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US market bloodbath, Bank of America plummets, gold soars

This morning, Standard & Poor’s also downgraded long-term government-backed debt issued by 32 banks, credit unions, and three major clearinghouses, also to AA+. Ten of the country’s 12 Federal Home Loan Banks received the same downgrade.

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Stocks plunged as investors reacted to Standard & Poor’s first-ever downgrade of US debt from AAA to AA+ Friday evening.

All major indices were down substantially; the Dow dropped below 11,000 at one point before recovering, trading at 11,016 in late afternoon, down 428 points, or 3.7%. The Nasdaq was off 122 points, or 4.8%, and the S&P 500 fell 59 points, or 4.6%.

Though today’s market action may have been sparked by S&P’s downgrade, most analysts agree the real fear is a repeat of the 2008 economic crisis.
 
This morning, Standard & Poor’s also downgraded long-term government-backed debt issued by 32 banks, credit unions, and three major clearinghouses, also to AA+. Ten of the country’s 12 Federal Home Loan Banks received the same downgrade.

A flight to safety benefited gold, which soared to all-time highs of $1,712 an ounce. Yellow metal mining companies benefited and the SPDR Gold trust gained 2.7%. The yield on U.S. Treasury 10-year notes fell as low as 2.06%, a low last seen in 2008, despite the downgrade.

Concerns over the economy continued to drive oil lower, falling $82.52 a barrel, its lowest price since May 6.

According to Moody’s, the credit rating agency decided not to downgrade US' credit, unlike its peer, because it expects the economy to improve, as measures passed by the government to kick in in 2013 will help reduce the budget deficit. However, it did cite political bickering as a key factor in assigning a negative outlook to its ratings, and the biggest potential threat to the country’s bond rating.

The U.S. credit downgrade is having ripples around the world. The cost of insuring French sovereign debt hit record highs Monday. France is considered one of the weaker AAA rated nations. It is, however, not expected to lose that status and is assigned a stable outlook. Investors are worried about its high debt levels and pension obligations. It is also the second largest contributor to the European Financial Stability Facility, the euro-zone rescue fund used to lend money to countries under the bailout program.

On the corporate front:

Valeant Pharmaceuticals International (NYSE:VRX) has approached Medicis Pharmaceutical Corp (NYSE:MRX) about a possible acquisition. Medicis shares have slumped since investigation began in the unusual death of the girlfriend of its CEO and founder, Jonah Shacknai, in July. Valeant has been searching for another buyout target since its failed hostile takeover bid for Cephalon Inc. (NASDAQ:CEPH)

Berkshire Hathaway Inc. (NYSE:BRK) became the third company to bid for reinsurer Transatlantic Holdings Inc. Its $52 offer represents a 15% premium over Transatlantic’s $45.24 Friday closing price, valuing the company at $3.25 billion. Other bidders include Validus and Allied World. Berkshire’s offer tops them both as the stock market decline lowered the value of their shares. Insurance is a major part of Berkshire’s business.

American International Group Inc. (NYSE:AIG) is planning to sue Bank of America Corp. (NYSE:BAC) Monday to recover over $10 billion it lost in mortgage investments. The lawsuit is a hindrance to BofA’s hoped-for $8.5 billion mortgage settlement; it alleges losses were due to massive fraud committed by Merrill Lynch and Countrywide- two companies acquired by BofA. The suit says more than $10 billion was lost on $28 billion in mortgage-backed securities purchased by AIG. AIG will seek to block BofA’s $8.5 billion mortgage settlement.

FedEx Corp. (NYSE:FDX) will increase freight prices 6.8% beginning September 6 on shipments in the contiguous U.S. and Canada, as well as portions of Mexico. This comes on top of a price hike on January 3. The company reported healthy fiscal fourth quarter earnings growth of 33% in June due to strong demand and improving margins.

Tyson Foods Inc. (NYSE:TSN) reported a 21% drop in fiscal third quarter profit on low chicken prices and high cost of feed, which it said will continue through most of the fourth quarter. Corn prices are up about 80% from a year ago. Tyson’s pork and beef segments have been strong as both have seen prices rise with tighter supplies and export demand. For the quarter ending July 2, profit declined to $196 million from $248 million the previous year, while revenue increased 11% to $8.25 billion.

Groupon Inc. has doubled the number of subscribers this year to 115 million as it heads towards a highly anticipated IPO. After pushback from investors, it is planning on abandoning its controversial accounting metric that excludes marketing costs. Groupon has filed to raise $750 million and up to $1 billion in an offering that will value the company at between $15 and $20 billion.

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