Investors Keep Faith in U.S. in Crisis after Crisis
By Bernard Condon, AP Business Writer
NEW YORK (AP) -- Global investors have stayed remarkably confident in the U.S. despite one budget crisis after another. But they're starting to wonder if the latest political impasse will tarnish America's Teflon image.
So far, the nation's reputation as the world's best place to invest remains unshaken. The 10-year Treasury note, the bedrock of the government's debt market, has attracted more money in recent weeks, not less, and the stock market is still close to record highs.
Still, the squabbling in Washington over the debt ceiling, which follows squabbling over automatic spending cuts earlier this year, is severely testing investor patience. Many fear a default would be a tipping point, sending bond and stock prices plunging.
The repeated budgetary brinkmanship is making some question their faith in the U.S.
"The more times you give politicians a chance to completely muck something up, the more chance ... they will do it," says Gary Jenkins, managing director of Swordfish Research in London. "If this were to become a regular occurrence, then, who knows?"
The U.S. Treasury has warned it will run out of money if Congress does not agree to raise a $16.7 trillion cap on borrowing by Oct. 17 and allow it to issue more debt. That has raised the specter that the U.S. won't be able to pay interest on its debt. Republicans say they won't allow more borrowing unless Democrats agree to restructure benefits programs or cut the deficit; the White House has ruled out negotiations tied to the debt cap.
The Treasury says a default on bond payments could freeze global credit, spike borrowing costs and trigger a collapse worse than the Great Recession.
Even with such a dire scenario, investors continue to buy Treasurys. On Tuesday, the yield on the 10-year note, which falls when investors buy, was 2.63 percent, near a two-month low.
U.S. stocks fell again on Tuesday, the 11th drop in the last 14 trading days. Still, the Standard and Poor's 500 index reached an all-time high just three weeks ago and is only 4 percent below that peak.
The debt ceiling fight echoes the Congressional standoff over the same issue in the summer of 2011.
Experts say the U.S. attracts money now for the same reason it did back then: Many other countries are faring worse than the U.S. China, India and Brazil are slowing dramatically. Japan is struggling to shake off a two-decade slump. The 17 countries of the eurozone have just emerged from a recession.
"We're the best of worst," says David Sherman, head of Cohanzick Management, a manager of bond funds. He adds that the U.S. tends to "bounce back" from crises.
In the 2011 crisis, for example, U.S. stock prices dropped, but recovered most of their losses by the end of the year.
Many investors think the costs of a default are too high for politicians not to raise the borrowing cap before the deadline. But they're still worried. Congress hasn't agreed on a spending bill for the new budget year that began Oct. 1. A lack of funding led to a partial shutdown of the government, which entered its ninth day on Wednesday.
"If we're having trouble with this government shutdown, and no negotiation, what's going to happen in two weeks?" asks Talley Leger, a strategist Macro Vision Research, an investment consultancy.
Leger thinks it may take a further drop in stocks, perhaps a big one, to force lawmakers to compromise.
The precedent for this is the 778-point drop in the Dow Jones industrial average on Sept. 29, 2008, after Congress rejected a $700 billion bailout bill, known as Troubled Asset Relief Program. The TARP bill was passed within days.
"This whole shutdown could easily drag out to the debt deadline," says Bill Strazzullo, chief market strategist of Bell Curve Trading.
His guess is that the Dow falls to 14,200 - down 576 points from Tuesday's close.
The prospects for U.S. bonds are more complicated.
When investors anticipate a crisis, they tend to buy U.S. bonds. Treasurys are one of the mostly widely held assets in the world, so it's easy to buy and sell them, even when people are panicking.
"People crave Treasurys because it is the most liquid market," says Mark Vitner, a senior economist at Wells Fargo.
After the rating agency Standard and Poor's stripped the U.S. of its top credit rating in August 2011, people bought more U.S. debt. The yield on the 10-year Treasury fell below 2 percent for the first time in a half century.
"For all its theatrical problems, the U.S. is still a haven," says Marshall Mays, director of Hong Kong-based Emerging Alpha Advisors. Mays says money should continue to flow to the U.S. from Asia.
There is another reason to buy Treasurys. The worse things get, the less likely it is that the Federal Reserve will slow its economic stimulus. The Fed is buying $85 billion in Treasury and other bonds each month, driving bond prices up and their interest rates down. The goal is to lower rates on consumer loans, which are pegged to Treasurys.
The Fed extended that program last month, partly because it though the economy still needed help. Now, with the shutdown dragging on the economy, the Fed could keep buying bonds, continuing to make them attractive investments.
Randall Warren, chief investment officer of Warren Financial Service in Exton, Penn., says the Washington standoff might not be bad for another reason.
If Americans are made aware of their large debt, he says, they may be more willing to accept an increase in taxes or a cut in spending. "The easier it will be for Congress to dish out the medicine."
A default on Treasurys would be a step too far, though, says Dariusz Kowalczyk, Hong Kong-based senior Asia economist at Credit Agricole CIB. "People would be just afraid of holding Treasurys and to a smaller degree in holding the dollar."
AP Business Writers Steve Rothwell in New York, Kelvin Chan in Hong Kong and Sarah DiLorenzo in Paris contributed to this report.
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GULF OIL SPILL-SETTLEMENT
NEW ORLEANS (AP) -- A federal judge says BP will begin paying up to $1 billion in settlements to compensate local governments across the Gulf Coast for lost tax revenue and other economic damages they blame on the company's 2010 oil spill.
An order issued Monday by U.S. District Judge Carl Barbier (BAHR'-bih-aye) says all of the payments to local governments must be made within 30 days.
July 15 was the deadline for roughly 500 local governments in five states to decide whether to accept BP's settlement offers as part of a broader $18.7 billion agreement with the five Gulf states and the federal government over damage from the spill.
Barbier's order says BP says most local government entities have accepted the settlement.
UNDATED (AP) -- Windows 10 debuts tomorrow. No one's expected to line up overnight for the new Microsoft operating systems the way people did 20 years ago for Windows 95.
Microsoft says Windows 10 will seem familiar to users of Windows 7. Microsoft and PC makers want to erase the memory of the last big update, 2012's Windows 8, which alienated many with its jarring, clumsy design.
So, how much will Windows 10 cost? Microsoft says the new OS will be a free download for anyone who has the Home or Pro versions of Windows 7 or 8, but not the Enterprise versions.
But you might have to wait a bit to get your copy. Microsoft says it will deliver downloads in waves, to ensure things go smoothly. You can check the Microsoft website for more information on how to update your OS and what to expect from Windows 10.
DETROIT (AP) -- Fiat Chrysler could be required to lay out billions of dollars to get potentially defective Ram pickups and older Jeeps off the road under a deal with safety regulators to settle claims that the automaker mishandled nearly two dozen recalls.
The Italian-American automaker must offer to buy back 500,000 Ram pickup trucks and other vehicles in the biggest such action in U.S. history. It must also either allow owners of more than a million older Jeeps with vulnerable rear-mounted gas tanks to trade them in at above market value or cover the cost of a repair. Fiat Chrysler faces a record civil fine of up to $105 million.
The settlement is the latest sign that auto safety regulators are taking a more aggressive approach toward companies that fail to disclose defects or don't properly conduct a recall.
TOKYO (AP) -- Volkswagen overtook Toyota in global vehicle sales for January-June, the first time the German automaker has come out at the top in the intensely competitive tallies.
Japanese automaker Toyota Motor Corp. said Tuesday it sold 5.02 million vehicles in the first six months of this year.
Volkswagen said earlier it sold 5.04 million vehicles during the same period. Sales were robust in Europe and North America but fell in China, a strong market for the company.
Detroit-based General Motors Corp., the top-selling automaker for more than seven decades until being surpassed by Toyota in 2008, is expected to report its figure Thursday.
Toyota, which makes the Prius hybrid, Camry sedan and Lexus luxury models, has been the world's top-selling automaker for the past three years.
MEXICAN CILANTRO BAN
WASHINGTON (AP) -- The Food and Drug Administration is banning imports of some fresh cilantro from Puebla, Mexico, after a government investigation found human feces and toilet paper in growing fields there.
The FDA announced the partial ban on Monday after cilantro imported from the state of Puebla was linked to 2013 and 2014 outbreaks of stomach illnesses in the United States.
U.S. and Mexican health authorities investigated farms and packing houses in Puebla and found that some of the farms had no running water or toilet facilities.
The ban will only affect certain shipments of fresh cilantro from Puebla from April through August, corresponding to the timing of the outbreaks. The summer ban will continue in future years unless a company can prove to health authorities that its product is safe.
WASHINGTON (AP) -- Majority Leader Kevin McCarthy is ruling out House action on a long-term, must-pass highway bill the Senate is considering.
In an interview with reporters on Monday, the California Republican said definitively: "We're not taking up the Senate bill."
The Senate's version of the highway bill, which is on track to pass later in the week, sets policy and authorizes transportation programs for six years, though with funding for only three of those years. The Senate also is moving toward reviving the federal Export-Import Bank and adding it to the bill.
The House has passed a five-month extension of transportation programs without the Export-Import Bank.
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NORTH KINGSTOWN, R.I. (AP) -- Federal and state officials say the beginning of construction for the nation's first offshore wind farm is the success the industry needs to surge forward in the United States.
U.S. Secretary of the Interior Sally Jewell called it a "pioneering moment" for an important industry.
Deepwater Wind is building a five-turbine wind farm off Block Island, Rhode Island, which it expects to power 17,000 homes as early as next year.
It began attaching the first of the steel foundations to the ocean floor Sunday. The first one touching the seabed is known in the industry as the "first steel in the water."
Deepwater Wind CEO Jeffrey Grybowski says it was a spectacular moment.
Deepwater Wind took officials, including Jewell, and project supporters to the site by boat Monday.
APPLE WATCH-BEST BUY
NEW YORK (AP) -- The Apple Watch is heading to some Best Buy stores ahead of the holiday shopping season.
Best Buy Co. says it will sell the Apple Watch at 100 of its stores and on its website on August 7. Another 200 Best Buy stores will offer the smartwatch before the end of the year. Best Buy, which has more than 1,000 stores in the U.S., says it's the first national retailer to sell the watch outside of Apple Inc.'s stores.
The retailer, based in Richfield, Minnesota, will offer models of the smartwatch that cost between $349.99 and $699.99.
Apple unveiled the watch in September and began taking orders in April. The Cupertino, California, company hasn't released any sale figures for the new device.
NEW YORK (AP) -- Nike will give partial refunds or gift cards to people who bought FuelBand fitness trackers in the last three and a half years, resolving a lawsuit that says the products can't accurately tally how many steps a user is taking or how many calories they've burned.
A website maintained by Gilardi & Co., a firm that administers settlements, says Nike Inc. will give $15 payments or $25 gift cards to people who bought FuelBands between Jan. 19, 2012 and June 17, 2015. Nike and collaborator Apple aren't acknowledging wrongdoing, but they're offering to settle a class action lawsuit against them.
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Apple Inc. and Nike did not immediately respond to a request for comment.
BERLIN (AP) -- Kazakhstan is set to become the 162nd member of the World Trade Organization after the Geneva-based body formally approved the country's membership.
The largest former Soviet republic in Central Asia is rich in natural resources and a key transit country for goods between Asia and Europe.
President Nursultan Nazarbayev says Kazakhstan is committed to opening up its financial and telecommunications sectors as agreed during its 19-year accession process.
Nazarbayev says his country hopes that joining the WTO will encourage foreign investment.
Kazakhstan, which has suffered from the economic downturn in neighboring Russia, must still ratify the membership agreement in its national Parliament by the end of October.
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