Economy, not debt rating, will send markets lower

NEW YORK - US investors will have their first chance Monday to react to Standard & Poor's decision to strip the US government of its top credit rating. But the bigger issues facing Wall Street and stock markets worldwide remain debt-ridden countries in Europe and concerns that the global economy is weakening.
The downgrade of US long-term debt from AAA to AA+ wasn't unexpected and may have little impact on interest rates. But it's the kind of news that stock markets don't need when investors are nervous. As a result, financial analysts interviewed Sunday said they expect markets to be volatile this week - and beyond.
That view was echoed by former Federal Reserve Chairman Alan Greenspan, who appeared on NBC's "Meet the Press" Sunday and said he expected the stock market slide to continue.
Beyond the downgrade, though, investors have plenty of reason to be selling. Last week, the Dow Jones industrial average fell nearly 700 points, or 6 percent. Investors were worried because the economic signals in the US and overseas were pointing toward trouble:
-On July 29, the government dramatically lowered its estimate of how much the economy grew during the first quarter. It had said the economy grew at an annual rate of 1.3 percent, but revised that number down to 0.4 percent. That meant the economy barely grew. Second-quarter growth was also weak, a 1.3 percent rate.
-The first reports on the economy during the third quarter have been mixed. Manufacturing, which helped pull the economy out of the recession, fell to its weakest level since July 2009. That was the month after the recession officially ended. The Labor Department said 117,000 jobs were created last month. But that came after 99,000 jobs were created in May and June combined - and 250,000 new jobs are needed each month to reduce unemployment.
-European officials are trying to help Italy avoid the kind of bailouts that Greece, Portugal and Spain were forced to accept to prevent them from defaulting on their debt. And those bailouts haven't solved all the problems in those countries.
To investors, the downgrade made it all worse.
"We are in unchartered territory and, therefore, should all brace for volatility over a number of days if not weeks," said Mohamed El-Erian, CEO and co-chief investment officer of the bond mutual fund company PIMCO.
Greenspan noted that S&P had "hit a nerve" with its downgrade. The ratings agency said it was lowering the US rating not just because of the country's debt load, but because S&P doesn't believe Congress has the ability to resolve the country's debt problems. And it warned that another downgrade could be forthcoming.
On Saturday, David Beers, S&P's global head of sovereign ratings, said his agency was concerned about "the degree of uncertainty about the political policy process" in Washington.
S&P was looking for $4 trillion in budget cuts over 10 years. The deal that Congress passed on Tuesday would bring $2.1 trillion to $2.4 trillion in cuts over that time. S&P said it was also concerned about the ability of Congress to implement those cuts because of the division between Republicans and Democrats.
"Right now, the markets don't believe anybody anywhere and the uncertainty premium is very high. Since the end of World War I, the United States has been an unquestioned AAA credit, until now," said David Kotok, chairman and chief investment officer of Cumberland Advisors.
Investors are worried about debt not only because countries and many people are overwhelmed by it. Debt is what financed economic growth for decades. Now countries and people are cutting back on debt - deleveraging is what economists call that process - and that means economic growth in the future will be slower. Economists had widely expected the US economy to pick up in the second half of the year after its soft patch in the spring. But the stock market, which looks six to nine months ahead, doesn't see an improvement until well into 2012.
They may get more insight on Tuesday. The Federal Reserve holds a regularly scheduled meeting on the economy and interest rates. It's expected the central bank will state that interest rates will need to remain at their current low levels for at least another year.
Even with this bleak outlook, some analysts see a chance for stocks to rise, at least in the short run.
The stock market could recover next week if European leaders make progress in averting another debt crisis in that region, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
Still, even if stocks do rise, there are so many economic and political problems to be resolved that any rally may well be very short-lived.

ECB to buy eurozone bonds to curb debt crisis

BERLIN - The European Central Bank (ECB) held a conference call late on Sunday ahead of the market opening, pledging the ECB will step in to buy eurozone bonds with efforts to forestall the euro zone's debt crisis from spreading.
The ECB said it will actively implement its plan to buy bonds issued by eurozone governments on the secondary markets in bids to curb the debt crisis.
The ECB welcomed Italian and Spanish announcement on fiscal and structural reforms and commitment of eurozone countries to contribute efforts to alleviate the impact of the debt crisis.
It is fundamental for member states to "activate European Financial Stability Facility (EFSF) in the secondary market" if ECB recognizes the existence of "exceptional financial market circumstances and risks to financial stability," said the ECB in a statement.
The ECB has, after considering the current situations, decided to "actively implement its Securities Markets Program" to "ensure price stability in the euro area," it said.
It is anticipated that the ECB's actual purchase of problematic eurozone bonds would likely prompt a considerable relief on global markets.
The finance ministers and central bankers of the G7 member states -- Britain, Canada, France, Germany, Japan, Italy and the United States -- were expected to talk before the financial markets open in Asia at 0000 GMT on Monday.
Germany's Der Spiegel and other journals has been anticipating a "Black Monday" on the markets, in the wake of world leaders' flurry of meeting of phone calls.
German Chancellor Angela Merkel and French President Nicolas Sarkozy issued a joint statement on Sunday, expressing their "commitment" to the full implementation of the measures agreed on eurozone debt at a summit in July.
"In particular through the following instruments: a precautionary program, finance recapitalization of financial institutions and to intervene in secondary markets on the basis of an ECB analysis," the statement said.
They welcomed budget reform plans in Spain and Italy, saying "complete and speedy implementation of the announced measures is key to restoring market confidence."
However, former British Prime Minister Gordon Brown was sharply critical of the mishandling of the spiralling debt crisis, saying that last month's eurozone summit was "yet another European chance of recovery thrown away."
"No number of phone calls can solve what is a financial, macroeconomic and fiscal crisis rolled into one," Brown said to tell the Independent on Sunday newspaper, that "Europe needs a radical restructuring of both Europe's banks and the euro."
"Every time the big questions are avoided, and every time the outcome is a patchwork compromise, the next crisis gets ever closer and threatens even more danger," the former prime minister and finance minister said.

It's dim up North, so people need bigger brains

LONDON - People from northern parts of the world have evolved bigger brains and larger eyes to help them to cope with long, dark winters and dim skies, scientists said on Wednesday.
Researchers from Oxford University studied the eye sockets and brain capacity of 55 human skulls from 12 different populations across the world and found that the further human populations live from the equator, the bigger their brains.
It's not because they are smarter, however, but because they need bigger vision areas in the brain to cope with the low light levels at high latitudes, the scientists said in a report of their findings in the journal Biology Letters.
"As you move away from the equator, there's less and less light available, so humans have had to evolve bigger and bigger eyes," said Eiluned Pearce from Oxford's School of Anthropology, who led the study. "Their brains also need to be bigger to deal with the extra visual input.
"Having bigger brains doesn't mean that higher latitude humans are smarter, it just means they need bigger brains to be able to see well where they live."
The skulls used in the study dated back to the 1800s and included samples from indigenous populations of England, Australia, Canary Islands, China, France, India, Kenya, Micronesia, Scandinavia, Somalia, Uganda and the United States.
The researchers plotted the volume of the eye sockets and brain cavities against the latitude of the central point of each individual's country of origin and found that the size of both the brain and the eyes could be directly linked to the latitude of the country.
Oxford's Robin Dunbar, who also worked on the study, said the results showed the speed at which humans had evolved to cope with the challenges of new habitats.
"Humans have only lived at high latitudes in Europe and Asia for a few tens of thousands of years, yet they seem to have adapted their visual systems surprisingly rapidly to the cloudy skies, dull weather and long winters," he said.
The researchers said that from measuring the brain cavity, the study suggested the biggest brains belonged to populations who lived in Scandinavia, and the smallest belonged to Micronesians.

Space station to plunge into ocean in 2020

MOSCOW - A Russian space official said Wednesday that once the mammoth International Space Station is no longer needed it will be sent into the Pacific Ocean.
It's a plan that's long been in the works and is a step to avoid the station becoming dangerous space junk. It was supposed to plunge into the ocean as early as 2015. The US recently extended its life until at least 2020, and there's been talk of keeping it going even longer.
Vitaly Davydov, deputy head of the Russian space agency, said the orbiting outpost will be destroyed in a controlled descent to Earth "so that there is no space junk left behind."
Russia sank its Mir space station in the Pacific in 2001 after 15 years in operation. Skylab, America's first space station, fell from orbit in 1979 after six years in space.
The International Space Station is the biggest orbiting outpost ever built and can sometimes be seen from the Earth with the naked eye. It's now big enough for six residents.
It now consists of more than a dozen modules built by the US, Russia, Canada, Japan and the European Space Agency.