. “I don’t think there is the political will to do significant increases in tax rates. The deal to be done is to look at the tax preferences and walk them back in some intelligent way.”

Maya MacGuineas of the non-partisan Committee for a Responsible Federal Budget agrees.

“This is an elegant way to kind of thread this needle between those who don’t want to raise any revenues for the deficit and those who want to focus on more taxes,” MacGuineas said.

These tax breaks, known as “tax expenditures” or “tax preferences,” add up to about $1.3 trillion a year, more than all individual and corporate tax collections combined.

They’ve been a favorite of presidents and lawmakers for years, because they’re easier to implement than spending programs. But they make government larger than it otherwise seems.

“A lot of this that wouldn’t make sense if they were subject to a kind of scrutiny we apply to traditional spending programs,” says Len Burman, a Treasury official in the Clinton years. “They get a pass because they’re run through the tax code.”

Tax preferences were a favorite of President Clinton, Burman said.

“Every time President Clinton felt somebody’s pain, there was a proposal for a new tax credit. … They didn’t want to propose new spending programs, because then it would be ‘Bill Clinton, big-spending liberal, making government bigger,’” he said, explaining their thinking. ” But a tax credit or deduction, that’s a tax cut. That’s a good thing.”

In fact, just last week, Obama called for new tax breaks for veterans, a far easier lift than a new spending program.

The list of existing tax preferences includes some easy targets Congress has already sought to roll back, such as subsidies for ethanol.

And then, there’s one that Democrats rail about day after day, tax breaks for oil companies — though critics say it’s relatively small potatoes, $40 billion over 10 years, MacGuineas said.

“That is nothing to sneeze at, but it is not going to balance the budget,” she said, “and it’s only going to be a drop in the bucket of what we actually need.”

The biggest deductions are far more popular and used by tens of millions of regular taxpayers.

The largest is making employer-provided health insurance tax free. If taxed, that alone would bring in $282 billion a year from workers and their employers.

The home mortgage interest deduction is the second largest at $89 billion a year, followed by tax-free 401(k) savings at $63 billion. That’s followed closely by deductions for charitable contributions at $40 billion and deductions for state and local taxes at $38 billion a year.

“The benefits, the value of these subsidies as a share of income increases with income up to the very, very top,” said Berman, who called tax incentives “middle-class or upper-class entitlement programs.”

Others offer businesses tax breaks for accelerated depreciation and capital gains or profits.

But a lot of programs for the poor are also handled through the tax code.

“We chosen to run a significant portion of the safety net through the tax code,” said Marron, who points to the earned income tax credit, child credit and deductions for some child care expenses.

Though both liberals and conservatives have their favorites, both parties have a stake in the search.

“That’s a tremendous sum of money that can be used to both lower marginal tax rates … and raise revenue to help close the deficit,” MacGuineas said.

But there will be a battle over how much of any savings should be dedicated to lowering tax rates and how much should go to reducing the deficit.

Some analysts suggest using one third to reduce the deficit and two thirds to reduce tax rates, in hopes of boosting economic growth and generating jobs.

Whatever the answer to that question, Burman has a broader one.

“The point is that we should figure out what government is doing — what we can afford to pay for, and how it can be done in the best way?” he said.

By David Goldman @CNNMoneyAugust 8, 2011: 3:24 PM ET

August’s ‘madness’ has a very different Final Four than March’s.

NEW YORK (CNNMoney) — There are currently four U.S. companies that have a better credit rating than their own country, according to Standard & Poor’s: Automatic Data Processing, Exxon Mobil, Johnson & Johnson, and Microsoft.

“There’s a certain amount of irony having AAA companies in an AA country,” said Kevin Giddis, managing director of fixed income Morgan Keegan.

S&P has hinted that it plans on maintaining that new reality, at least for the time being. Last month, when the credit rating agency warned that the country faced a ratings cut if it couldn’t get its act together on its deficit, S&P maintained that a U.S. downgrade would likely have no effect on the Final Four’s AAAs.

“Generally, a change in the credit rating or outlook on a sovereign issuer doesn’t necessarily lead to a change in ratings or outlooks on similarly rated non-financial corporate borrowers in that country,” S&P analysts said in a mid-July note.

S&P plans on issuing a statement on the Final Four Monday afternoon.

S&P fallout: Fannie and Freddie downgraded

Part of the reason that the companies can maintain a better rating than the government is because S&P still rates the U.S. dollar’s liquidity as “AAA.” The dollar remains the world’s currency.

The other reason is that the Final Four are all non-financial firms. That insulates them from the impact of the U.S. downgrade, which has little effect on the companies’ ability to make good on their debts.

In recent analyst notes, S&P reaffirmed AAA status for the Final Four, praising ADP’s (ADP, Fortune 500) “consistent revenue and earnings growth,” Exxon Mobil’s (XOM, Fortune 500) “very conservative business model,” J&J’s (JNJ, Fortune 500) “promising pipeline,” and Microsoft’s (MSFT, Fortune 500) “largely organic growth.”

Experts say the only change those four companies may see is a lowering of their corporate bond yields, reflecting greater demands for their bonds. Funds that require AAA-rated investments may look towards the Final Four now that the United States has been downgraded by one of the three major ratings agencies.

That’s already started to happen, to a degree. The Final Four have been among the most actively traded bonds since S&P gave the country a “credit watch negative” warning in the middle of July. Since bond prices and yields trade in opposite directions, those yields have begun to fall.

0:00 / 4:46 S&P: Politics in the downgrade

They’ll probably begin to fall much farther if the other two major credit rating agencies, Moody’s (MCO) and Fitch, follow suit and downgrade the U.S. debt.

“Corporate debt doesn’t trade that much — there’s just not as much to go around as there are U.S. Treasuries,” said Bill Larkin, portfolio manager at Cabot Money Management. “But if there are further downgrades, then people will look at the corporate debt market more seriously.”

Some investment funds that require AAA will likely just change their requirements to the next-highest rating, AA+.

Decades ago, there was a lot more AAA to go around. In 1983, there were a record 32 non-financial companies rated AAA. But a stumbling economy, an increasingly globalized market, and lots of mergers and acquisitions have made AAA a true rarity.

The AAA club was whittled down to four in 2008, when Berkshire Hathaway (BRKA, Fortune 500), General Electric (GE, Fortune 500), and Pfizer (PFE, Fortune 500) lost their ratings during the financial crisis.

There are a handful of companies that would be considered AAA today but don’t carry a rating because they carry no debt. With $76 billion in cash on hand, Apple (AAPL, Fortune 500) is probably the best example. It doesn’t need to borrow, and has no rating.

Technically, if S&P were to follow its own rules, all four remaining “AAA” companies would be downgraded on Monday. That’s because all credit raters follow what’s known as a “sovereign ceiling,” in which no company can borrow on better terms than its own country.

But that rule has been broken repeatedly. S&P has made 107 exceptions in 21 countries across the globe. 

 

First Published: August 8, 2011: 2:29 PM ET

August 5, 2011 | 

 By Catherine Couretas, PropertyCasualty360.com

By Rich Barbieri @CNNMoneyAugust 7, 2011: 8:47 PM ET

(CNN) — A senior Obama administration official is calling Standard & Poor’s move to downgrade U.S. credit “a facts-be-damned decision,” saying the rating agency admitted to an error that inflated U.S. deficits by $2 trillion.

U.S. Treasury officials received S&P’s analysis Friday afternoon and alerted the agency to the error, said the administration official, who was not authorized to speak for attribution.

The agency acknowledged the mistake, but said it was sticking with its decision to lower the U.S. rating from a top score of AAA to AA+.

“This is a facts-be-damned decision,” the official said. “Their analysis was way off, but they wouldn’t budge.”

Other sources familiar with the S&P matter called the move political and said the decision was rushed out too quickly.

The White House is now in wait-and-see mode — hoping the decision and the S&P analysis face outside scrutiny, the official said.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury Department spokesperson said.

John Chambers, head of sovereign ratings for S&P, admitted there was an error in a CNN interview Friday night, saying “we agree with the Treasury’s position on this and our figures reflect that.”

But he also said the error “doesn’t make a material difference — it doesn’t change the fact that your debt-to-GDP ratio … will continue to rise over the next decade,” he told “AC360.”

In July, S&P placed the United States’ rating on “CreditWatch with negative implications” as the debt ceiling debate devolved into partisan bickering.

To avoid a downgrade, S&P said the United States needed to not only raise the debt ceiling, but also develop a “credible” plan to tackle the nation’s long-term debt.

Chambers said the slowness at raising the debt ceiling and the political infighting led to the move. In announcing the downgrade, S&P cited “political risks, rising debt burden; outlook negative.”

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” the agency said.

The immediate implication of the downgrade was unknown. “Only time’s going to tell how we’re going to be affected,” former U.S. Comptroller General David Walker told CNN’s Anderson Cooper. “Interest rates that affect the U.S. government ultimately can ripple throughout the economy, which is not good news given our weak economic condition already.”

S&P has not spelled out what the United States has to do to regain its AAA rating, sources said.

However, Chambers said “it’s going to take a while to get back to AAA.” Walker, who served as comptroller general from 1998 to 2008, said he wasn’t “totally surprised” by the downgrade, saying S&P in April “made it very clear that they were looking for at least a $4 trillion reduction in the projected deficit over the next 10 years.

Within hours of S&P’s move, both parties were playing the blame game. Former Sen. Rick Santorum of Pennsylvania, who is among a field of Republican contenders for the 2012 presidential nomination, attributed the downgrade to a lack of leadership.

“The markets are scared and the credit downgrade has happened because the president and this Congress continue to address the symptoms and not the disease,” he said in a statement.

Former Utah Gov. Jon Huntsman said the downgrade was due to “out-of-control spending and a lack of leadership in Washington”– a sentiment echoed by several GOP lawmakers, including House Speaker John Boehner.

“The spending binge has resulted in job-destroying economic uncertainty and now threatens to send destructive ripple effects across our credit markets,” Boehner said in a statement.

Mitt Romney, the former governor of Massachusetts and also a GOP presidential contender, called the downgrade “a deeply troubling indicator of our country’s decline under President Obama.”

South Carolina GOP Sen. Jim DeMint, meanwhile, called on Obama to replace Treasury Secretary Timothy Geithner immediately.

“The president should demand that Secretary Geithner resign and immediately replace him with someone who will help Washington focus on balancing our budget and allowing the private sector to create jobs,” DeMint said in a statement.

On the Democrats’ side, Senate Majority Leader Harry Reid stressed “the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners.”

A special joint committee of Congress will recommend further deficit reduction steps totaling $1.5 trillion or more, with Congress obligated to vote on the panel’s proposals by the end of the year.

“This makes the work of the joint committee all the more important, and shows why leaders should appoint members who will approach the committee’s work with an open mind — instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding,” Reid said.

Chambers, however, told CNN that “there’s plenty of blame to go around,” calling it “a problem that has been a long time in the making well over this administration and the prior administration.”

It was a sentiment echoed by many, who took to social media sites Facebook and Twitter to communicate about the issue.

“Not really a surprise the credit rating was lowered. Both parties acted like children. Compromise is like using a water gun to put out fire,” tweeted Michael Ross, who uses the Twitter handle MWRoss.

Rich Tucker, 36, of Charlotte, North Carolina, used humor to get his point across, tweeting that Standard and Poor’s had also just downgraded the Beatles to the Monkeys.

“OK, done with the S&P downgrade jokes … truly sucks that we are here … we all need to sacrifice to get out of this hole,” Tucker tweeted.

Later, Tucker told CNN that he believed “there is almost no one who isn’t to blame for where we are.” “We are all in this situation as a country together, and we are going to all have to sacrifice to get out of it,” Tucker said.

CNN’s John King and Dan Lothian contributed to this report

By Adam Samson

Published August 04, 2011

| FOXBusiness

Read more: http://www.foxbusiness.com/markets/2011/08/04/us-stuck-futures-slump-ahead-jobless-claims-data/#ixzz1U6x668Sd

CNN) — Looking back on it, Wendy Fox thinks it was the M&M’s that did her in.

They sat in a glass bowl on her living room table, taunting her every time she walked by, seemingly calling out for her to scoop up a few and eat them. Eat them she did, as well as anything else chocolaty that crossed her path, such as a brownie at her favorite restaurant or a mocha drink at Starbucks.

Fox’s chocolate cravings (and three pregnancies) helped her gain 40 pounds in her 30s.

“It wasn’t pretty,” says Fox, 41, a real estate agent in Weston, Massachusetts.

Unhappy with her growing figure — she’d gone from a size 4 to a size 10 — Fox watched as her mother lost 30 pounds. Her mother, who also craves sweets, had attended a program with nutritionist Susan Roberts at Tufts University to curb cravings and suggested Fox do the same.

“At my first meeting with Sue, I told her, ‘You’ve met your challenge,’ ” Fox remembers with a laugh.

Roberts, author of “The Instinct Diet,” explained to Fox that there’s a biological reason most of us crave ice cream and not broccoli, but we can unlearn our instincts. It worked. After 14 months, Fox now craves salads instead of M&M’s, has lost 36 pounds and is back down to a size 4.

The caveman’s instinct

“For most of human history, people didn’t have enough to eat, so fat was something you really needed to seek out,” says Marcia Pelchat, a food psychologist at the Monell Chemical Senses Center in Philadelphia.

To avoid dying in a famine, the brain is wired to pick up on signs that calorie-rich foods are nearby, which helps explain why that piece of cake on the plate in front of you is so irresistible, or why seeing a sign for a doughnut shop draws you in even when you know you need to watch your diet.

“It’s analogous to a drug addict who’s gone through rehab, but when he walks by that abandoned crack house he suddenly thinks about going in again,” Pelchat says.

Pelchat adds, however, that while we’re born with certain cravings, there’s also evidence we start to crave whatever we eat in large quantities. She found this when she put study subjects on a vanilla-flavored drink low in saturated fat. After consuming it every day for two weeks, about a third of the subjects reported craving the drink, even though she says, “It was chalky and not very yummy.”

Research in Japan also shows that cravings are influenced by our environment. A study at Tohoku University found that many Japanese women crave sushi. “These findings suggested that the craving for some kind of food is influenced by the tradition of food products and cultures,” the authors concluded.

‘Chocolate makes me nauseous!’

It was tough at first, but Fox, once a chocoholic, now hardly ever craves chocolate.

“I couldn’t believe it, but last night we were at a friend’s house for dinner and when they served dessert, I thought, ‘I can’t wait to go home and have a bowl of high-fiber cereal.’ ”

Her biggest craving now is for salad.

“I make one every night for dinner — leafy greens and chopped up cucumbers. I don’t use dressing — just a little bit of olive oil and salt and pepper, because I crave a natural taste,” she says. “This is such a huge difference for me.”

Every so often, Fox says she gets a “ping” for chocolate. But then when she eats it, it makes her feel sick.

“I can just taste the butter in the first bite. It makes me nauseous, which is so weird, because I’m the M&M girl!” she says. “I think a lot of it is psychological. I worked so hard to get where I am that I don’t want to go back there. A brownie’s not going to take me down!”

Judith Beck, a psychologist and president of the Beck Institute for Cognitive Behavior Therapy in Pennsylvania, says she has noticed the same phenomenon when her patients have given up foods they used to crave.

“They didn’t like the sensation of greasy foods in their mouths, and sometimes foods high in sugar started to taste too sweet,” she says.

Learning to crave salad

Here are three steps toward switching your cravings from fatty foods to healthy foods.

1. Clean out your cupboards

Fox removed all signs of chocolate from her home. She replaced the M&M’s in the glass bowl with pretty marbles, and if she buys chocolate for a special occasion, she gets rid of it immediately.

“I just had a party for my kids and we made ice cream sundaes. As soon as it was over, I gave the leftover hot fudge to my neighbors,” she says.

2. Carry around healthy foods

Fox carries apples in her purse and keeps a box of high-fiber cereal in her car so she can dig in whenever a chocolate craving hits.

3. Bury craved foods in the middle of a meal

For the first two weeks, Roberts tells dieters to avoid eating unhealthy craved foods altogether, in the hopes of helping them unlearn the craving. After two weeks, she tells them they can have 100 calories of that food in the middle of the meal.

“I call it the sandwich technique,” she says. “If you eat chocolate at the beginning of a meal when you’re really hungry, your brain will think — associate chocolate with feeling satiated and happy. If you put it at the end of the meal, your brain will remember it as the last delicious thing you tasted.”

By Charles Riley @CNNMoney August 2, 2011: 6:32 PM ET

NEW YORK (CNNMoney) — Credit rating agency Moody’s said Tuesday the United States will keep its sterling AAA credit rating for the time being, but lowered its outlook on U.S. debt to “negative.”

A “negative outlook” indicates the possibility that Moody’s would downgrade the country’s sovereign credit rating within a year or two.

The rating agency, which had placed U.S. debt rating on review for a possible downgrade last month, said the political deal to raise the debt ceiling has now “virtually eliminated the risk of such a default.”

Even with the risk of default gone, Moody’s said lawmakers need to take additional steps — and keep to their promises.

The second round of spending cuts included in the debt ceiling deal need to be enacted, Moody’s said, while expressing skepticism about the effectiveness of the so-called trigger mechanism.

“Should the new mechanism put in place by the Budget Control Act prove ineffective, this could affect the rating negatively,” Moody’s said in a statement.

And the United States should lower its debt-to-GDP ratio. Moody’s said it expects to see debt stabilize at 73% of GDP by the middle of the decade and then decline.

And interest rates must remain under control. If borrowing costs for the U.S. government spike beyond expectations, that would “also be negative” for the rating.

The United States enjoys its AAA rating in part for having always stood behind its debt and paid its bills on time. As a result, U.S. Treasury bonds are considered the world’s safe-haven investment.

Rating agencies — Standard & Poor’s, Moody’s and Fitch — analyze risk and give debt a “grade” that reflects the borrower’s ability to pay the underlying loans.

Debt ceiling fight: What a downgrade would mean

The safest bets are stamped AAA. That’s where U.S. debt has stood for years. Moody’s first assigned the United States a AAA rating in 1917.

The move by Moody’s comes after an ugly debate in Washington over whether to raise the country’s $14.3 billion debt ceiling.

Congress reached an agreement on Sunday, as the Treasury Department was days away from reaching its borrowing limit. President Obama signed the eleventh-hour bill Tuesday.

S&P has yet to weigh in on the debt ceiling deal.