As the stock spirals, American International Group Inc. is considering holding an analyst call Monday morning, when it might announce steps, including asset sales, to assuage worried investors, Liam Pleven and Liz Rappaport report in the Wall Street Journal, citing a person familiar with the matter.

In addition, Standard & Poor’s is threatening to downgrade the company’s credit due to the sharp fall-off in the company’s share price and increase in credit spreads on its debt, which barely traded Friday. If the company holds a Monday conference call, MarketBeat will be all over it.

The performance of markets this week brings to mind the cliché about not knowing where you’re going, but making great time in getting there.

To say investors are confused is putting it mildly. Investors are coming through a week where financial shares have been thrashed, despite the insistence that the fundamentals do not justify the skittishness. Volatility rose sharply, and the Dow industrials traded in a wide range every day of the week. A long-term investor might see a good opening to buy shares, but if those shares then drop another 20% in a day, that’s a confidence-buster.

“Wall Street is a funny place in the following fashion: If you were going to a retail store and things were 30% off, you’d buy, but on Wall Street, you get scared,” says Michael Strauss, chief economist and strategist at Commonfund.

This environment is good news for a trader with the agility of Spider-Man and the mathematical chops of Steven Hawking, but for everyone else, it can be frustrating. “When you have such volatility it’s a great environment for traders, assuming you’re smart enough to be on the right side of a trade, but it’s much harder for everyone else,” says Michael Cuggino, chief executive officer at Permanent Portfolio Family of Funds.

And yet, the market is coming into the end of Friday just 0.1% higher than where it started this week. According to Bespoke Investment Group, 53% of the stock in the Standard & Poor’s 500-stock index are trading above their 50-day moving averages. Certain stocks are doing well and others are not, but this reading does not illuminate the outlook for investors.

For Mr. Strauss, this does translate to a buying opportunity, particularly when companies in one sector have been painted with a broad brush, tarred along with other troubled names. Keeping in mind the possibility that equities can get hit at any time lately, he adds that “you need to keep some extra dry powder, recognizing these pressures sometimes again have a cancerous effect — where they impact [stocks] in a broader or deeper way.”

Similarly, Ari Bergmann, principal at Penso Capital Markets, says the unwind among the leveraged investors in financials, resource stocks, and commodity markets might be coming to an end. If a bit of normalcy ensues, it could be an opportunity for the more patient investor.

Mr. Cuggino says there’s a difficulty in managing long-term investments in this short-term oriented market, but his advice for investors is simple: “Don’t get wrapped up too much in one day, one week, or one month, and don’t get overly excited about one data point or a daily occurrence or event,” he says.

Carolyn Cui reports:

It gets wild in the soybean market once in a while. (Wikipedia.com)

There are some fireworks in the soybeans market.

Before noon, the September front-month soybean futures soared 16.8% to $14.20 per bushel on the Chicago Board of Trade, while other longer-term contracts are just marginally higher.

With the September contracts to expire today, “the shorts are getting squeezed by the longs,” said Tim Hannagan, senior grain analyst at Alaron Futures and Options in Chicago.

Traders have to offset their positions before the contracts expire. Speculators usually get out of the market days before the expiration, leaving the commercial users in the market at the last few days to settle the deliveries.

The longs chose to demand delivery instead of cash settlement, which has forced the shorts to go out to buy every bushel of soybeans they can get in the market, Mr. Hannagan said. Soybeans’ ending stocks are at an historically low level, helping bidding up the prices.

“It’s very rare,” he said, “Maybe once, or twice, a year.”

One of the harder-hit names in activity Friday was Cemex SAB, the Mexican cement company, which was down nearly 8% after the company’s preliminary earnings fell short of expectations and the group cut estimates for the full year.

The American depository shares have been in decline of late, falling about 16% since the end of July, struggling along with other materials stocks. The company expects sales will be flat at $5.9 billion for the third quarter, and it cut its estimates for full-year earnings (before taxes, interest and depreciation of assets).

The recent rebound in the dollar against the euro has also hurt the company, costing it about $100 million for the quarter. That may persist, say analysts at Longbow Research, who downgraded shares to neutral, citing weakness in the company’s large export markets — Spain, the U.K., and U.S.

Credit Suisse analysts were similarly pessimistic, saying that “the continued deterioration of the U.S. residential sector combined with the tightening of credit conditions and the deceleration of the U.S. economy is having a spill-over effect to other sectors, affecting demand in the industrial and commercial sub-sectors.”

What happened in March is happening again. Amid the breakdown in shares of Lehman Brothers Holdings Inc., sellers are aggressively hitting financial shares, particularly Merrill Lynch & Co. and American International Group Inc., both of which are enduring double-digit share losses in another active day of trading for those stocks.

The trading reflects increasing fear among investors – or attempts by some to promulgate panic, and this is evident when looking at indicators other than the share prices, namely, activity in the options market and in the credit-default swaps market.

“The thing that’s difficult about these financials is, just by observing what’s going on, you put yourself in the position of propagating confidence-killers about these banks, which then spread, virally,” says Rebecca Engmann Darst, equity options analyst at Interactive Brokers.

Shares of Lehman Brothers are once again getting beaten up, down 10.4% as the brokerage searches for a buyer. But the pattern of selling and increased volatility that engulfed Lehman has spread to Merrill Lynch, whose options saw a large increase in implied volatility (that is, the expectations for further stock fluctuations) on Wednesday, when the Lehman Brothers situation exploded.

Merrill options activity would certainly suggest that some are taking disaster bets, or doing so to undermine confidence in the shares. “Once the downdraft starts in one of these stocks people start selling,” said one market strategist, who asked not to be identified.

CDR’s Counterparty Index shows increasing fear among those taking insurance against debt holdings of major financial companies. (Creditresearch.com)

More than 30,000 September put options have traded at the $10 strike price, and more than 17,000 put contracts have traded at the ridiculously low $5 strike price, according to Ms. Darst.

A similar situation is playing out in shares of Dow component American International Group, which is enduring another terrible day, down 20%. The credit-default swaps, a measure of protection against default, have exploded. Today it costs $1.2 million, along with $500,000 annually, to protect $10 million in bonds against default, compared with $680,000 on Thursday, according to Phoenix Partners Group.

Strategists say this is, in part, a vicious circle that has been enhanced by the government’s involvement in Bear Stearns and the government-sponsored entities. Armed with the recollection of how these situations played out — the equity gets reduced to nothing after the government steps in or brokers a rescue — strategists say sellers are shorting these shares in an effort to scare institutional investors out of the stocks.

“The investment community is at the point where it believes that failures have been replaced by shotgun weddings,” writes Mike O’Rourke, chief market strategist at BTIG, in a late Thursday comment. “It is apparent that the most feared market on Wall Street is not the bond market or the stock market, it is the credit default swap market. As a result, problem companies are finding themselves targets of rescue mergers. This is the ‘playbook’ for the current market environment.”

So many TVs, so little time to watch them all.

Since there are few customers out purchasing several flat-panel televisions because they don’t like the picture-in-picture thing, retailers such as Best Buy are having to contend with a glut of inventory in this market. UBS Securities downgraded shares of Best Buy to neutral after Thursday’s close, and shares are down 3.4% Friday after the action.

“We are increasingly concerned that excess inventory in the Global LCD TV Supply Chain combined with a more challenging demand environment in the U.S. will foster increased promotional activity in the Consumer Electronics Retail Sector and in turn weigh upon sales growth and margin trends at Best Buy,” the analysts write.

Best Buy’s shares headed into Friday action were down 12.6% on the year, and other companies involved in the sale or manufacture of these tvs (or their components) have struggled of late as well, including Corning.

The company is scheduled to report earnings in the next two weeks, and RBC Capital Markets analysts say that “increases in higher-margin segments such as video game software, services and Best Buy Mobile should all help to alleviate some of [the] pressure” that comes from the flat-panel softness.

They caution, however, that retail activity at the company, and its rival, Circuit City (down 59% in 2008), has seemed to decline in recent weeks.

All that was said about the market leaving Lehman Brothers Holdings Inc. on its own (call it the Lehman decoupling)? It may not be over. As the struggling brokerage searches for a buyer and shares fall again, the rest of the market is set to sink at the opening bell.

The S&P 500 futures were lately down 9.8 points, while less-traded Dow futures were down 54 points, in part because of anticipated poor openings for American International Group Inc. and the other financial components of the Dow.

Lehman, meanwhile, dropped by 10% as the company searches for a buyer. Speculation on who may be tabbed by the brokerage rivals the recent frenzy over the presidential candidates’ vice-presidential picks, but Bank of America is currently the leader (it is down 2% in premarket action).

Another weak month for retail sales, which were flat when excluding the 2.5% drop in gasoline sales, and a rise in the core index on producer prices, has also hurt futures.

Rob Curran reports:

Despite similarities in equity and credit markets’ perceptions of Lehman Brothers Holdings this week with views of Bear Stearns in its crisis of confidence during the week ended March 14, there are some glimmers of hope for Lehman in the differences.

The magnitude of Lehman’s drop in the stock market and the widening of the spreads in the market for insuring against events of default certainly recall Bear’s last days. The major difference between Bear and Lehman is continued faith in the latter’s short-term liquidity.

That may explain why the equity-options market on Lehman pivoted Wednesday, and some traders appeared to bet on the firm by buying call options. About 15,700 contracts giving the right to buy Lehman stock for $12.50 a share in October changed hands Wednesday, outweighing open interest. Even as the stock trades down 32% to $4.92, a greater number of calls have traded than puts, suggesting a bullish leaning among option analysts.

While options traders also took both sides on Bear Stearns during its crisis, the bias was more clearly on the bearish put side. “We think Lehman is better off than Bear Stearns in a number of respects,” said Scott Sprinzen, credit analyst at Standard & Poor’s. “Their liquidity is stronger, just given the size of their cash position, and (there is) a lesser dependence on credit-sensitive short-term borrowings.”

Reacting to the liquidity scare on Friday, March 14, Standard & Poor’s cut its rating on Bear Stearns’s short-term and long-term counterparty debt. The difference between the ratings agency’s tone on Bear and that on Lehman is hard to miss:

“Ongoing pressure and anxiety in the markets resulted in significant cash outflows toward the week’s end, leaving Bear with a significantly deteriorated liquidity position at end of business on Thursday,” the agency wrote.

Lehman’s prime-brokerage business is smaller than Bear’s relative to its more diverse portfolio, Mr. Sprinzen noted. And Lehman doesn’t depend on hedge-fund clients’ free credit balances to the same extent. In Bear’s case, the “run on the bank” by prime-brokerage clients was a major contributor to its fall.

On the market for credit default swaps, the spreads on Lehman are not far from those on Bear Stearns when it closed Friday March 14. They have since narrowed from their worst levels of the day of 775 basis points to 745 basis points almost twice as wide as where they were Tuesday, according to Phoenix Partners Group. Still, the swaps have not yet started to trade “up front,” indicating traders would want cash on delivery, as happened with the Bear Stearns.

Earlier in the day, amid all the turmoil, the U.S. Treasury Department said it was continuing to “monitor” markets and was in touch with dealers and other participants.

It’s unclear whether this should be considered a good thing or a threat.

After all, a number of different banks have found the need to raise money in recent weeks and months, through offerings of common stock or preferred shares. And this weekend, the federal government announced plans to take over Fannie Mae and Freddie Mac, wiping out common shareholders and preferred shareholders in the process.

There may have been no other choice in this matter, even if some fought against this takeover. But with the buzzards circling above the likes of Lehman Brothers Holdings Inc., Washington Mutual Inc., and others, some believe there’s a possibility that more institutions may be “made an example of,” so to speak, and this inhibits capital-raising for those companies.

“Lehman is at the [discount] window, so the government will bail them out to prevent the Federal Reserve from getting stuck with a loss,” writes Jim Bianco, president of Bianco Research. “So, how can Lehman ask others for capital when Ben [Bernanke]/Hank [Paulson] can swoop in on any Friday of their choice and wipe them out?”

Mr. Bianco says the Federal Reserve’s myriad borrowing facilities, while supposed to provide liquidity for the brokerage institutions, now means the Fed has “skin in the game,” and they “don’t want to put the Fed’s credibility of not losing money at risk.”

The more frightening prospect for investors is that the ongoing housing crisis continues to drag down the financial sector, and individual stocks. But others agree that on the margin, providing capital to troubled institutions may be akin to throwing money down a well.

Many major banks have raised cash in the last several months — and in a few cases, investors negotiated for downside protection, in case the stock continued to fall and the company in question needed more money. But most did not, and the current fundamentals make investors more wary.

Future money-raising activities are going to be “priced to reflect risk more and be more expensive, and the cost of capital is going to go up,” says Jeff Saut, head of investment strategy at Raymond James.

Measures of credit risk, including Credit Derivatives Research’s Counterparty Index, and the credit-default swaps of Washington Mutual Inc., show that fixed-income players are increasing their worries about the state of the financial sector. The CDR index, a basket of 15 large banking and brokerage institutions, rose Thursday to reflect a cost of $208,200 to protect $10 million of bonds against default.

That’s up from $181,700 Wednesday, and represents the highest cost in this index since the days after Bear Stearns was bought out in mid-March. Lehman Brothers, predictably, is the biggest mover on the session, but others, including Merrill Lynch & Co. and Wachovia Corp., are substantially more expensive to protect.

The credit-default swaps of Washington Mutual, meanwhile, now reflect a cost of $4.5 million to protect $10 million in bonds against default for five years. Which is basically insane — it’s a bet on default, really. (As an aside, a WaMu spokesperson emailed MarketBeat to alert us to the recent Standard & Poor’s report that says that “the strong regulatory capital cushion of over $10 billion above regulatory capital measures is considered quite solid.” Still, S&P warns that if the company’s “asset quality deteriorates beyond the current expected forecast the ratings could be lowered.”)

“There’s a crisis in confidence” among investors, says Len Blum, managing partner at Westwood Capital.

The dollar has had quite a run of late against most of the major world currencies. It is trading at one-year highs against the euro, is moving further away from parity with the Canadian dollar, and any thought that the Australian dollar might reach parity is a thing of the past.

There is, however, one exception: the yen.

While the greenback has strengthened against other currencies due to worries about worldwide growth (particularly in Europe), position deleveraging and expectations for lower interest rates, the yen has been even better in the last few weeks, falling to 106.73 from 110. Popular trades that relied on the yen as a source of funding have receded due to the increased volatility in financial markets, and that’s resulted in a rebound in yen.

“As we’ve seen during past episodes of risk aversion and the unwinding of risk trades, some of those were funded with the yen,” says Robert Lynch — head of currency strategy for HSBC Americas. “As those were unwound it involves buying back the yen and it appreciated against a lot of currencies.”

Recently, New Zealand’s central bank reduced its key lending rate by 0.5 percentage point, reducing the attractiveness of the high yield in that market and in Australia. The yen “continues to flex its safe haven muscle thanks to its low yielding status as traders further unwind their long positions in all other currencies with a higher yield,” writes Ashraf Laidi, chief forex strategist at CMC Markets.

The dollar now buys 106.73 yen, compared with 104.57 yen on July 15, right around when the market last melted down. That’s a mild strengthening, but in that same time, the dollar has appreciated by 21% against the Aussie, 14% against the pound, 7% against the loonie, and 13% against the euro.

What is not helping the yen is Japan’s economy. Strategists at Brown Brothers Harriman note that second-quarter GDP is expected to be revised Friday to negative 1% from negative 0.6%.

The most-watched financial television news station, CNBC, has generally been consistent with the various quotes that appear in the bar at the top of the screen. They’re more often than not the major stock indexes, major commodities, the bond markets, currencies, and a few of the other foreign markets from time to time.

Sure, over the last several months, they’ve been flagging “America’s Oil Crisis” in orange at the top, but still — oil is arguably the most important commodity, and there’s been interest in oil ever since it hit $50 a barrel.

Right now, though, the current scroll includes quotes of Lehman Brothers, Washington Mutual, and a third stock — rotating between Merrill Lynch and American International Group. It’s sort of the “death watch” for financials, and it might mean that all of this is coming to the close soon enough.

“When there are high-interest pieces of information that we can provide in real-time, we like to do that because our audience craves it,” says Jonathan Wald, senior vice-president of business news at CNBC. The network generally in the past has stuck to highlighting major markets rather than individual stocks.

Doug Kass, president of Seabreeze Partners Management, says it may be the “best contrary sign extant that the financials are in the later stages of capitulatory selling… remember the bug on CNBC that presaged the DJIA 14,000 celebration?”

Mr. Wald says that “we’re constantly giving our viewers what’s in the news at that moment — it makes sense to highlight a given sector.”