James Saft

IBM and the financial engineering economy: James Saft

Oct 21, 2014 04:01 UTC

Oct 21 (Reuters) – IBM’s woes are interesting not simply
because they tell us about the economy, but because they reveal
broader truths about how, and for whom, companies are run.

IBM kicked its 2015 operating earnings goal off the
back of the truck on Monday, blaming an outright fall in
third-quarter revenues on a sudden downturn in client spending.

“We saw a marked slowdown in September in client buying
behavior, and our results also point to the unprecedented pace
of change in our industry, ” said Ginni Rometty, IBM chairman,
president and chief executive officer.

IBM shares fell more than 7 percent in reaction, giving up
more than three years of gains.

In all likelihood, IBM isn’t just a company which ran into
an inflection point in the broader economy, nor is it simply an
unlucky victim of the step change in the pace of technological

Bretton Woods III or bust: James Saft

Oct 16, 2014 20:56 UTC

By James Saft

(James Saft is a Reuters columnist. The opinions expressed are his own)

(Reuters) – China is going to export capital, and either the U.S. puts it to good infrastructure use in a ‘Bretton Woods III’ system or the world will face continued poor growth and high asset prices.

Sanjeev Sanyal, global strategist at Deutsche Bank, calls it the Age of Chinese Capital, one in which the world’s largest economy transitions to a consumer-driven model and starts to pump out its massive savings to the rest of the world.

The U.S., with its woeful infrastructure, is the best candidate to usefully absorb capital on the scale China will shortly be throwing off, Sanyal argues.

Fed magic fades as risk assets slide

Oct 15, 2014 20:13 UTC

Oct 15 (Reuters) – What matters isn’t so much the proximate
cause of the recent downdraft in stocks, but the underlying

Ebola, European weakness and some bad data out of the U.S.
have all played their role in sparking a fall of more than 9
percent in the S&P 500 in less than a month. What’s truly
remarkable isn’t that there was bad news, but that this time the
bad news seems immune to the tonic of central bank promises.

The scene was set with a particularly gloomy IMF and World
Bank meeting last week, at which the chances of a triple-dip
recession in Europe were put at four in 10 and calls were made
for infrastructure investment that few expect to arrive.

In banking, making a good death possible: James Saft

Oct 14, 2014 05:00 UTC

Oct 13 (Reuters) – As in medicine, so in banking: we deny
the inevitable, death, at our own expense.

There is a striking parallel between the U.S. health system,
in which there is a marked unwillingness to speak frankly with
dying patients about the costs and benefits of heroic measures,
and the global banking system, in which the largest
too-big-to-fail banks exist in a strange reality in which death
is discussed endlessly but still practically impossible.

Both systems produce perverse outcomes at great and
unnecessary costs. In medicine, our unwillingness to take a
clear eyed view of death’s inevitability, leads many to an even
more miserable, protracted end, and one in which outsized
resources are used. In banking, the existence of too-big-to-fail
banks creates private gains at public expense, all while leading
to a mis-allocation of capital in favor of large banks at the
expense of capital markets and, essentially, everyone else.

Old measures for New Mediocrity: James Saft

Oct 9, 2014 20:26 UTC

By James Saft

(Reuters) – (James Saft is a Reuters columnist. The opinions expressed are his own.)

The IMF’s “new mediocre” has the sound of a threat, but we may end by wishing it was a promise.

Not only has the IMF cut its world economic growth forecasts three times this year, but it is now warning of a sustained period of sub-par growth which looks similar to secular stagnation.

Leverage and the next emerging markets crisis: James Saft

Oct 2, 2014 20:32 UTC

By James Saft

(Reuters) – (James Saft is a Reuters columnist. The opinions expressed are his own)

Debt is clogging the arteries of the global economy, setting us up for the next crisis, which just might come from emerging markets.

The 16th Geneva Reports on the World Economy, released this week by the Centre for Economic Policy Research’s International Center for Monetary and Banking Studies, makes grim reading.

If short you must, look for fraud

Oct 1, 2014 20:36 UTC

Oct 1 (Reuters) – If you want to cash in as a short-seller,
better to do some forensic accounting rather than looking for
silly valuations.

Short selling, the tactic of selling a borrowed security in
the hopes it can be bought back later at a lower price to repay
the loan, falls broadly into two categories. In one the short
seller suspects or alleges a fraud or misrepresentation, while
in the other the trade is based on the belief that the stock is
overvalued and will fall.

Jim Chanos’ highly lucrative short of the Byzantine fraud at
Enron in 2000 and 2001 is perhaps the archetype of the first
school, a speculation with a more than satisfactory ending for
him as the stock tumbled from the high double digits into
bankruptcy protection as accounting chicanery came to light. The
dotcom bubble offers many examples of the valuation type of
shorting opportunity, companies that were as honest as the day
is long but possessed of suicidal business plans and ultimately
dependent on the discovery of a series of greater fools to
supply the needed capital to fund the burn rate.

Bill Gross and the Great Man theory of investing

Sep 30, 2014 04:10 UTC

By James Saft

(Reuters) – Judging by the Bill Gross affair, the Great Man theory is alive and well among investors.

This demonstrates nothing more clearly than on what slender offerings the investment industry, with all its billions spent on people, processes and strategy, actually earns its money. 

Gross, a 70-year-old with a fabulous long-term record of performance as a bond manager but some rocky recent data, resigned suddenly on Friday from Pimco to jump to smaller rival Janus Capital, a move reports said came just before he was to be dumped.

Companies risk missing capex boat: James Saft

Sep 25, 2014 21:06 UTC

Sept 25 (Reuters) – Corporate America’s decision not to take
advantage of low rates and easy terms to invest in new capacity
may turn out to be a mistake of historic proportions.

Combine a lost decade of investment and some of the easiest
debt terms in a long generation and the costs of delay look like
they may be high.

Just as many argue that the U.S. itself should be borrowing
cheap and long to invest in infrastructure, so it seems that
corporate chieftains should be locking in current easy debt
terms and investing the proceeds.

The contrasting Buffett and Ma ways

Sep 24, 2014 20:54 UTC

By James Saft

(Reuters) – Jack Ma and Warren Buffett embody two great and contrasting businesses in finance.

One sells lottery tickets and the other sells insurance.

Ma pulled off the largest-ever IPO last week when he floated Alibaba in what might be called the most successful lottery in history, at least from the ticket seller’s point of view.

But I don’t just mean that in the sense that Alibaba is a major speculation. Alibaba’s flotation, and IPOs generally, are lotteries in a very specific and technical sense, and they are structured in the way that they are because the market makes such a fantastic bid for them.