Opinion

James Saft

Alibaba and China’s slowdown: James Saft

Sep 23, 2014 04:01 UTC

Sept 23 (Reuters) – Is it a) funny, b) disturbing, or c)
irrelevant that Alibaba went public at a sky-high
valuation just at the point at which the red-hot economy which
spawned it seems content to settle into a creaky middle age?

Few of the investors throwing money at Alibaba hand over
fist last week seemed to notice, but China really is now
presenting a new version of itself to the world. Rather than
riding to the rescue when growth slows, as recent industrial
production data, the worst since 2008, shows it most clearly is
doing, China now is taking a more cautious, passive stance.

“China will not make major policy adjustments due to a
change in any one economic indicator,” Finance Minister Lou
Jiwei said on Sunday, adding that the country can’t rely on
government spending to speed infrastructure investment.

However you cut it, this raises questions for investors in
Alibaba, a Chinese e-commerce company which executed the biggest
ever initial public offering totaling $25 billion and saw its
shares surge 38 percent in their first day of trading.

Those who do back the Alibaba online marketplace will
doubtless make an argument along the lines that it isn’t
happening (China’s still booming! Well, comparatively.) and it
doesn’t matter that it is (Alibaba can grow independent of
China!), but of course financial markets aren’t simply about
truth; they also involve the valuation of uncertainty.

The low-vol anomaly, or doing well out of others’ mistakes

Sep 18, 2014 18:45 UTC

Sept 18 (Reuters) – Sometimes in life you really can get
more for less, but usually only when someone else is a) acting
foolishly, or b) taking advantage of a client.

So it appears to be with the low-volatility anomaly, a
persistent and puzzling phenomenon under which lower-volatility
stocks, which in theory should offer lower returns, actually
outpace their higher-vol peers. This of course flies in the face
of mainline theories of modern finance, which assume that assets
are priced, in aggregate, based on how risky they are and which
assumes volatility as the prime measure of risk.

Except, when you look at the data, that is not actually how
it works. Among the 1,000 largest U.S. stocks by capitalization
between 1967 and 2012, the bottom fifth in volatility returned
an annualized 11.65 percent, as against just 9.81 percent for a
cap-weighted index, according to data from asset allocation
specialists Research Affiliates. Among global stocks from
1987-2012 the corresponding figures were 10.58 percent for
low-volatility shares against 7.58 percent for the index.

Fed dot chart illusions: James Saft

Sep 17, 2014 20:16 UTC

Sept 17 (Reuters) – Like one of those old Op-Art posters
beloved of hippies, staring too long into the Fed’s dot chart of
interest rate expectations can make you see things which aren’t
there.

The Fed’s monetary policy statement on Wednesday has to be
read as dovish, retaining as it does the “considerable time”
language which some have taken for shorthand that interest rate
rises are at least six months away (a characterization Janet
Yellen disputes, at great length, but without enlightening us
with much specificity). The statement also included other dovish
touches, notably an acknowledgement that there “remains
significant underutilization of labor resources” as well as new
language noting inflation has been “running below” the Fed’s
objective.

And yet, the so-called dot-chart, a scatter chart of where
individual committee members expect rates will be in the future,
has thrown a scare into some investors who feared that rate
rises may be on tap sooner than expected.

China hasn’t got investors’ backs: James Saft

Sep 16, 2014 04:07 UTC

By James Saft

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

In a world in which investors increasingly assume policy-makers have their backs, China may be about to demonstrate how it can work the other way.

Chinese growth is decelerating sharply from sky-high levels, with August industrial production slipping to a 6.9 percent growth rate not seen since the crisis year of 2008 amid a broad-based slowdown in the kind of fixed investment which has traditionally powered its economy.

China hasn’t got investors’ backs: James Saft

Sep 16, 2014 04:01 UTC

Sept 16 (Reuters) – In a world in which investors
increasingly assume policy-makers have their backs, China may be
about to demonstrate how it can work the other way.

Chinese growth is decelerating sharply from sky-high levels,
with August industrial production slipping to a 6.9 percent
growth rate not seen since the crisis year of 2008 amid a
broad-based slowdown in the kind of fixed investment which has
traditionally powered its economy.

This makes the official government target of 7.5 percent
annual economic growth look a vain hope, with economists rapidly
ratcheting down their forecasts.

Never confuse risk and volatility

Sep 10, 2014 20:27 UTC

By James Saft

(Reuters) – Of the many lazy and dangerous ways of thinking about investment these two rank near the top: that risk equates with volatility and that risk and rewards are a straight tradeoff.

Both are overly simplistic and both lie at the heart of some of the most colossal errors in recent finance. And while both contain large amounts of truth at their core, both concepts represent shorthand versions of reality rather than tools which always, or even usually, work.

In financial theory, volatility, the amount a security goes up and down in price, is used more or less interchangeably with risk, something hedge fund giant Howard Marks argues is mostly because volatility can be reduced to a number.

Scotland and de-globalization: James Saft

Sep 9, 2014 04:01 UTC

Sept 9 (Reuters) – The prospect of Scottish independence is
further evidence that the era of increasing globalization, with
all its benefits to capital, is waning fast.

Support for independence, an issue to be put to a vote among
Scots on Sept. 18, has surged in recent days, with those in
favor registering their first opinion poll lead over the
weekend.

Not only would an independent Scotland have to come up with
some plan for a currency and monetary policy, an area in which
it has several options, each carrying its own dangers, but it
also would make more likely a British exit from the European
Union.

ECB policy is carry-trade-tastic: James Saft

Sep 4, 2014 21:08 UTC

Sept 4 (Reuters) – For all the uncertainty around the
European Central Bank’s extraordinary monetary policy, one thing
is for sure: it’ll be good for carry trades.

If an asset has a higher yield than euro-denominated ones,
and in today’s world many, many do, it will benefit from
increased flows from investors borrowing in euros and making
bets elsewhere. Notable beneficiaries will be emerging markets,
but the fun hardly stops there.

The ECB on Thursday made a slate of moves to react to
weakening growth in the euro zone. Three policy rates were cut
by 10 basis points, leaving the deposit facility at negative 20
basis points, in a move the ECB signaled was the end of the road
for conventional easing.

Column: Demographics and the bond market conundrum

Sep 3, 2014 21:00 UTC

By James Saft

(Reuters) – As we get older we become curiously susceptible to arguments that it is not us who have changed, but the world.

So it may be with the so-called bond market conundrum, in which the effect of our aging demographics gets very little attention despite likely having considerable impact.

As it was in 2005 when a puzzled Alan Greenspan made the idea of the conundrum popular, the issue today is a divergence between longer-dated Treasuries, which are falling in yield, and monetary policy, which is tightening. If the Federal Reserve had control over the bond market – itself a questionable idea – this should not be happening.

Demographics and the bond market conundrum

Sep 3, 2014 20:57 UTC

Sept 3 (Reuters) – As we get older we become curiously
susceptible to arguments that it is not us who have changed, but
the world.

So it may be with the so-called bond market conundrum, in
which the effect of our aging demographics gets very little
attention despite likely having considerable impact.

As it was in 2005 when a puzzled Alan Greenspan made the
idea of the conundrum popular, the issue today is a divergence
between longer-dated Treasuries, which are falling in yield, and
monetary policy, which is tightening. If the Federal Reserve had
control over the bond market – itself a questionable idea – this
should not be happening.

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