Opinion

James Saft

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.

Contrast that to the mild reaction to a rare and specific warning last week from Fed Chair Janet Yellen about debt markets and social media and biotech shares. Or, for that matter the relative unconcern investors have displayed about the Banco Espirito Santo mess, which threatens the patched-together consensus about how best to buttress Europe’s banks.

We suddenly have a source of volatility in what has been an exceptionally placid landscape.

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.

Jobs data doesn’t change Yellen sweet spot: James Saft

Jul 3, 2014 15:59 UTC

July 3 (Reuters) – Good news on the jobs front is even
better news for investors in risk assets as it does little to
move markets away from the Janet Yellen sweet spot.

U.S. nonfarm payrolls increased by 288,000 last month,
topping the 200,000 level for five straight months for the first
time since the go-go late 1990s. Unemployment fell to 6.1
percent, its lowest since September 2008, the month the collapse
of Lehman Brothers rang the opening bell for the financial
crisis.

The Yellen Sweet Spot, as I like to call it, is the idea
that risk assets should legitimately rally because the Fed is
committed to loose conditions and the economy is not really
doing all that badly.

Re-thinking the equity glide path

Jul 2, 2014 20:35 UTC

July 2 (Reuters) – The equity weighting glide path – the
idea that savers should cut risky holdings of stocks
mechanically as they approach retirement – is an appealing
metaphor, easy to understand and instinctively right feeling.

But for many, especially those unlucky enough to live
through one of the many historical extended periods of low
returns, that glide path ends well short of the runway.

One of the fundamental early insights of investing has been
that, as equities are volatile, as you approach needing your
savings to live on you should cut back on stocks and buy bonds.

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