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.
More Business News
Last Update on March 30, 2015 17:35 GMT
WASHINGTON (AP) -- U.S. consumers spent slightly more in February following two straight monthly declines and their income rose by a healthy amount, a development that economists hope will keep boosting spending in coming months.
The Commerce Department says consumer spending edged up a tiny 0.1 percent last month following declines of 0.2 percent in both January and December. The result reflected a 0.4 percent increase in nondurable goods such as food and energy after three straight months of declines that stemmed from falling gasoline prices. Durable goods were down 0.1 percent, a drop that reflected weaker auto sales.
Income grew a solid 0.4 percent in February, matching January's rise. Economists are hopeful that continued strong income gains will lift consumer spending, which accounts for 70 percent of economic activity.
PENDING HOME SALES
WASHINGTON (AP) -- More Americans signed contracts to buy homes in February, evidence that the spring buying season could open strong after sluggish sales for much of the winter.
The National Association of Realtors says its seasonally adjusted pending home sales index climbed 3.1 percent to 106.9 last month, the highest reading since June 2013.
Buying activity jumped in the Midwest and West, while dipping slightly in the Northeast and South. The gains suggest that housing should overcome the recent hurdles of freezing weather and blistering snowstorms, as both buyers and potential sellers return to the market.
Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale
UnitedHealth to buy pharmacy benefits manager Catamaran
The nation's largest health insurer, UnitedHealth, is staking a bigger claim in pharmacy benefits management with a plan to buy Catamaran Corp. for more than $12 billion in cash.
UnitedHealth said Monday that it will spend $61.50 on each share of Catamaran in a deal it expects to close during the fourth quarter. That's a 27 percent premium to Catamaran's closing price Friday, and shares of the pharmacy benefits manager, or PBM, are climbing sharply in early morning trading.
Pharmacy benefits managers process claims and run prescription drug plans for insurers, employers and other customers. They help negotiate prices customers and insurers pay for drugs.
UnitedHealth Group Inc. already has a PBM business named OptumRx that fills about 600 million prescriptions annually.
Catamaran expects to fill 400 million this year.
NEW YORK (AP) -- JetBlue says a computer outage that has caused delays for its passengers has been resolved.
JetBlue Airways says that it has fixed a systemwide computer problem that has caused delays because the airline had to manually check in passengers.
NBC News reports that the airline had to issue handwritten boarding passes to passengers at many airports.
JetBlue did not immediately respond to inquiries on how long it would take to work through delays and get operations back to normal.
GENERAL MOTORS-IGNITION SWITCH DEATHS
DETROIT (AP) -- Families of at least 77 people killed in crashes caused by defective General Motors ignition switches will get compensation from the company.
Attorney Kenneth Feinberg, who was hired by GM to compensate victims, updated the total Monday. It was up from 74 last week.
An additional 141 injured people also are eligible for compensation.
The fund received a total of 4,342 claims by the Jan. 31 deadline. Of those, 1,263 are still under review. Feinberg says more than half are ineligible or lack documentation.
GM knew about problem switches in Chevrolet Cobalts and other small cars for more than a decade but recalled them only last year. They can slip out of the "on" position, which cuts off the engine, knocks out power steering and turns off air bags.
DETROIT (AP) -- Those high-tech systems that automatically stop or slow your car if it's about to run into something are getting a lot cheaper.
Toyota says it will offer lower-cost versions of the safety features in new Lexus and Toyota SUVs it's introducing this week at the New York auto show. The cheaper devices will spread across most of the company's models by the end of 2017.
Currently, the systems cost $2,000 or more and are found mainly on luxury cars or high-end versions of mainstream vehicles.
Often to get the equipment, buyers have to pay for a package including items like a sunroof or leather seats. But Toyota says that on the 2016 RAV4, Lexus RX and some other models, the equipment will be available at about $300 to $635.
DETROIT (AP) -- Volvo Cars is planning to build an assembly plant in the U.S.
The $500 million plant will be Volvo's first car plant in North America.
The Swedish automaker says it has a short list of possible locations, but didn't reveal them Monday. Spokesman Russell Datz says Volvo will announce the location in about a month.
Volvo has been owned by Chinese automaker Geely Holding since 2010. It currently has two plants in Europe and two in China.
Volvo CEO Hakan Samuelsson said the decision to open a U.S. plant highlights Volvo's long-term commitment to the U.S. market. The brand hopes to almost double its U.S. sales to 100,000 over the next few years.
Datz says the new plant will also reduce shipping costs and insulate Volvo from currency fluctuations.
NEW YORK (AP) -- StubHub is suing Ticketmaster and the Golden State Warriors, alleging it unfairly required fans looking to resell tickets to use Ticketmaster's resale exchange.
The online ticket marketplace and division of San Jose, California-based eBay Inc. alleges that the organizations prevent fans from deciding how they want to resell tickets and artificially drive up ticket prices.
Specifically, StubHub said Ticketmaster and the Warriors cancelled fans' regular-season and playoff-game tickets when those fans used StubHub and other exchanges to resell tickets. In other cases, the complaint says, Ticketmaster and the Warriors' front office broke the law by threatening fans with cancellation to force them to use Ticketmaster's resale exchange.
Ticketmaster is a unit of Beverly Hills, California-based Live Nation Entertainment Inc. A representative for the company could not immediately be reached.
NEW YORK (AP) -- RadioShack creditor Salus says it won't improve its bid as it fights with another buyer for the electronics chain, hedge fund Standard General.
Salus had failed to win an auction for the assets of the Fort Worth, Texas-based electronics retailer, which filed for bankruptcy in February. RadioShack instead chose a $160 million bid from hedge fund Standard General that consists mostly of credit on debt it is owed.
That proposal would keep 1,743 stores open and preserve about 7,500 jobs.
In a letter filed with the bankruptcy court in Delaware, Salus says it changed its mind on improving its offer after learning of unspecified new developments.
Salus plans to argue in court Monday why its offer, which included a $271 million cash payment, is better than Standard General's bid.
NEW YORK (AP) -- Spotify's music service is coming to PlayStation game consoles and replacing Sony's own Music Unlimited.
Spotify hits the PlayStation 3 and 4 on Monday, with a new app adapted for large television screens. Sony says partnering with Spotify brings a music service to more countries, as well as better tools for playlists and music discovery.
Spotify's music app is available on some Internet-connected TVs and set-top boxes, but Spotify says it worked closely with Sony to optimize its service for the PlayStation. Among the notable features: the ability to listen to music while playing a game and still listening to sound effects.
The service is free with ads, or costs $10 a month for a premium ad-free version.
NEW YORK (AP) -- McDonald's is going to start testing an all-day breakfast at some locations in the San Diego area starting next month.
The company said in a statement on Monday that the test is in response to customers who have said they'd like to eat breakfast foods outside the typical morning hours that they are served.
The test will include a partial menu and feature some of McDonald's breakfast sandwiches and hash browns.
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