Bonds: S&P sings the U.S. blues
Credit ratings agency Standard & Poor’s cut its rating outlook on U.S. government debt from stable to negative last week, sending stock markets into sharp decline, said Deborah Levine and Steve Goldstein in MarketWatch.com. The suggestion that the government’s AAA rating may not be forever caused the Dow Jones Industrial Average to fall by 1.14 percent, its biggest single-day drop in a month. Although the U.S. credit rating remains at the highest possible level, S&P’s move indicates a one-in-three chance that it will downgrade that rating within the next few years. That was a warning signal for stocks in the long term, said Michael Kahn in Barron’s. “Liquidity is now less of a given,” meaning investors will be more wary about where they put their cash. The U.S. may never lose its AAA rating, “but the specter that it is possible has now come to light.”
Yet as “the stock market screamed, the bond market yawned,” said Jason Zweig in The Wall Street Journal. The 10-year Treasury note “barely budged.” That’s mainly because the big players in the bond market had already factored in the debt crisis. And, despite the downgrade, it is still “far-fetched to think that Uncle Sam will default.”
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
SUBSCRIBE & SAVE
Sign up for The Week's Free Newsletters
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Latest Videos FromThe Week
Facebook: A new legal challenge
Facebook’s latest legal wrangle is “one of the strangest tales to hit Silicon Valley in years,” said Miguel Helft in The New York Times. A convicted felon named Paul Ceglia claims that a contract signed by Facebook creator Mark Zuckerberg in 2003 entitles him to an 84 percent stake in the company. Few believed Ceglia’s “improbable claim” when he filed suit last year, but he has since hired a top-drawer law firm and produced damning e-mails that appear to prove his case. Facebook says the e-mails are fake—but if they’re not, Zuckerberg could face another “major headache.”
Luxury cars: Lexus loses its edge
The dominance of Toyota Motor Corp.’s Lexus in the luxury car market is “almost certain to come to an end this year,” said Mike Ramsey in The Wall Street Journal. An “aging lineup” of models has already caused Lexus sales in the U.S. to decline 4.4 percent in the first three months of this year. Now, “production disruptions caused by the March 11 earthquake in Japan” are likely to see it overtaken by rivals BMW and Mercedes-Benz. Lexus’s days as a “fearsome rival to decades-old brands” may already be behind it.
Culture: Philadelphia Orchestra files for bankruptcy
The music may soon be over for the Philadelphia Orchestra, which filed for bankruptcy protection this week, said Philip Boroff in Bloomberg.com. In its heyday, the 111-year-old symphony orchestra premiered works by Stravinsky, Mahler, and Rachmaninoff, but in recent years, ticket sales and donations have declined as pension costs have surged. The orchestra opted for Chapter 11 to avoid running out of cash to meet payroll. The “Fabulous Philadelphians” have assured fans that they will fulfill all remaining dates this season.
Airfares: Heading up for the summer travel season
Domestic airfares are on the rise, said Hugo Martín in the Los Angeles Times, and may hit “levels not seen since before the economic downturn” before the summer is through. Travel industry experts say the average domestic round-trip airfare may reach nearly $390 by the time the peak summer travel season hits. Stronger demand for airline seats and record fuel prices will help push airfares to as much as 15 percent higher than a year ago. Six of the nation’s largest airlines have each raised rates at least five times since the beginning of the year.
