Buffett's Words of Wisdom

When you mention Benjamin Graham, Warren Buffett, and value investing in the same conversation, you're likely to get everyone nodding and going along with what you say. That's because agreeing with a philosophy is the easy part. But actually understanding and applying the approach of that philosophy is another story.

Aside from what he's currently buying and selling, Buffett has no investment-related secrets. It is my sincere belief that if you read Graham's The Intelligent Investor and Security Analysis, along with everything Buffett has written, and then work on truly understanding and applying their principles to investing, you will outperform 75% of investors.

Graham sums up how to invest intelligently when he says, "Investment is most prudent when it is most businesslike." Apply that reasoning to your investment considerations, and you will already have a head start. But to elaborate on that idea, let's turn to some words of wisdom from the Oracle of Omaha himself.

"I am a better investor because I am a businessman and a better businessman because I am an investor."

Running a business and making an investment go hand in hand. It's that simple. You wouldn't buy a business based only on rapidly increasing profits, nor should you invest in a company on that one metric. Instead, the prudent businessperson and the intelligent investor would scrutinize the balance sheet and determine, for example, whether earnings growth has been coming at the expense of increased receivables as a result of poor credit policy. Furthermore, as any businessperson realizes, earnings are easily manufactured, whereas cash is real.

Buffett's 1973 investment in the Washington Post (NYSE: WPO) is a wonderful example of a businesslike approach to investing. The idea was simple. The Post owned a wonderful collection of media assets that Buffett concluded were worth about $400 million. The company, meanwhile, was selling for just $80 million. Was it a great business? Yes. Was there a satisfactory margin of safety? Yes. Case closed.

"Never ask a barber if you need a haircut."

Here, Buffett was alluding to investment bankers and analysts. Let's face it: These folks get paid when you buy what they're selling. To be fair, there are many excellent investment bankers and analysts who truly offer a valuable service. Buffett's illuminating point was that you already know the answer you're going to get, and it will be determined by everything but rationality.

"I don't try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over."

Buffett's critical advantage over the pack is that he focuses on the boundaries of his circle of competence rather than the size of his circle -- although his is still probably bigger than most. It's illuminating that one of the most talented investment minds of our time made the bulk of his fortune through businesses such as insurance via GEICO, soft drinks via Coca-Cola (NYSE: KO), candy, razor blades, and a host of others that are simple to understand.

"We don't get paid for activity, just for being right. As to how long we will wait, we'll wait indefinitely."

Buffett has always said you should never allow the stock markets to guide you, because the market is really there to serve you. One of Buffett's greatest attributes is that he can be patient about investments until the time is right, regardless of how long that time may be. In one case, Buffett waited nearly four years to make a significant move -- in 1970, he folded his partnership and made virtually no public-market investments until 1974, when the price-to-earnings ratio of the S&P went from around 20 to 7. At that point, Buffett began buying all over the place.

During that time, Buffett became famous for saying, "I was selling stocks at three times earnings to buy stocks at two times earnings." The approach worked: Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) shares rose from $40 to $420 per share from 1975 to 1980, for about a 57% annual rate of return!

"When a management team with a reputation for brilliance joins a business with poor fundamental economics, it is the reputation of the business that remains intact."

A truly great business can survive with mediocre management. You should always consider that at some point, less-than-stellar management will find its way to the helm of any business.

Words to invest by
From just these few simple words, you can develop a good framework for successful investing. Simply focus on investing in great businesses that you can understand, and then be patient. Do what Warren would do.

Warren Buffett Invests Like a Girl

For as long as I can remember, adding the phrase "like a girl" to the end of whatever you were saying was a put-down, an insult, something to come to fisticuffs over. Little boys the world over hated being told that they, for example, "threw like a girl." I'm not defending the statement, and as a member of the fairer sex, I certainly don't agree with its intent, but hey, that's been the case from the playground on up.

When it comes to investing, though, you could do a whole lot worse than learning to "invest like a girl." And that's why I'd bet Warren Buffett, chairman of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), wouldn't get offended if I told him to his face that he invests like a girl. In fact, he'd probably thank me (and perhaps slip me a box of See's Candies). Hang on to see why -- and stay tuned for our soon-to-be published book on this very topic.

What makes Buffett Buffett
What is it that makes Warren Buffett such a consistently phenomenal investor? Is it that he's zigging and zagging along with the market's every move? Is he trading all the time, buying this and selling that, racking up taxes and commissions all the while?

No, no -- what makes Warren Buffett the investor whom every investor wants to be like is that he approaches investing differently from the way most men do. He's patient and does thorough research. He waits for the right price to buy. He seeks to never sell the companies he invests in. He's the anti-trader, if you will.

Yep, you heard it here -- Warren Buffett invests like a girl. And that's a very good thing.

Women and investing
So how exactly do women invest? Check out these characteristics of female investors that distinguish them from their male counterparts.

• Women spend more time researching their investment choices than men do. This prevents them from chasing "hot" tips and trading on whims -- behavior that tends to weaken men's portfolios.
• Men trade 45% more often than women do, and although men are more confident investors, they tend to be overconfident. By trading more often -- and without enough research -- men reduce their net returns. But by trading less often, women get better returns and also save on transaction costs and capital gains taxes.
• A study by the University of California at Davis found that women's portfolios gained 1.4% more than men's portfolios did. What's more, single women did even better than single men, with 2.3% greater gains.
• Women tend to look at more than just numbers when deciding whether to invest in a company. They invest in companies they feel good about ethically and personally. And companies with good products, good services, and ethics tend to have better long-term prospects -- and face fewer lawsuits.

These are some of the traits that make female investors more like Buffett and less like frazzled, frenetic day traders, with their ties askew, hair on end, and eyes bleary. Patience and good decision-making help set women apart here.

Trend-spotting
Women also have a keen eye when it comes to identifying companies poised for greatness. They typically look beyond the shiniest, newest bio-techno-gadget and focus instead on retailers meeting their needs, on products that they can't live without, and on consumer goods they buy in their day-to-day lives. And that type of insight can pay off. Buffett's long-standing investments in Coca-Cola (NYSE: KO) and Gillette (now owned by Procter & Gamble (NYSE: PG)) meet this standard of easy-to-understand investments with competitive advantages.

Legendary fund manager Peter Lynch has famously credited his wife with discovering pantyhose maker Hanes, which at one point was Fidelity Magellan's largest holding. And he's also written about watching the shopping habits of his then-teenage daughters to discover investment ideas.

Shoot, even our own Bill Mann has told us that his wife shone the light on Swedish clothing phenom Hennes & Mauritz (OTC BB: HMRZF), better known as H&M, which went on to be a great performer for him.

Look at a company like recent Motley Fool Stock Advisor recommendation Coach (NYSE: COH), which started turning around several years ago thanks to fresh designs that drew customers in like moths to a flame. The stock's stumbled over the past year and remains beaten down today because of ongoing fears about the economy and the "strength of the consumer," but the fact remains that it's a solid, well-run business with desirable products and a growing market. I'll bet you could have talked to any number of female shoppers early on who could have clued you in that the company's products were much improved -- and that the financials couldn't be far behind.

So what if you're not a girl?
It's possible, dear reader, that you're of the male persuasion, but don't fret. By focusing on the traits that created superinvestor Warren Buffett -- patience, the willingness to dig deep, the ability to wait for the right price, and the desire to buy and hold instead of trade, trade, trade -- you can awaken the feminine side of your investment psyche. Consider it. Your portfolio will thank you for it.

Investors Shedding Asian Holdings Ahead Of Holiday

HONG KONG -

To try to ensure peace of mind over the Easter holiday, rather than worrying over the prospect of further falls on Wall Street, Asian investors dumped shares on Thursday, following sharp falls in quotes for gold and oil.

Stock indexes in Sydney, Hong Kong and Shanghai all plunged more than 3% during the morning session on Thursday, after the Dow Jones industrial average sank 293 points, or 2.4%, to 12,099.66 overnight.

Energy and resource stocks led the Thursday fall across the region, as the price of gold posted its steepest one-day drop in two years, while the crude oil contract price for front-month delivery dove the most since 1991 overnight in New York. Extending the plunge, crude oil fell further, to $101.53 a barrel, before noon in Asia, down $1.01 from the closing price of $102.54 a barrel in New York. Gold for April delivery dropped another $9, to $936.30, from the last trading price of $945.30 in New York.

The world's largest consolidated mining firm, BHP Billiton (nyse: BBL - news - people ), slid 8.3%, or 3.08 Australian dollars ($2.83), to 33.87 Australian dollars ($31.07), while its biggest rival, Rio Tinto (nyse: RTP - news - people ), slumped by 7.7%, or 9.70 Australian dollars ($8.90), to 116.29 Australian dollars ($106.69). In Shanghai, Zhongjin Gold Corp. plunged 9.7%, to a four-month low. PetroChina (nyse: PTR - news - people ), the nation's No.1 oil company, lost more than 8%, or 79 Hong Kong cents (10 cents), to 9.05 Hong Kong dollars ($1.16), after posting interim results that underperformed forecasts, and China's biggest offshore oil exploration firm, CNOOC (nyse: CEO - news - people ), shed 9.3%, or 1.06 Hong Kong dollars (14 cents), to 10.32 Hong Kong dollars ($1.32).

The S&P/ASX 200 in Sydney declined 3.1%, or 161.6 points, to close at the day's low of 5,127.5, in a shortened session Thursday. The Australian market will be closed on Friday and Monday for Easter.

In Hong Kong, the Hang Seng index retreated as much as 970.08 points, or 4.4%, in the morning session before modestly trimming its loss to 3.6%, or 781.43 points, to reach midday at 21,085.51.

In a morning note to investors, Bocom International Holdings said Hong Kong's market is driven by fear. "[The] Hong Kong market will likely follow and to close lower before the long holiday, as we pointed out a few days ago; fund redemption will probably last for a couple of weeks before ending." Hong Kong investors will have a four-day Easter holiday till Tuesday.

In South Korea, the KOSPI was trading basically flat in the early afternoon, up 1.16, or 0.07%, to 1,623.39, having overcome morning losses.

In Shanghai, the stock market was having a volatile session. The benchmark Shanghai Composite index tumbled 6.5%, or 245 points, to 3516.33, in the morning, then reversed those losses, moving into positive territory with a less than 1% gain in the afternoon.

Share markets in Japan, the Philippines, Malaysia, and Indonesia were closed Thursday for public holidays.

Memo To The Fed: Stop Those Rate Cuts

The markets rallied last Tuesday in response to the Fed's growing assistance to holders of mortgage-backed securities. Yet many onlookers are convinced that an aggressive cut in the federal funds rate at the upcoming March 18 meeting is still necessary to avoid a painful recession. In our view, further loosening at this time would be a mistake, and would also send an alarming signal regarding future monetary policy.

The Fed needs to quit chasing declining GDP growth and instead focus on curbing inflation and anchoring inflation expectations. Recent allusions to the stagflation of the 1970s are appropriate. Gold has been hitting all-time nominal highs, and oil prices have shattered the inflation-adjusted record set in 1980 during the Iranian hostage crisis. The dollar, meanwhile, is trading at all-time lows against the euro.

Consumer price inflation was 4.1% in 2007 (the highest in 17 years) while the producer price index rose 7.4%--the most since 1981. Amid these alarming trends on the inflation side, output has stalled. Real GDP grew at a meager rate of 0.6% in the last quarter of 2007, and the private sector shed 101,000 jobs in February. The beginnings of stagflation are upon us.

In response, the Fed has slashed its target rate 2.25 percentage points since September, and has engaged in all manner of novel auction schemes to bolster liquidity, particularly among those holding the bag on soured mortgages. Yet despite momentary blips upward, the stock market and the overall economy continue to slide. Even as the Fed's actions pushed many short-term interest rates below the inflation rate, fixed mortgage rates have begun rising. As inflation expectations gather steam, the Fed will find itself painted into an ever-shrinking corner.

The explanation for all of this is simple yet sobering.

The Fed has abandoned the one thing it can truly control--the long-run increase in price levels--in a self-defeating attempt to keep the economy growing. A good portion of the housing mess itself is the result of Fed policy: In response to the 2000-2001 recession, chairman Alan Greenspan brought the federal funds rate down to a shocking 1% by June 2003, then held it there for a full year. The rate was then steadily ratcheted back up, reaching 5.25% by June 2006.

These actions first helped inflate the home-price bubble and then helped burst it. Naturally, there are many factors--and perhaps even villains--that helped create the housing bubble, but excessively low interest rates were surely a necessary ingredient.

Regardless of past mistakes, the Fed must now make the best of a bad situation. It must stop chasing the financial markets, and even the broader economy. Creating more dollar bills will not add to the nation's wealth, or make workers more productive.

The alleged trade-off between inflation and unemployment--the Phillips Curve--is no guide for action. Yes, an unexpected injection of new money can temporarily boost real output. But once people come to expect the higher rates of price inflation, the Phillips Curve simply shifts; it takes greater and greater injections to achieve the same stimulus. That is how a country becomes trapped in a stagflation spiral.

The painful and costly recessions of the early 1980s were the result of the inflationary policies of the Fed during the 1970s. In contrast, Fed policies during the 1980s and 1990s focused on curbing inflation and maintaining price stability; this shift in focus produced both low inflation and strong, steady real growth. It would be a terrible mistake to throw out that costly victory in an effort to avoid a recession today--one that's already baked in the cake.

The Fed should commit to long-term price stability, and it needs to back up that commitment with action. Recessions will always be with us, but they will be shallow and short when the Fed keeps inflation low and evenly paced. If the Fed continues cutting rates, we will simply get the worst of both worlds: prolonged recession and excessive inflation.

The Hardy Boys

TGIF--thank god it's friday--again!" so wrote CLSA, the large Hong Kong broker, in a recent client e-mail following yet another nasty week in the market. It has been a long while since investors have felt so gloomy and stock index declines have been so steep. Investment firms Goldman Sachs, Merrill Lynch, Morgan Stanley and Lehman Brothers have announced layoffs.

With all the bad news, giving up on the market is easy. Don't be fooled. This is the best time in years to be scooping up small growth stocks.

The last time we encountered such problems was in 2001--02, with the dot-com bust. The investment industry shrank, confidence sagged and layoffs hit. As things turned out, the latter half of 2002 was great for buying stocks. Ditto 1998, when the Asian flu roiled global equity markets; financial firms panicked then, too, and slashed head count. Shortly after, the market took off. Lesson: Big market declines and legions of jobless Wall Streeters bring cheap stocks and good buying opportunities.

While buying bloodied shares is tempting, I recommend the opposite. Go for stocks that have held up well during the downturn. The economy will take time to recover, and hardy companies that can grow despite economic headwinds should continue to be well appreciated on Wall Street. Here are four.

After losing money for most of the past two years, software maker Phoenix Technologies (nasdaq: PTEC - news - people ) (16, PTEC) has new management that has restored the company. Phoenix boosted revenue by 79% in the most recent quarter and posted a solid profit.

In the early 1980s Phoenix pioneered the design of the basic input-output system (BIOs) that boots up a computer. Phoenix is the leader in the modern version of BIOs with a 50% market share. The company debuted two exciting products late last year: FailSafe, a theft-loss-protection service that remotely disables lost or stolen notebook PCs, and HyperSpace, which eliminates the long wait when Windows is loading in laptops. Phoenix trades for 25 times my 2008 earnings estimate.

Ctrip.com (55, CTRIP ) is the dominant online travel provider in China. I've followed and invested in this company for years and continue to be amazed at its prowess. Chinese have more disposable income these days, so they're traveling more. The Beijing Olympics will spur bookings. In China only 3% of travel industry revenue is generated online, leaving a wide-open space for growth. Analysts expect online's share to quadruple by 2012.

Ctrip has fostered strong brand loyalty, with 80% of sales from repeat customers. It carries a lofty valuation of 45 times my estimate of 2008 earnings, but its growth is so impressive that the high multiple is eminently worthwhile.

Sapient (7, SAPE ) reported fourth-quarter results way better than analyst expectations, with revenue up 35%. The company provides marketing and technology consulting services, and thus has benefited handsomely from the continued shift to advertising dollars online and away from traditional outlets. The company is headquartered in Cambridge, Mass. and has extensive operations in Europe, but 60% of its employees are in India, providing around-the-clock project management. Their comparatively low salaries translate into reduced fees for clients.

Valuation of the stock is still very reasonable, reflecting concerns that advertising budgets will shrivel, even in the robust online world. This phenomenon has indeed begun to affect almighty Google (nasdaq: GOOG - news - people ). Still, online is where the future lies, and Sapient is well placed for the eventual upturn. Excluding acquisition charges, this fine company trades for only 13 times my 2008 earnings estimate.

Energy producer Carrizo Oil & Gas (nasdaq: CRZO - news - people ) (60, CRZO ) is thriving from higher demand and prices for natural gas. In the latest quarter revenues generated by the Houston company rose 65% to $40 million. One advantage is its extensive presence in the Barnett Shale region, which covers a significant swatch of the Dallas-Fort Worth metroplex. The Barnett Shale is a U.S. onshore gas field currently swirling with activity, in part because modern drilling techniques have recently increased the ability to tap such fields. Production there will continue expanding. Another plus is Carrizo's stake in the Huntington Field in the North Sea, discovered last year; it stands to yield lots and lots of oil. Carrizo trades for 34 times my 2008 earnings estimate.

Soldiering through an economic slump takes considerable intestinal fortitude, not to mention patience. Small growth stocks tend to spring up rapidly once the bad days are over. Invest now. These will be much more expensive in a year or two

Starbucks Tips Baristas $100 Million

Sometimes it pays to start a fight with the big guys. For some former Starbucks baristas that pay is going to total over $100 million.

Judge Patricia Y. Cowett of the Superior Court of the State of California ruled in a class action suit Thursday that the Starbucks Corp. (nasdaq: SBUX - news - people ) must pay 120,000 of its current and former baristas the sum of $86.7 million, plus awards interest of 7%, for tip pool money that the coffee retailer used to compensate shift supervisors.

Under California state labor laws, it is legal for employers to implement tip pools where employees are required to share tips, but recipients of the pool share may not be owners, managers or supervisors.

In the case of Chau vs. Starbucks the court ruled that Starbucks illegally distributed tips from the tip pool to compensate shift supervisors as well as baristas, expert espresso makers, and the plaintiffs are entitled to an injunction that Seattle, Wash.-based Starbucks no longer force employees to share their tips with shift supervisors.

Jou Chau, Starbucks barista from 2003 through 2004, filed the lawsuit in October 2004, complaining that he didn’t think it was fair to have to share tips with shift supervisors. “Tips really help those receiving the lowest wages. I think Starbucks should pay shift supervisors higher wages instead of making money from the tip pool.”

Rudy Exelrod & Zieff attorney David A. Lowe, lead trial counsel for class members in the case, argues: “Starbucks was subsidizing labor costs for shift supervisors by diverting money from the tip pools to shift supervisors instead of paying more to them out of Starbucks’ pocket.”

Supervisors should not be in the tip pool because they have authority to hire, fire, supervise, direct other workers, and impact compensation decisions, Lowe explained. He hopes the ruling on this case sends a message that employee protection is something that other states should consider.

Thursday’s ruling could very well lead to an increase in similar litigation elsewhere, says Elise Bloom, a partner in the Labor and Employment Law Department of Proskauer Rose. Bloom was not involved in the case.

Bloom thinks Judge Cowett’s decision was wrong. “This very liberal reading of California statue and the definition of who is a manager inappropriately expands the universe of people who can’t share in tips.”

Bloom cites the court’s failure to recognize the service function of shift supervisors. In her view, shift supervisors significantly enhance the level of service which makes customers much happier and therefore more likely to leave larger tips.

After a steady decline in share prices after peaking in 2006, Starbucks was up slightly in Thursday’s trading, rising 3 cents, or .2%, to $17.53, in line with the market's overall movement.

Wall Street Culture Not Likely to Change

NEW YORK -

Wall Street investment bankers got another lesson about the dangers of risk-taking this past week with the downfall of Bear Stearns Cos. The question now obviously is, how long will it last?

Those bankers, many of whom lived through market debacles like the dot-com bust at the start of this decade, turned out to have very short memories. And so analysts believe the sale of Bear Stearns to JPMorgan Chase & Co. for a stunning $2 per share ultimately won't have that much of an impact on how Wall Street conducts business.

In fact, bankers and traders are under even more pressure to reap big returns because of the ongoing credit crisis, and risk is just part of the game.

"There's an old saying on Wall Street that, for traders and bankers, you'd have to take a normal 30 year career and distill it to 15 years," said Quincy Krosby, chief investment strategist for The Hartford. "This whole episode might change Wall Street for a little while."

Krosby believes that Bear Stearns' near-collapse, which followed the company's investing too heavily in risky mortgage-backed securities, might force some bankers to change their ways in the short term. But it won't be enough to temper the financial industry's relentless pursuit of money.

Indeed, the past decade has seen a number of investing fiascoes that Wall Street doesn't appear to have learned much from. Krosby noted the go-go Internet days - when untested high-tech companies reaped piles of cash in public offerings. The lesson then was, don't put a lot of money into a venture that isn't on fairly solid ground - but mortgages granted to people with poor credit are quite akin to high-tech firms that had never turned a profit. In both cases, investors gleefully looked past the risk.

Now investors are smarting from what happened to Bear Stearns. And traders are somewhat chastened, for now.

Erin Callan, the chief financial officer for Lehman Brothers Holdings Inc., said her firm has certainly become more wary about the risks it takes amid the credit crisis. However, the market's gyrations also offer Lehman's army of traders an opportunity to make money.

"We just try to come in, and run the business the best way we can," she said. "But, you can't survive if you take no risks at all. All we can do is plan in this environment, making sure we do all the things to optimize running the firm."

It seems there's little that will change an industry and a lifestyle attached to Wall Street, which is thought of by Americans as more than just the center of free-market capitalism. Its culture attracts men and women with a swashbuckling mentality - smart, aggressive risk takers with the potential to become very rich.

And, their skills in trading and investment banking were proven this past week - even after news of Bear Stearns' buyout.

Chief executives at Morgan Stanley, Goldman Sachs Group Inc., and Lehman Brothers pointed out that trading desks played a big part in offsetting massive mortgage-backed asset write-downs, which have ticked past $156 billion for global banks since last year.

As the three companies released first-quarter earnings data, Morgan Stanley said equity trading revenue surged 51 percent to $3.3 billion. Revenue at its fixed-income sales and trading group dropped 15 percent to $2.9 billion, but it was still the firm's second-highest performance ever despite having to write down $2.3 billion linked to subprime mortgages and leveraged loans.

And that pleased investors. Morgan Stanley had its largest gain in more than a decade on Wednesday, climbing 18.8 percent to $42.86. Rival investment banks also had their best week since 2001.

But, investors shouldn't get too comfortable - the investment banking industry, and Wall Street in general, still have a long way to go before they can be called healthy. It's not just the credit market problems that are an issue, it's also the struggling U.S. economy and its potential to hurt other countries.

"Until we feel more certain about the worldwide economies, we don't see things picking up dramatically," said Goldman Sachs CFO David Viniar. "We just need to keep plugging away."

Wall Street Gets Housing, Spending Data

NEW YORK -

Few investors expect this week's readings on the housing market and personal spending to be especially strong. But many are hoping the data shows at least a few clues that an economic rebound is on the horizon.

More than six months have passed since the Federal Reserve started lowering interest rates; usually, this is the point when there's evidence that a rate cut is having a salutary effect on the broader economy.

The stock market has begun to act as if it believes the Fed's rate and lending actions are helping to revive the limping financial system, but investors aren't completely confident yet. Seesaw trading led to big gains in stocks last week, but the intense volatility indicated that investors are still on edge.

Wall Street is still uneasy because it's too soon to say that the credit market freeze-up is over. The credit markets have shown signs of improvement recently after several moves by the Fed, but it not enough for the market's nerves to calm.

"With the credit markets, every time you whack a mole in place, something else seems to pop up," said Bill Stone, PNC Wealth Management's chief investment strategist. He also said, though, "you get the feeling that you have a hard time making the case that the entire financial system is going to collapse."

The Fed has had a busy couple of weeks working to keep the ailing U.S. banking system operating. It has backed JPMorgan Chase & Co.'s buyout of Bear Stearns Cos., expanded its lending policies to more types of financial institutions, started accepting different types of mortgage-backed collateral and slashed its key federal funds rate by three-quarters of a percentage point.

The central bank's target for the fed funds rate - the rate banks charge each other for overnight loans - is now at 2.25 percent, its lowest point in more than three years. The Fed also lowered the discount rate, the interest it charges bank for loans, and encouraged investment banks like Lehman Brothers Holdings Inc., Goldman Sachs Group Inc. and Morgan Stanley to borrow billions of dollars.

Last week, Wall Street finished sharply higher, encouraged by the Fed's moves as well as better-than-expected quarterly results from Lehman, Goldman and Morgan Stanley. The Dow Jones industrial average rose 3.43 percent, the Standard & Poor's 500 index increased 3.21 percent, and the Nasdaq composite index added 2.06 percent.

This week brings a slew of data, which analysts do not predict will show much recovery. And meanwhile, Wall Street will have to keep an eye on commodities prices; crude oil and gold have retreated from record levels, leaving potential room for further rate cuts, but could certainly surge again.

The National Association of Realtors reports Monday on February's sales of existing homes. According to the median estimate of economists polled by Thomson Financial/IFR, the market anticipates existing home sales to have fallen last month compared with January.

And later in the week, the Commerce Department reports on February's new home sales - which are also expected to show a decrease - and S&P and Case/Shiller release their January home price index.

The Commerce Department's personal spending data scheduled for Friday is apt to be weak, too, but not suggestive of a plunge. Economists have predicted that spending in February rose by 0.1 percent, incomes rose by 0.3 percent, and that the core personal consumption expenditures deflator - a key gauge of inflation - edged up 0.1 percent.

Other economic reports on tap this week include the Commerce Department's February gauge of durable goods orders and its final reading on fourth-quarter gross domestic product.

And perhaps just as important as the data will be what this week's stream of speeches from Fed officials reveal about the prospect of further rate cuts or more unconventional moves to keep the credit markets liquid.

"I don't know how many tricks they still have up their sleeve," PNC's Stone said, "though they've surprised me so far.

US Stocks Heading for Higher Open

NEW YORK -

Stocks were poised to open higher Tuesday as investors anticipated a massive interest rate cut from the Federal Reserve just two days after the central bank backed JPMorgan's buy of Bear Stearns and also loosened up its lending.

In the meantime, investors will be hearing from two rivals of Bear Stearns Cos. - Lehman Brothers Inc. and Goldman Sachs Group Inc. - which are scheduled to release their fiscal first-quarter earnings Tuesday morning. Both are expected to post profits, but profits that are significantly lower than they were a year ago. Investors will want to get more details about the souring mortgage-backed bets on their books.

Stockholders have been especially pessimistic about Lehman Brothers, as it is the investment bank most similar in structure and exposure to Bear Stearns. Lehman shares fell 19 percent on Monday after JPMorgan Chase & Co. said Sunday it was buying Bear Stearns for just $2 a share, or $236 million.

The Fed on Sunday, in addition to guaranteeing up to $30 billion of Bear's most troubled assets for JPMorgan, lowered its discount rate - the rate it charges banks directly - by a quarter-point. It also is allowing more types of financial firms to borrow from the central bank, and is accepting more various types of collateral.

After these signals that the Fed is ready to use everything in its arsenal to boost liquidity in the financial system, traders who bet on the Fed's next rate move are pricing in a 100 percent chance of a full-point rate cut. That would bring the target fed funds rate - the rate that banks charge each other for overnight loans - to 2 percent from 3 percent.

Lower rates tend to trigger economic growth. But with the credit markets so tight with nervousness, many market watchers are unsure whether more rate cuts are going to be enough to loosen them up again.

Dow Jones industrial average futures rose 111, or 0.93 percent, to 12,108. Standard & Poor's 500 index futures rose 15.10, or 1.18 percent, to 1,294.60, while Nasdaq 100 index futures rose 18.2, or 1.41 percent, to 1,713.50.

On Monday, the Dow rebounded from an initial drop of nearly 200 points to finish up 21 points. The S&P 500 and Nasdaq indexes ended lower as investors fled instead to large companies apt to be reliable during a weak economy.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which move opposite its price, rose to 3.36 percent from 3.30 percent late Friday. The dollar fell against most other major currencies, while gold prices rose.

Light, sweet crude rose $1.60 to $107.28 per barrel in premarket electronic trading on the New York Mercantile Exchange.

After selling off Monday, stock markets overseas rebounded. Japan's Nikkei stock average bounced 1.50 percent, while Hong Kong's Hang Seng index rose 1.4 percent. In midday trading, Britain's FTSE 100 rose 1.64 percent, Germany's DAX index added 1.71 percent, and France's CAC-40 increased 1.78 percent.

Dow Jumps 200 Ahead of Expected Rate Cut

NEW YORK -

Stocks rallied Tuesday as investors, relieved by better-than-expected results from Lehman Brothers and Goldman Sachs, also anticipated a massive interest rate cut from the Federal Reserve. The Dow Jones industrial average surged more than 200 points.

A rate cut from the Fed would come just two days after the central bank relaxed its lending practices to try to revive stagnant credit markets and also backed JPMorgan Chase & Co.'s buyout of failing investment bank Bear Stearns Cos. The Fed was holding a regularly scheduled meeting and was expected to announce its decision at 2:15 p.m. EDT.

The stock market's tone Tuesday was significantly more upbeat than it has been in recent days, in part because two rivals of Bear Stearns - Lehman Brothers Inc. and Goldman Sachs Group Inc. - both posted quarterly profits that were significantly lower than they were a year ago, but higher than analysts predicted.

The results were calming to a market that feared that the investment banks could be further weakened by bad bets on mortgage-backed securities. There was particular concern about Lehman Brothers, considered the company most like Bear Stearns, and investors had sold off the company's stock on Monday.

But early Tuesday, Lehman shares spiked back up 16.7 percent, by $5.31 to $37.06, while Goldman shares rose 8.2 percent, by $12.36 to $163.38. Bear Stearns shares also rose, jumping 59 cents, or 12.2 percent, to $5.40.

Meanwhile, traders who bet on the Fed's next rate move are pricing in a 100 percent chance of a full-point rate cut. That would bring the target fed funds rate - the rate that banks charge each other for overnight loans - to 2 percent from 3 percent. Anything less could trigger frenetic selling, while anything more could rekindle the feeling that the credit markets and economy are in worse shape than Wall Street thought.

The Fed's accompanying economic statement will be closely read for signs that the central bank is still willing to lower rates and come up with new ways to free up cash in the financial system. Still, many market watchers are unsure whether more rate cuts are going to be enough to give the markets and the economy the stimulus they need.

The Fed on Sunday, in addition to guaranteeing up to $30 billion of Bear Stearn's most troubled assets for JPMorgan, lowered its discount rate - the rate it charges banks directly - by a quarter-point. It also is allowing more types of financial firms to borrow from the central bank, and is accepting more various types of collateral.

In mid-morning trading Tuesday, the Dow rose 233.41, or 1.95 percent, to 12,205.66.

Broader stock indicators also surged. The Standard & Poor's 500 index rose 29.16, or 2.28 percent, to 1,305.76, while the Nasdaq composite index rose 45.51, or 2.09 percent, to 2,222.52.

A day earlier, the three major indexes finished widely mixed as investors sought the safety of blue chip stocks and abandoned companies viewed as riskier bets.

Bond prices fell as investors returned to stocks. The yield on the benchmark 10-year Treasury note, which move opposite its price, rose to 3.39 percent from 3.30 percent late Friday.

The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude rose $1.92 to $107.60 a barrel on the New York Mercantile Exchange.

After soaring on Monday, JPMorgan rose another $1.59, or 3.9 percent, to $41.90 Tuesday. As of Monday's close, JPMorgan's buyout valued Bear Stearns at $2.21 a share, or $260.5 million.

Wall Street was not concentrating on economic data with the Fed's rate decision on tap, but Tuesday's reports supported the notion that the economy is continuing to slide while costs are rising.

The Commerce Department said home construction fell in February: housing starts fell 0.6 percent, while building permits plummeted 7.8 percent.

Meanwhile, the Labor Department reported a 0.3 percent rise in its Producer Price Index for February, in line with estimates, but the core PPI, which strips out food and energy prices, rose by a greater-than-expected 0.5 percent.

Stocks markets overseas rebounded from sharp drops a day earlier. Japan's Nikkei stock average bounced 1.50 percent, while Hong Kong's Hang Seng index rose 1.4 percent. In afternoon trading, Britain's FTSE 100 rose 2.75 percent, Germany's DAX index added 2.69 percent, and France's CAC-40 increased 2.49 percent.

Yen Strengthens, Briefly Dips Below 100 Per Dollar

HONG KONG -

The U.S. dollar briefly fell below 100 yen on Thursday in Asia, the first time it had dropped past the psychologically important mark since November 1995.

The dollar slid to 99.75 yen in late afternoon trading in Tokyo, before rebounding to 100.18 yen.

Interest rate cuts in Washington have prompted more speculators to begin unwinding their yen carry trade investments in dollar-based securities, which have become less profitable measured against risk and opportunity costs. As a consequence, the greenback showed softness in Asia on Thursday. At one point in the morning session in Tokyo, it inched down to around 100.01 yen, a level unseen in 12 years and five months, down from 101.66 yen in New York late Wednesday. It then probed still deeper lows later in the day.

In a research note published Thursday, Citigroup analysts said they expected the U.S dollar to drop further against the yen, with more unwinding ahead, "for 9 months into a financial crisis that has witnessed a dramatic pick-up in volatility, the Japanese banking sector appears to have remained broadly short Yen. … the overall position of households also remains broadly undiminished, despite a reduction in margin account trading, implying ample room for carry trade unwinds and capital repatriation."

Thomson Financial also forecast that the yen carry trade would subside, as short-term interest rate differentials between the United States and Japan have now tightened to 220 basis points, down from 495 basis points in 2006, making the practice less attractive. The yen has strengthened by 12.7% against the U.S. dollar since July of last year, which entails less likelihood that speculators will gain from the carry trade.

"The continuing flow of weak economic data from the US leading to weakening sentiment, rising fear of a recession and the fall in liquidity is expected to keep everyone on tenterhooks with a rather guarded approach to riskier investments," Thomson Financial said in a report.

Fed Plan Pleases Wall Street

Stocks bounced back in a big way Tuesday, after the Federal Reserve Board announced a new plan to revive the credit markets.

The Fed said it will lend $200 billion to investment firms, in exchange for debt and mortgage-backed securities. This new program, called the Term Securities Lending Facility, will lend cash for 28-day periods.

The move represents a new tack for the Fed, which has tried for months to loosen lending conditions by easing monetary policy. Since mid-September, a series of rate cuts have pushed the federal funds rate to 3% from 5.25%.

The Fed action lifted stocks, as the Dow gained more than 200 points in morning trading.

Lehman Brothers (nyse: LEH - news - people ) gained more than 6%, while Merrill Lynch (nyse: MER - news - people ) and Goldman Sachs (nyse: GS - news - people ) each jumped more than 4%.

In other news, European Union regulators approved Google (nasdaq: GOOG - news - people )'s $3.1 billion bid for online ad tracker DoubleClick. The regulators dismissed concerns that the deal would give Google an unfair advantage over competitors, ruling that DoubleClick is not currently one of its rivals.

Shares of Google bounced off recent 52-week lows, gaining 4% Tuesday morning.

Other tech stocks were on the rise, like Apple (nasdaq: AAPL - news - people ) and Microsoft (nasdaq: MSFT - news - people ), which both rose about 3%.

Semper Fidel?

One day Castro really will be gone, and so will his brother, Raúl, and the whole junta. That 50-year-old fantasy of flying into Havana like Sky Masterson and getting your girlfriend drunk at El Café Cubano won't be a dream anymore. Yet Cuba is potentially so much more than casinos and luxury hotels, cruise lines, cigars and condos. The island of 11 million souls is an untapped wilderness of human capital.

"Cuba has already transitioned to a knowledge-based economy," says Johannes Werner, editor of Cuba Trade & Investment News, a monthly run out of Tampa. The nation has the leading high school enrollment in the region (86% of teens, compared with an average 69%) and the highest literacy rate (99.8%, says the CIA). Look a little closer, and there are tantalizing opportunities for U.S. investment in such areas as biotech, information technologies and basic industries. Someday.

The island claims to have 10,000 scientists--on a per capita par with China, Brazil and Mexico--1,245 of them at Havana's Center for Genetic Engineering & Biotechnology, the largest of the nation's 53 biotech labs. Over the last decade Cuba has thrown $1 billion into this fledgling industry. But it pays dividends, as it were: Last year pharmaceutical exports ranked fourth, after nickel, sugar and tobacco, taking in $162 million. Foreigners are already part of the game. GlaxoSmithkline and Cuba have distributed a bacterial meningitis vaccine. Heber Biotec SA, the commercial arm of the biotech center, produces interferons for China, while Cimab SA, the for-profit outgrowth of Cuba's Center for Immunology, has partnered with India's Biocon Pharmaceuticals to produce anticancer monoclonal antibodies in Bangalore. There are thousands of doctors serving Venezuelans in exchange for 92,000 barrels of oil a day. Imagine bringing a fraction of them home for a new gig in, say, surgical tourism.

On the computer front Cubans have been very enterprising. While they can't readily access Microsoft (nasdaq: MSFT - news - people ) programs, they've designed their own e-office suites, and a few brave geeks and dissidents have found ways to link to the Web (mostly from universities). Thanks, in small part, to the 2002 launch of the University of Informatics Sciences, there are now 10,000 computer science students working inside and out of Cuba (mostly in Mexico and Venezuela). Once a joint project with Venezuela is completed next year, Cuba's slow and costly satellite Internet connections will be dumped in favor of a fiber-optic link to the outside world--which could, perhaps, as a result, force a small fissure in the military dictatorship. Canada's Sentai Software Corp. and Indcom Trading outsourced work to CubaSoft Solutions, a wing of the Castro government.

Down the road there could also be opportunities in manufacturing. Cubans are making televisions and refrigerators for China's Haier. They've been putting their excellent automotive skills to use, not only keeping all those 1955 Chevys running on their crumbling streets but also making vans for Brazil's Busscar. A deal is in the works for Cubans to start assembling buses for Yutong Group of Zhengzhou, China.

Now, to break the spell. The U.S. won't be lifting the embargo anytime soon. The next President may liberalize travel to Cuba or allow another industry or two to qualify for legal export, as food companies like Archer Daniels Midland (nyse: ADM - news - people ) have done since 2003. Anything else is too politically difficult.

Raúl Castro may be something of a pragmatist, but he will never steer Cuba toward democratic capitalism. He may bring back a few tiny reforms that Fidel introduced in the mid-1990s, then killed: permitting small family businesses like restaurants and basic trades and allowing the use of the dollar in special circumstances. No one knows whether Cuba will eventually back into capitalism while retaining tight political control, as China and Vietnam have done, or suddenly collapse into frightening chaos.

Today Cuba is a tough place to do business. The regime keeps 51% equity stakes in joint ventures with foreign companies, and the lion's share of profits. Hiring an employee is an exercise in nightmarish bureaucracy and outright thievery: You might have to pay $1,000 or so a month for a sales rep who sees only half that sum. The average annual per capita income for Cubans is $4,500.

Some Cuba watchers believe that even postembargo the best bet for American companies is to avoid investment altogether. "A much lower risk strategy will be to recruit in Cuba and relocate the personnel to the U.S. or elsewhere," says José Azel, senior research associate at the Institute for Cuban & Cuban-American Studies at the University of Miami. Open the prison gate a crack--and watch a flood of Cubans head north.

Stocks Fall As Oil Prices Continue To Rise

U.S. stocks fell Thursday, as higher commodity prices and more bad news from financials outweighed a lower jobless number and strength from discount retailers.

Oil prices continued to rise, touching $105.97 a barrel before easing back to $104.75, up 23 cents for the day. The rise follows Wednesday's unexpected drop in U.S. inventories and news that OPEC will not increase its output.

Meanwhile, Thornburg Mortgage (nyse: TMA - news - people ) said late Wednesday it failed to meet a $28 million margin call from JPMorgan Chase (nyse: JPM - news - people ), triggering a series of defaults. The unmet call resulted in cross-defaults on all other reverse-repurchase agreements with JPMorgan, to the tune of $320 million.

Shares of Thornburg plunged 57%.

Meanwhile, bond insurer Ambac Financial Group (nyse: ABK - news - people ) was down over 11% after plans to bolster its capital base sounded a hollow note for investors.

Wall Street didn't get excited over a fall in jobless claims last week. Claims dropped to 351,000 from a revised 375,000 the week prior.

In the retail sector, same-store sales inched higher overall in February, but cash-strapped shoppers appeared to do most of their spending at discount chains like Wal-Mart (nyse: WMT - news - people ). The Dow component reported a 2.6% rise last month, while apparel retailers like the Gap (nyse: GPS - news - people ) and Limited Brands (nyse: LTD - news - people ) saw declines.

On Wednesday, BJ's Wholesale Club (nyse: BJ - news - people ) reported earnings that beat the Street's estimate, reaping the very same benefits.

Shares of Wal-Mart gained nearly 1% Thursday, while BJ's was trading down over 1%.

Thornburg Stumbles

After selling assets on Monday, it looked like Thornburg Mortgage might be able to deal with its problems, but on Thursday it defaulted anyway.

Late Wednesday, the home-mortgage lender announced it couldn't meet a $28 million margin call because of a series of cross-defaults. The notice of default, which came from JPMorgan Chase (nyse: JPM - news - people ), triggered cross-defaults "under all of Thornburg (nyse: TMA - news - people )'s other reverse repurchase agreements and its secured loan agreements," the company said in a filing on Wednesday.

Shares of the Santa Fe-based company took a free-for-all, losing 60% of their paltry value, or $2.04, leaving the stock at $1.36. In the previous five sessions, the lender had lost 70.5% of its value although it sold $920 million of loans on Monday, a deal that seemed at the time to give it some breathing space. (See: "Thornburg Back From The Brink")

In a previous filing with the U.S. Securities and Exchange Commission, Thornburg said JPMorgan has the "right to liquidate pledged collateral." Thornburg said it was loaned $320 million under reverse repurchase agreements made with JPMorgan.

Thornburg issues mortgage loans too big for government-sponsored companies to buy. It didn't describe of the amounts involved in the cross-defaults but said its "obligations under those agreements are material."

Even though the credit quality in Thornburg's portfolio is high, the value of the company's assets has plunged as other companies and investors liquidate mortgage debt. This has forced Thornburg to recognize that its assets are not as valuable as it had calculated, which in turn has prompted lenders to demand their money back.

On Wednesday, Richard Shane, a Jefferies analyst, gave the company a one-in-four chance of going bankrupt, and he downgraded Thornburg to "Hold" from "Buy." Shane pointed out in a note to investors that Thornburg has faced $570 million in "margin calls" - or lenders demanding their money back - in the past few weeks

Sector Snap: Investment Banks Fall

NEW YORK -

Shares of investment banks fell sharply Thursday as analysts said fixed income problems continued throughout February and will weigh heavily on quarterly financial results.

"Weak volumes and market valuations are likely to make the first quarter one of the worst quarters for investment banks collectively in years," Wachovia Capital Markets LLC analyst Douglas Sipkin wrote in a research note.

Aside from fixed-income deterioration, continued weak credit markets continued to drag down new issues and merger-and-acquisition activity at investment banks as well, Sipkin wrote in the note.

Shares of Bear Stearns Cos., Goldman Sachs Group Inc., Lehman Brothers Holdings Co., Merrill Lynch & Co. and Morgan Stanley all fell more than 3 percent Thursday afternoon.

Bear Stearns shares fell the furthest, dropping $5.31, or 7 percent, to $70.47.

Merrill Lynch shares fell $3, or 6.1 percent, to $46.32.

The broader markets tumbled as well, which could be weighing on the sector. The Dow Jones industrial average fell 131 points to 12,123, while the Standard & Poor's 500 fell 19 points to 1,314.

Deterioration in the markets could continue in the coming months as well, Lehman Brothers analyst Roger Freeman wrote in a client note.

"We believe that volumes will be meaningfully depressed in the near-term as the markets are currently under a significant amount of stress from technical pressures and illiquidity," Freeman wrote in the note.

Volume was down across high-yield, investment-grade and mortgage- and asset-backed securities in February and will likely remain weak, Freeman said.

Among other investment banks, shares of Goldman Sachs fell 3.3 percent to $159.53.

Shares of Lehman Brothers declined 4.2 percent to $46.03, while Morgan Stanley shares fell 3.8 percent to $39.88.

Dubai Says It Spoke No Evil

Private-wealth fund Dubai International Capital wants you to know that it thinks that Citigroup is a fine institution. It wants you to know this so much that it issued a press release to say so.

What it doesn't want you to know, apparently, is that its chief executive told the world on Tuesday that Citi needed a boatload of new cash to stay in business. (See "Citi Hits New Lows" )

In a statement dated Wednesday, Dubai International Capital said it had "never expressed an opinion" on Citigroup's "investment merits or financial condition." The release also said that the investment firm had not "been privy to any nonpublic information" about the company and that Citigroup (nyse: C - news - people ) hadn't approached the Dubai investment house looking for money. The press release did not directly contest Tuesday's fire-starting quote, widely from a private-equity conference.

After a rough weak puctuated by a plunge Tuesday, Citigroup fell 65 cents, or 2.9%, to $22.50 in early Thursday trading in New York.

The press statement concluded by saying "Dubai International Capital maintains an ongoing relationship with Citi" and has "substantial respect" for it. The obvious question is how did the rumor begin and why it survived without challenge for so long in a near instantaneous news environment? The Dubai concern has not responded to a request for more information..

The report on Tuesday was that Sameer al-Ansari, chief executive of Dubai International Capital, had said at a private-equity conference that Citgroup is going to need much more capital from outside investors to weather hard times brought on by the subprime mortgage crisis. Dubai International Capital, which has invested in Citi competitor HSBC Holdings, is the private investment vehicle for Dubai’s ruler, Sheikh Mohammed bin Rashid al Maktoum.

In November, the Abu Dhabi Investment Authority sunk $7.5 billion into Citigroup, shoring up its capital after billions in losses related to subprime mortgages. (See "Citigroup's Write-down Disaster") This bought the United Arab Emirates' sovereign wealth fund a 4.9% stake in the bank. (See "Abu Dhabi Pumping $7.5B Into Citi" and "Rich Countries Funding Big Banks")

In January, Citigroup also sold $12.5 billion in stock to additional investors including the Kuwait Investment Authority and Prince Alwaleed Bin Talal Alsaud of Saudi Arabia. (See "Prosperity and Peace In The Middle East")

Investors Follow Mortgage Lender's Woes

Wall Street was hurting Monday due to more disappointing economic data and a mortgage lender on the brink of collapse.

The U.S. Commerce Department reported that construction spending fell 1.7% in January, marking the steepest decline in 14 years. Meanwhile, the Institute for Supply Management's manufacturing report came in at 48.3 for February, which was slightly better than expected. However, any reading below 50 indicates activity in the sector is slowing.

Investors were closely following Thornburg Mortgage (nyse: TMA - news - people ) Monday. The struggling lender, which revealed it had a weakened capital position last week, reported that it has been hit with an additional $270 million in calls since Feb. 28. That is putting tremendous pressure on its liquidity and pushing the company toward collapse. Thornburg fell more than 56%.

Meanwhile, airline stocks were grounded Monday as oil prices soared and the prospect of a near-term deal between Delta Air Lines (nyse: DAL - news - people ) and Northwest Airlines (nyse: NWA - news - people ) crumbled.

Delta's chief financial officer said that the airline is comfortable with remaining independent. Shares of Delta slipped 4% Monday, while Northwest was down 6%. Oil prices reached new records, and crude was trading above $103 a barrel.

Finally, market movers LeapFrog Enterprises (nyse: LF - news - people ), Midway Games (nyse: MWY - news - people ) and Brigham Exploration (nasdaq: BEXP - news - people ) will be reporting Monday after the close.

Manufacturing Contracts, Choked By Prices

More disappointing economic news was reported on Monday, as expected. The manufacturing sector contracted in February, according to a report released Monday by the Institute of Supply Management. The national Production Manufacturing Index hit a new low when it fell below 50 to 48.3, down from 50.7 in January.

The Institute of Supply Management is a trade group of purchasing executives. The group's report is based on a number of indicators including new orders, inventory levels, production, supplier deliveries and the employment environment; an index measurement above 50 shows growth, while anything below 50 indicates contraction.

The slowdown in manufacturing is mostly due to a decrease in imports and new orders and an increase in prices. The high prices of commodities like corn, copper, structural steel, and plastic resin are having a direct effect on many of the manufacturers. Corn was trading at a price of $567.75 on Monday, up 11.3% from close on Friday, while copper was at $394.45, up 8.9%

Regional reports in manufacturing have reflected the contraction as well. The February Business Outlook Survey from the Federal Reserve Bank of Philadelphia reported similar results with a slowdown in new orders for the region and an increase in prices when it reported its survey results last week.

The Empire State index, a report by the Federal Reserve Bank of New York on manufacturing conditions in New York state, fell sharply in February to -11.7. The drop, reported in mid-February, comes after a January reading of 9.0 and was far worse than the 6.3 reading expected by analysts.

Buffett Rescinds Bond Insurer Bailout

The Oracle of Omaha has put away his cape and tights. Warren Buffett had recently offered to rescue a few very distressed lenders by backing a bunch of loans, but now the would-be hero has withdrawn the deal.

On Monday, Buffett said on television that his offer to guarantee $800 million in municipal bonds backed by MBIA (nyse: MBI - news - people ), Ambac Financial (nyse: ABK - news - people ) and privately owned Financial Guaranty Insurance, is no longer "on the table." (See "Billionaires Pounce On Bond Insurers Stumble") Although his offer seemed like a much better deal for Buffett than the insurers, shares of the troubled companies weakened after he withdrew it. MBIA was down 37 cents, or 2.6%, to $12.60, during morning trading in New York. Ambac fell 34 cents, or 3.05%, $10.80.

The trifecta of woe-ridden bond companies have been weathering hard times that don't seem near ending. (See "MBIA, We Hardly Knew Ye") and "Bond Insurers Led Into Temptation".) Along with a few near-miss billionaire bail-outs, regulators have also attempted to help the bond industry heal itself. There was recently a movement towards making bond companies divide their portfolios into "good debt" and bad debt." (See "Splitting Bond Insurers Is Hard To Do")

The legendary investor also said on the show that America is essentially in a recession. Buffett said that he hopes his next big investment will be overseas. CNBC's morning Squawkbox program featured several hours of the 78-year-old Buffett. Former General Electric (nyse: GE - news - people ) Chief Executive Jack Welch contacted producers to say that it was best Squawkbox, ever. General Electric owns CNBC, and for many years the hard-driving Welch was therefore the networks ultimate boss.

On Feb 12, Buffett had offered to guarantee the bonds, but only with a hefty premium. The offer did not include risky debt, including securities tied to subprime mortgages. Buffett's Berkshire Hathaway (nyse: BRKA - news - people ) launched its own bond insurer, Berkshire Hathaway Assurance, in December. (See "Buffett's Insurance Bust")

Buffett Says Recession In U.S. Is A Reality

Fears of an impending U.S. recession sent European and Asian markets spiraling down Monday. The Nikkei 225 dropped 4.5%, and other Asian markets also declined sharply. The FTSE 100 was down 1.3% at midday in London, as were other indexes across Europe.

Global investors are closely watching two U.S. economic reports. The Institute for Supply Management's monthly manufacturing survey will be released Monday, and Friday nonfarm payroll numbers for February will be out.

The dollar began the week trading near its all-time low. The euro purchased as much as $1.52 in European trading.

In an interview on CNBC Monday, Warren Buffett said the U.S. economy is basically in a recession now.

There was more trouble related to subprime, as Thornburg Mortgage (nyse: TMA - news - people ) said Monday morning it is in default on a reverse repurchase arrangement and is not meeting margin calls.

Merck (nyse: MRK - news - people ) reported Monday that a settlement over the withdrawn painkiller Vioxx is basically on track after 44,000 people signed up for a piece of the $4.85 billion payout.

In deals news, diversified manufacturer United Technologies (nyse: UTX - news - people ) on Sunday announced a hostile $2.6 billion bid for Diebold (nyse: DBD - news - people ), best known for its voting machine technology.

Finally, keep an eye on LeapFrog Enterprises (nyse: LF - news - people ), SuperGen (nasdaq: SUPG - news - people ) and Standard Motor Products (nyse: SMP - news - people ), all of which are reporting earnings.