Bernanke's Anti-Midas Touch

Wall Street slid from the open Thursday, and the downturn accelerated once Federal Reserve Chairman Ben Bernanke testified in front of the Senate Banking Committee.

Investors looking for an excuse to take profits got their wish, when Bernanke said the Fed is projecting slower growth for 2008 than previously forecast. Still, Bernanke does not expect a U.S. recession, suggesting instead that a slowdown will be followed by a rebound to a stronger expansion in the latter part of 2008. (See: "Outlook Hazy")

The market's fall picked up steam after Bernanke's testimony, and the Dow finished the day down 175 points, or 1.4%, to 12,377. The S&P 500 fell 18 points, or 1.3%, to 1,349, while the Nasdaq was off 41 points, or 1.7%, to 2,333. The declines come after a rare three-day winning streak.

Treasury-bond prices fell as investors saw Bernanke's remarks as indicative of additional rate cuts, which could cause rising inflation. The yield on the benchmark 10-year note climbed to 3.85% from 3.69% late Wednesday.

Financial stocks had a rough session, as the major bond insurers shared the Washington spotlight with Bernanke. Executives from MBIA (nyse: MBI - news - people ) and Ambac Financial Group (nyse: ABK - news - people ), along with New York insurance regulator Eric Dinallo, testified in a separate house hearing on a day when rival Financial Guaranty Insurance lost its AAA financial strength rating at Moody's (nyse: MCO - news - people ).

One proposal regulators have discussed with the bond insurers is separating their municipal bond business from their structured-finance operations, as the latter have sparked the present turmoil in world financial markets. (See: "Bond Insurers Need Help -- Fast")

Shares of the bond insurers bucked the day's trends to post gains, with MBIA up 9% and Ambac gaining 15%.

The broader financial sector was not as fortunate,though, with the major banks and brokers all in negative territory after UBS (nyse: UBS - news - people ) reported a hefty fourth-quarter loss. The Swiss bank lost $11.3 billion in the quarter, due to a $13.7 billion write-down of subprime-related assets. (See: "UBS: From Bad To Worse") Shares of UBS were down 8% late in the day.

Intel (nasdaq: INTC - news - people ) led the decline among the Dow industrials, almost all of which were lower as trading ended. The chip-maker dropped more than 3%, after analysts said it may be hurt by a slowdown in computer sales.

Stocks Down As Oil Prices Rise

Wall Street remained pessimistic about the U.S. economy Friday morning, as stocks opened lower thanks to another disappointing indicator.

The Empire State Index, a report on business conditions, fell sharply in February--to -11.7.

Meanwhile, oil prices are on a steady march back toward $100 a barrel, climbing to $96.54 Friday morning. A potential OPEC production cut and geopolitical issues regarding Venezuela are fueling the bull run.

On Friday, The Wall Street Journal reported that Financial Guaranty Insurance notified New York insurance regulators that it wishes to split into two separate companies. The move comes a day after privately held FGIC saw its AAA financial strength rating dropped six notches by Moody's Investors Service due to its weakened capital position.

Bond insurers Ambac Financial Group (nyse: ABK - news - people ) and MBIA (nyse: MBE - news - people ) were both trading in the red Friday morning.

On a brighter note, Kraft Foods (nyse: KFT - news - people ) gained over 5% after Warren Buffett's Berkshire Hathaway (nyse: BRKA - news - people ) raised its stake in the company. Berkshire announced it has taken an 8.6% stake in Kraft.

In a separate Securities and Exchange Commission filing, Berkshire said it increased its stake in Wells Fargo (nyse: WFC - news - people ) to 9.4% and reported it has lowered its stake in Ameriprise Financial (nyse: AMP - news - people ).

Wells Fargo and Ameriprise were both trading less than 1% higher.

Buffett Takes A Big Bite Of Kraft, Glaxo

Warren Buffett can't seem to stay out of the spotlight this week.

On Thursday, Warren Buffett's Berkshire Hathaway (nyse: BRKA - news - people ) announced it took a 132.4 million stake in Kraft Foods (nyse: KFT - news - people ), making Berkshire the largest single shareholder. The stake was worth $4.32 billion as of Dec. 31.

Shares of Kraft, based in Northfield, Ill., were up 5.8%, or $1.71, to $31.02, in morning trading.

Berkshire also revealed it owns 1.51 million American depositary receipts of GlaxoSmithKline (nyse: GSK - news - people ), Europe's largest drug maker, valued at $76.1 million, and 11.0 million shares of Trane (nyse: TT - news - people ), which makes heating and air conditioning systems, valued at $512.1 million. (See: "Buffett Brings Hope To Glaxo") Berkshire Hathaway's total portfolio is valued at close to $69 billion. Glaxo was up 1.6%, or 68 cents, to $44.00, in morning trading. Trane was effectively flat at 0.04%, or 2 cents, to $44.63.

Thursday's announcement comes days after Buffett announced he made a self-interested offer to bail out the beleaguered bond insurers. (See: "Buffett Circles Over Bond Insurers")

Rumors had been swirling since May that Berkshire was building a stake in Kraft Foods. (See: "Is Buffett Buying Kraft?") Shares of companies often rise when Berkshire discloses investment stakes. Regulators sometimes let Berkshire delay disclosures so investors cannot try to copy Buffett before he is finished buying.

Seven years ago, Kraft was spun off by Altria Group (nyse: MO - news - people ) and just two years ago, it sold all of its sugar confectionery business. The group provides commercial products to supermarket chains, wholesalers and super-centers, club stores and mass merchandisers. Product sales are based upon product quality, brand recognition and brand loyalty.

Thursday was a day full of announcements for Buffett. In addition to picking up Kraft and Glaxo, Berkshire fattened its stake in CarMax (nyse: KMX - news - people ). Buffett also made small increase in his stake in Wells Fargo (nyse: WFC - news - people ), U.S. Bancorp (nyse: USB - news - people ), Sanofi-Aventis (nyse: SNY - news - people ) and Johnson & Johnson (nyse: JNJ - news - people ).

Buffett made a significant cut in his stake in Ameriprise Financial (nyse: AMP - news - people ) by 52.7% to 661,742 shares from 1.4 million shares. He decreased his stake in Iron Mountain (nyse: IRM - news - people ) by 47.8% to 4.7 million shares from 9.0 million.

Bernanke, Paulson Testify; Stocks Drop

Fed Chairman Ben Bernanke hinted that more rate cuts could be on the way in his statement Thursday in Washington.

"The outlook for the economy has worsened in recent months," Bernanke said, indicating that the Fed would maintain its aggressive posture in the near term. Although inflation remains a concern, Bernanke reiterated his belief that prices would moderate this year.

Meanwhile, U.S. Treasury Secretary Henry Paulson was a bit more bullish in his statement Thursday. He praised the government for passing a stimulus package and said he predicts the mortgage markets will improve in 2008.

Immediately after the statements, the markets sharply declined, with the Dow shedding more than 100 points.

The session started with more news concerning the rocky road facing financial companies. Swiss bank UBS (nyse: UBS - news - people ) reported an $11.3 billion fourth-quarter loss, after taking nearly $14 billion on write-downs.

Shares of UBS were down more than 8%, while Merrill Lynch (nyse: MER - news - people ), Lehman Brothers (nyse: LEH - news - people ), Morgan Stanley (nyse: MS - news - people ) and Goldman Sachs (nyse: GS - news - people ) were all down more than 1%.

In deal news, the U.S. Justice Department approved the buyout of Clear Channel Communications (nyse: CCU - news - people ) on Wednesday. The deal, under which Bain Capital and Thomas Lee Partners will take Clear Channel private, was given the go-ahead on the condition the companies sell off some of Clear Channel's radio stations in Cincinnati, Houston, Las Vegas and San Francisco.

Finally, keep an eye on Marriott International (nyse: MAR - news - people ). The hotel chain said profits dropped 20% in the fourth quarter after it shuttered a synthetic fuel business. Excluding that charge, the company netted 62 cents a share, which was in line with expectations