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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Last Update on March 03, 2015 08:29 GMT
BARCELONA, Spain (AP) -- Search giant, self-driving car developer, smartphone and tablet maker. Now, is Google becoming a data plan provider?
Google wants more people to get online so they can search around and click on its ads. And it's shaking up the telecom world to do it. The company said Monday at the wireless show in Barcelona, Spain, that it will soon sell data plans for smartphones and tablets in the U.S. The announcement confirmed leaks and media reports in late January that Google planned to enter the telecom market.
Sundar Pichai, Google Inc.'s senior vice president of products, said during his presentation that more information would be provided in the coming months.
The move into the wireless market mirrors what Google has been trying to do for hard-wired Internet access at home. The Mountain View, California, company currently sells an ultra-fast fiber-optic Internet service in a handful of markets scattered across the U.S. in an attempt to pressure long-established broadband providers to improve their service and cut their prices.
Google conceivably do something similar for wireless by offering discounted data plans that would pressure major carriers such as AT&T Inc. and Verizon Communications to offer better deals and services or risk losing customers to a powerful rival.
WASHINGTON (AP) -- Congressional Republicans are sending a message that they hope the Supreme Court and voters will hear: The country's health care system won't crumble if the justices obliterate a bedrock feature of President Barack Obama's heath care law.
Three top senators say that if the court invalidates federal subsidies that help millions of Americans buy coverage under Obama's law, they have a plan to protect them and create "better" insurance markets by giving states more leeway to decide what insurers must cover.
But an opinion article in Monday's Washington Post by GOP Sens. Lamar Alexander of Tennessee, John Barrasso of Wyoming and Orrin Hatch of Utah offered very few details. It said nothing about how much assistance they would provide, its duration or how they would pay for it.
WASHINGTON (AP) -- Citing safety concerns, United Airlines says it will no longer accept bulk shipments of rechargeable lithium batteries of the kind that power everything from smartphones to laptops to power tools.
United is the second major U.S. airline to decide it will no longer accept lithium-ion battery shipments. Delta Air Lines stopped accepting the bulk shipments last month.
It's not uncommon for tens of thousands of the batteries to be shipped in a single cargo container aboard a passenger airliner on an international flight.
Federal Aviation Administration tests over the past year show that when a single battery overheats it can result in a chain reaction, causing other batteries to short circuit and overheat. As they overheat, the batteries emit explosive gases. Several tests have resulted in fierce explosions and fires.
WASHINGTON (AP) -- A government watchdog is warning that cybersecurity weaknesses could lead to disruptions and undermine the safety of the nation's air traffic control system.
The Government Accountability Office says the Federal Aviation Administration has taken steps to protect the air traffic system from cyber-based threats, but that, quote, "significant security control weaknesses remain."
One area of weaknesses is the ability to prevent and detect unauthorized access to the vast network of computer and communications systems the FAA uses to process and track flights around the world.
There also are inadequate protections to prevent entry into air traffic computer systems from other, less-secure computer systems not directly involved in traffic operations.
The FAA said it is aware of the importance of the matter and has achieved several milestones in improving its cybersecurity.
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GENEVA (AP) -- The CEO of Volkswagen AG is staying with his cautious outlook for this year.
Martin Winterkorn tells The Associated Press that it's a "balanced statement" based on growth in the U.S., Europe and China versus trouble spots such as Russia and Brazil.
Winterkorn calls it a solid assessment, saying "I think it's quite a good assessment, as usual we at Volkswagen do not want to lose touch with reality despite all the successes."
As it announced increased profits for last year Volkswagen last week cautioned that 2015 could be a turbulent year. It predicted increased sales but said there was no guarantee of a successful year for the company or the industry as a whole.
Russia's economy appears headed for recession this year after the ruble plunged in value. The conflict between Russia and Ukraine has also unsettled business confidence in Eastern Europe.
A slew of U.S. auto sales figures for February will be released in Detroit later today.
RICHMOND, Va. (AP) -- A lawyer for media organizations says a gag order in the criminal case of the West Virginia coal mine explosion that killed 29 men violates the First Amendment by barring virtually anyone from discussing it publicly.
David Schulz has told a three-judge panel of the U.S. 4th Circuit Court of Appeals in Richmond, Virginia, that some victims' relatives believe the sweeping gag order also prohibits them from testifying before lawmakers and regulators.
U.S. District Judge Irene Berger's gag order was imposed in January when she said it was needed to protect former Massey Energy CEO Don Blankenship's right to a fair trial.
Blankenship was the head of the company when the Upper Big Branch Mine exploded in 2010. He's charged with conspiring to violate safety and health standards.
Schultz argued Monday that "the public has a right and a need to know that justice is being done fairly."
The panel didn't indicate when it would rule.
WASHINGTON (AP) -- Interest rates on short-term Treasury bills were mixed in yesterday's auction, with rates on six-month bills rising while rates on three-month bills dipped to their lowest level since mid-October.
The Treasury Department auctioned $26 billion in three-month bills at a discount rate of 0.015 percent, down from 0.020 percent last week. Another $26 billion in six-month bills was auctioned at a discount rate of 0.075 percent, up from 0.065 percent last week.
The three-month rate was the lowest since three-month bills averaged 0.010 percent on Oct. 14. The six-month rate was the highest since those bills averaged 0.085 percent on Feb. 9.
The discount rates reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,999.62, while a six-month bill sold for $9,996.21. That would equal an annualized rate of 0.015 percent for the three-month bills and 0.076 percent for the six-month bills.
MADRID (AP) -- Spain created hours of confusion over the future of Greece's troubled finances yesterday. First, it announced that eurozone nations were negotiating a third Greek bailout of up to 50 billion euros ($56 billion). But then, Madrid backtracked and said that the prospect of such a bailout was merely hypothetical.
The high profile sequence of events began when Spain's Economy Ministry said that Minister Luis de Guindos had declared at a conference that a new bailout for Greece could provide between 30 billion euros and 50 billion euros.
In comments circulated by the ministry to media outlets, de Guindos said that a "central scenario for Greece is a deal on the basis of the current bailout, and new conditions to be set with flexibility." Those remarks clearly stated that a round of negotiations were underway for a third Greek bailout.
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Dr. Robert Califf comes to the job of FDA deputy commissioner after more than 30 years as a researcher and administrator at Duke University. But the 63-year-old Califf is no stranger to FDA issues. For years he served on committees that advise the agency on scientific and medical matters. And he was considered for the FDA's top job at least twice, under the administrations of Presidents George W. Bush and Barack Obama.
The timing of his appointment has raised speculation that he may eventually be nominated to lead the agency. The week after announcing Califf's new position, FDA Commissioner Margaret Hamburg said she would be leaving the agency after nearly six years on the job. Currently, the FDA's chief scientist is serving as acting head of the agency.
A leading expert in cardiology and medical study design, Califf is viewed by FDA watchers as a natural fit for the job.
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After accepting only American Express cards for the last 16 years, the retailer is switching to Visa and will use Citigroup as its exclusive provider of co-branded credit cards.
Costco is a large and influential chain. It is the world's second-largest retailer by revenue, and has 671 locations around the world, including 474 in the U.S. and Puerto Rico. For an annual fee of $55 to $110, shoppers get access to groceries in bulk sizes, as well as appliances, jewelry, home goods and other products.
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