Opinion

James Saft

Rising rates not always emerging markets poison

Jul 31, 2014 19:58 UTC

July 31 (Reuters) – The taper tantrum was brutal, but rising
rates do not have to mean lousy performance for emerging
markets.

As investors look to the possibility of rising official
interest rates in the U.S. and Britain in the coming year their
expectations are colored by nasty memories of 2013′s taper
tantrum, when bumbled communications by the Federal Reserve
caused Treasury yields to spike and emerging markets to suffer.

Asset performance was both volatile and very poor,
particularly among emerging market countries like India and
South Africa which need to attract capital flows from abroad.

But much depends on why rates are rising, rather than just
the direction.

“Higher interest rates and exit from monetary stimulus in
major advanced economies when led by stronger growth prospects
produce good spillovers,” according to International Monetary
Fund economist Hamid Faruqee, one of the authors of a report
this week on the potential impact of interest rate
normalization. (here)

“Interest rates tend to rise elsewhere. But they are lifted
by a rising tide of economic activity at home and abroad.
Another positive development is that trade and capital flows
tend to strengthen.”

Fed to widen Main St/Wall St gap: James Saft

Jul 30, 2014 20:36 UTC

July 30 (Reuters) – The Federal Reserve carried on its merry
tapering on Wednesday, and though the accompanying statement was
probably rightly viewed as dovish it signals a potential sting
down the road.

For now, Fed policy looks set to continue to support risk
assets, with a less certain and probably less strong impact on
Main Street.

As expected, the Fed cut bond buying by $10 billion per
month, remaining on course to end the program in October.

Trade may be flagging, global growth at risk: James Saft

Jul 29, 2014 04:01 UTC

July 29 (Reuters) – While most investors are transfixed by
trying to anticipate the next jurisdiction-hopping, tax-driven
merger, there are small but growing signs that global growth may
be headed for a slowdown.

Perhaps the most eye-catching figure is the collapse in the
Baltic Dry Index (BDI), a market measure of demand for shipping
capacity, which is down about 65 percent so far this year. With
90 percent of everything traded around the world traveling by
sea, the fall in shipping prices, while probably overstating
matters, is a sign worth paying attention to. The fall in the
BDI is at least in part driven by lots of new shipping capacity
coming online, but there are other indicators that trade
momentum is slowing and could be taking global growth with it.

The volume of global trade fell outright in May, the most
recent month measured, according to data from the Netherlands
Bureau of Economic Policy Analysis, and momentum in global trade
has been in negative territory for much of the year.

Coming up: five lean but volatile years: James Saft

Jul 24, 2014 20:23 UTC

July 24 (Reuters) – Even adjusting for extraordinarily low
interest rates, global equities are expensive and finding
double-digit annual real returns over the next five years is
going to be tough.

What’s worse, key markets, notably the U.S., are so
overpriced that there is a high likelihood of an upcoming
correction, according to a new study by Joachim Klement and
Oliver Dettman of economics and investment consulting firm
Wellershoff & Partners. (here)

The results should give pause to all who think that going
along for a central-bank-underwritten ride in the equity markets
is always a good idea.

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.

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.

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