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Business Day
Gilead Strikes Hepatitis Drug Deal With CVS Health
The agreement partly offsets a similar pact between the pharmacy benefit manager Express Scripts and AbbVie, another maker of a costly hepatitis C drug.N.Y. / Region
Jury Selection Begins in Etan Patz Case
Pedro Hernandez is accused of killing the 6-year-old boy in 1979. Opening statements are expected to start on Jan. 20.U.S.
Kentucky: Deaths in Coal Mines at a Record Low
The nation’s coal mines set a record for the lowest number of on-the-job fatalities last year, with 16, the U.S. Department of Labor’s Mine Safety and Health Administration said Monday.Health
Limiting Rest Is Found to Help Young Concussion Patients
Researchers found the opposite of what they had expected: Patients who stayed at home for two days or less had fewer remaining symptoms when returning to normal activity than those who were secluded for five days.false
Two Ways Infrared Cameras Have Boosted the Case for E.P.A. Rules Cutting Methane Leaks
Infrared cameras have boosted the case for methane rules in two ways – making leak inspections cheap and building public concern.Health
Cancer’s Random Assault
Spontaneous genetic mutations may be more often to blame than heredity or environment, according to a new study.Carcinogens can be classified as genotoxic or nongenotoxic. Genotoxins cause irreversible genetic damage or mutations by binding to DNA. Genotoxins include chemical agents like N-nitroso-N-methylurea (NMU) or non-chemical agents such as ultraviolet light and ionizing radiation. Certain viruses can also act as carcinogens by interacting with DNA.
U.S.
North Dakota: Train-School Bus Crash Kills 2
Two people were killed and at least 11 were injured Monday afternoon in a collision between a Larimore School District bus and a train, the authorities said.Business Day
2014 Auto Sales Jump in U.S., Even With Recalls
Fiat Chrysler and General Motors reported strong gains for December and for 2014, but Ford’s sales were weak.Science
SpaceX’s Next Frontier: Landing a Rocket on Earth
On Tuesday, the company hopes to upend the economics of space travel, by landing the first stage of a rocket intact on a barge floating in the Atlantic Ocean.Business Day
Where Security Fails: Airport Worker Access
A recent gun-smuggling case highlights a dangerous loophole that allows employees at airports to bypass the stringent security screenings passengers undergo.U.S.
Heavyweight Response to Local Fracking Bans
The oil and gas industry has responded aggressively to a wave of local, citizen-led bans on hydraulic fracturing, arguing in court that only state officials can impose such rules.N.Y. / Region
As Din of Aircraft Grows, East Hampton Reclaims Power to Regulate Airport
Town officials, who have received 25,000 noise complaints, said they had regained the power to set the rules at the airport, including limits on takeoffs and landings.The Upshot
Gohmert Doesn’t Talk Like a Speaker, or Donate Money Like One
The Texas Republican challenging John Boehner for Speaker of the House doesn’t deviate from the party line much but stands out for how he uses his PAC.World
Falcon Hunters Become Fervent Preservationists
A campaign to stop the mass killing of migrating Amur falcons has turned the people of Pangti, India, into stewards of the birds they once slaughtered.Sports
Despite Tumult Around Them, the Atlanta Hawks Have Risen to the Top
Atlanta has compiled the best record in the Eastern Conference while up for sale and battling public relations problems.| American Athletic Conference | ||||||||||||
| Conference | Overall | vs | ||||||||||
| W-L | Pct | Hm | Rd | W-L | Pct | Hm | Rd | Nt | Top 25 | |||
| South Florida | 3-0 | 1.000 | 2-0 | 1-0 | 12-3 | .800 | 6-1 | 3-1 | 3-1 | 0-2 | ||
| Temple | 3-0 | 1.000 | 1-0 | 2-0 | 7-9 | .438 | 2-4 | 3-4 | 2-1 | 0-1 | ||
| 2 Connecticut | 2-0 | 1.000 | 1-0 | 1-0 | 12-1 | .923 | 4-0 | 3-1 | 5-0 | 3-1 | ||
| UCF | 2-0 | 1.000 | 1-0 | 1-0 | 6-7 | .462 | 5-2 | 1-5 | 0-0 | 0-0 | ||
| Tulane | 2-1 | .667 | 1-1 | 1-0 | 11-3 | .786 | 6-2 | 4-0 | 1-1 | 0-0 | ||
| Tulsa | 1-1 | .500 | 1-0 | 0-1 | 6-7 | .462 | 3-4 | 2-3 | 1-0 | 0-0 | ||
| Memphis | 1-2 | .333 | 1-1 | 0-1 | 7-7 | .500 | 6-3 | 1-4 | 0-0 | 0-0 | ||
| Houston | 1-2 | .333 | 0-1 | 1-1 | 6-8 | .429 | 1-3 | 3-3 | 2-2 | 0-1 | ||
| East Carolina | 0-3 | .000 | 0-1 | 0-2 | 9-5 | .643 | 4-1 | 3-3 | 2-1 | 0-2 | ||
| SMU | 0-3 | .000 | 0-1 | 0-2 | 4-10 | .286 | 4-4 | 0-4 | 0-2 | 0-2 | ||
| Cincinnati | 0-3 | .000 | 0-2 | 0-1 | 3-11 | .214 | 3-3 | 0-6 | 0-2 | 0-0 | ||
Conference W-L - conference win-loss record
Conference Pct - conference winning percentage
Conference Hm - conference home record
Conference Rd - conference away record
Conference Nt - conference neutral site record
Overall W-L - overall win-loss record
Overall Pct - overall winning percentage
Overall Hm - overall home record
Overall Rd - overall road record
Overall Nt - overall neutral site record
vs Top 25 - record vs. Top 25 teams
World
Video: Officials on AirAsia Flight 8501 Debris
The Indonesian president, the chief executive of AirAsia and the country’s rescue chief offered condolences to those who lost loved ones in the AirAsia plane crash and discussed the recovery efforts.Business Day
Cage Law Expected to Push Up Egg Prices
The new standard requires farmers to put fewer hens into each cage or invest in revamped henhouses, and they will probably pass the costs on to consumers.U.S.
Republicans Try to Fix Damage Scalise’s 2002 Speech Could Do in 2016
Speaker John A. Boehner issued a statement supporting Steve Scalise of Louisiana, the No. 3 Republican in the House, who confirmed that in 2002 he addressed a group of white supremacists.Business Day
Treasury Auctions for the Week of Jan. 5
The following tax-exempt fixed-income issues are scheduled for pricing this week.Europe’s Trap
There are many risks in the world economy right now — a possible Chinese hard landing (local governments depend heavily on land sales
for revenue? Oh, boy), a financial crisis in Russia and other oil
exporters, etc.. But one thing is not a risk, because it has already
happened: the euro area has entered a Japan-style deflationary trap.
No, it’s not literally
deflation at an EA-wide level, but that doesn’t matter — slightly
positive and slightly negative inflation with interest rates already at
the zero lower bound are essentially the same. Furthermore, southern
Europe still needs substantial amounts of “internal devaluation” — that
is, still needs to reduce costs and prices relative to Germany — so that
a low overall euro area inflation rate means destructive deflation in
much of the continent.
And if you look at the implied market forecast, it’s truly disastrous. Right now, German 5-year bonds
offer a yield of zero — an implicit firm forecast that Europe will be
in a liquidity trap for the foreseeable future, while 5-year index bonds
are yielding about -0.35 percent. That’s telling you two things:
investors see so little in the way of profitable investment
opportunities that they’re willing to pay the German government to
protect their wealth, and they expect something like 0.3 percent
inflation over the next five years, which is catastrophically below
target.
How is this supposed
to end? I like and admire Mario Draghi, and believe that he’s doing his
best. But it’s really hard to see how the ECB could gain enough traction
here to solve the problem even if it didn’t face internal dissent from
the hard-money types.
So don’t think of
Europe as having a tough but workable economic strategy, endangered by
Greek voters and such. Europe is at a dead end; if anything, Greece is
doing the rest of Europe a favor by sounding a wake-up call."
Thinking About International Bond Yields
One of the
occupational hazards of being a professional economist writing for a
broader audience is that sometimes you lose track of what is and isn’t
obvious to smart people who haven’t spent their lives immersed in your
field. (Actually, the same problem arises in teaching undergraduates.)
So I welcome it when people ask questions in an open-minded spirit, and
reveal that there is some bit of stuff that I’ve been taking for granted
as obvious, but isn’t.
So, here’s the question I was just asked: How can it be that interest rates on U.S. government bonds are so much higher than on European bonds
— not just German bunds, but even Spanish and Italian bonds are now
paying less than their U.S. counterparts. My correspondent asks, Is the
U.S. government really a riskier bet than that of Spain?
The answer is no, it
isn’t. In fact, investors assign virtually no risk premium to holding
U.S. government debt, and rightly so. I mean, even if you thought the US
might default in the next 10 years, what, exactly, would you propose to
hold instead? A world in which America defaults is one in which you
might want to invest in guns and survival rations, not German bonds.
In that case, however, what explains our relatively high interest rates?
Well, let’s compare with Germany, also perceived as almost completely safe — but paying much lower interest. Why?
The crucial point here
is that German bonds are denominated in euros, while U.S. bonds are
denominated in dollars. And what that means in turn is that higher U.S.
rates don’t reflect fear of default; they reflect the expectation that
the dollar will fall against the euro over the decade ahead.
But why should we
expect a falling dollar vis-a-vis the euro? One big reason is that
European inflation is very low and falling, while the U.S. seems to be
holding near (although below) its 2 percent target. And other things
equal, higher inflation should translate into a falling currency, just
to keep competitiveness unchanged. If you look at the expected inflation
implied by yields on inflation-protected bonds relative to ordinary
bonds, they seem to imply roughly 1.8 percent inflation in the US over
the next decade versus half that in the euro area, which means that the
inflation differential explains about 60 percent of the interest rate
differential.
Beyond that, there is
good reason to expect the dollar to fall in real terms over the medium
term. Why? The relative strength of the US economy has led to a
perception that the Fed will raise rates much sooner than the ECB, which
makes dollar assets attractive — and as Rudi Dornbusch explained
long ago, what that does is cause your currency to rise until people
expect it to fall in the future. The dollar is strong right now because
the U.S. economy is doing better than the euro area, and this very
strength means that investors expect the dollar to fall in the future.
So that’s what the
Germany-US differential is about: higher US inflation (which is a good
thing) plus the expectation that the dollar-euro rate, adjusted for
inflation, will eventually revert to a normal level. Ultimately, it’s
all about European weakness and relative US strength.
Finally, Spain and
Italy have higher rates than Germany because they really are perceived
as risky. But the risk spreads are fairly small these days, so that at
this point their rates are nonetheless lower than ours.
Now, the interesting
point about my correspondent’s confusion is that it ties right into a
key policy issue, namely, how much should countries like the US or the
UK worry about bond vigilantes? The answer is, not much, which is
apparent once you realize that economic expectations, not fear of
default, are the main reason their rates go up and down. It’s too bad
that so much of the financial press still doesn’t understand this."
The Upshot
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