Opinion

James Saft

Saft On Wealth: New money fund rules keep illusions alive

Jul 24, 2014 00:50 UTC

By James Saft

(Reuters) – New money market fund reforms are half measures which will fail to end investors’ illusion that there is such a thing as a safe asset.

The Securities and Exchange Commission on Wednesday adopted new rules aimed at forestalling runs on money market funds, notably one which will force ‘prime’ institutional funds to allow their value to float. The new rules also allow all money market funds finding themselves short of liquid assets in stressed markets to impose temporary impediments to redemptions or charge fees of up to 2 percent. Both sets of rules take effect in two years’ time.

The rules fall ruefully short in that they exclude retail money market funds, which will continue to be allowed to indulge in the polite fiction that their value is stable at a dollar per share.

The dollar per share convention has unmoored investors, institutional and retail, from the relationship between risk and reward. The real value of all assets fluctuates, and the only nominal values which can remain truly stable are those of securities issued or insured by someone with the right to print money. Those facts may raise the cost of doing business and raise the cost of credit, but they remain facts nonetheless.

Policies, like the SEC’s, which attempt to finesse these facts will either fail disastrously or end with the government picking up the tab for private speculation.

New money fund rules keep illusions alive

Jul 23, 2014 19:59 UTC

July 23 (Reuters) – New money market fund reforms are half
measures which will fail to end investors’ illusion that there
is such a thing as a safe asset.

The Securities and Exchange Commission on Wednesday adopted
new rules aimed at forestalling runs on money market funds,
notably one which will force ‘prime’ institutional funds to
allow their value to float. The new rules also allow all money
market funds finding themselves short of liquid assets in
stressed markets to impose temporary impediments to redemptions
or charge fees of up to 2 percent. Both sets of rules take
effect in two years’ time.

The rules fall ruefully short in that they exclude retail
money market funds, which will continue to be allowed to indulge
in the polite fiction that their value is stable at a dollar per
share.

Russia worries in a low-volatility world

Jul 22, 2014 04:09 UTC

By James Saft

(Reuters) – Rising tensions between Russia and the West are doing what central bankers can’t or won’t: scare investors.

Global stock markets fell for a third straight session on Monday, driven in substantial part by rising tensions after the downing of a civilian airplane over Ukraine.

The U.S. blames the destruction of a Malaysian Airlines jet on pro-Russian fighters armed by Russia, and EU and U.S. officials are threatening stronger sanctions on Russia, contributing to a spike in volatility and a fall in most risky assets.

Russia worries in a low-volatility world: James Saft

Jul 22, 2014 04:01 UTC

July 22 (Reuters) – Rising tensions between Russia and the
West are doing what central bankers can’t or won’t: scare
investors.

Global stock markets fell for a third
straight session on Monday, driven in substantial part by rising
tensions after the downing of a civilian airplane over Ukraine.

The U.S. blames the destruction of a Malaysian Airlines jet
on pro-Russian fighters armed by Russia, and EU and U.S.
officials are threatening stronger sanctions on Russia,
contributing to a spike in volatility and a fall in most
risky assets.

Slow house price gains to crimp start-ups: James Saft

Jul 18, 2014 19:21 UTC

By James Saft

(Reuters) – The outlook for house prices is dimming, and one unexpected casualty may be new jobs at start-ups.

House price gains are coming off the boil, having already strongly outpaced income growth over the past two years as they bounced off of post-crisis lows. CoreLogic data for May, the most recent available, shows an annualized gain of 8.8 percent, chunky but well below the 11.8 percent recorded in February.

And while many expected a job recovery to drive housing, it may in fact have been exactly the opposite.

Who’s afraid of Janet Yellen?

Jul 16, 2014 20:39 UTC

July 16 (Reuters) – Markets aren’t afraid of Janet Yellen,
but you might want to be.

Yellen and her colleagues at the Federal Reserve Board took
unusually frank aim at frothy valuations in social media and
biotech shares, as well as at parts of the debt markets, in
testimony before Congress this week. The market reaction
amounted to a politely stifled yawn.

This is both telling, and worrying.

That’s because Yellen herself is putting great stress on
macroprudential policies as a primary means of defense against
bubbles. Well, jawboning the market is an important part of
macroprudential policy and we can already see that is not
working.

Banco Espirito Santo and bail-ins: James Saft

Jul 15, 2014 12:08 UTC

By James Saft

(Reuters) – Banco Espirito Santo’s woes may not reignite the euro crisis but could give useful information about who will pay the inevitable costs.

Under pressure after the discovery of financial irregularities at its family-controlled parent, BES is shaping up as a potential test case of the euro zone’s commitment to punishing bad decisions and rewarding good ones.

The long-term rewards could be considerable but they would come at a short-term cost, especially for investors.

Column: Crumbs today, jam tomorrow?

Jul 9, 2014 20:31 UTC

By James Saft

(Reuters) – Creating needs among consumers is both the basis of our economy and a really risky investment strategy.

That is the message from the demise of cupcake company Crumbs Bake Shop, a (former) seller of cupcakes each of which averaged about one fourth of your daily caloric needs.

Crumbs, which not too long ago had lines out the door, said this week it was ceasing trading and would shutter all its locations.

Crumbs today, jam tomorrow?

Jul 9, 2014 20:30 UTC

July 9 (Reuters) – Creating needs among consumers is both
the basis of our economy and a really risky investment strategy.

That is the message from the demise of cupcake company
Crumbs Bake Shop, a (former) seller of cupcakes each
of which averaged about one fourth of your daily caloric needs.

Crumbs, which not too long ago had lines out the door, said
this week it was ceasing trading and would shutter all its
locations.

What if the market has it right?: James Saft

Jul 8, 2014 04:01 UTC

July 8 (Reuters) – The past 15 years of bubbles and busts
notwithstanding, sometimes it may be best to just assume
financial markets have got it right.

The central problem facing investors today is how to
reconcile patchy and uneven growth in the economy with very full
valuations for stocks and other risky assets.

What has been a constant tension over the past five years,
during which U.S. stocks have more than doubled, was highlighted
yet again last week when decent but not outstanding U.S. jobs
figures (wage growth for example was poor) prompted investors to
underwrite yet another stock market run to record territory.

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