James Saft

Euro debt and the high cost of justice

Mar 31, 2011 11:53 UTC

It looks just about possible that creditors are going to be paying something like their share of the euro zone debt disaster after all.

This could be a little patch of justice in an unfair world, but like most justice it promises long term benefits but short term pain, both for those dispensing and receiving it.

Firstly, people with money and a choice are going to – indeed already are – voting with their feet, choosing not to lend to the ailing governments on Europe’s periphery.

Secondly some of these creditors to Ireland, Greece and Portugal and their banks will very likely find that their share of the damage exceeds their capital, an inconvenient reality for both the banks involved and the sovereign hosts who will have to pick up the pieces.

The EU summit last week ended with a set of policies that told creditors directly that their heads will be on the block when the European Stability Mechanism (ESM), a bailout conduit, kicks in.

ECB set for an error for the ages

Mar 29, 2011 11:45 UTC

In a field of endeavor with a long and glorious history of folly, the European Central Bank is preparing to commit an error for the ages: hike interest rates into the face of a crisis of existence for the euro zone.

There is an increasing likelihood that when the ECB meets  on April 7 they will respond to surging energy costs and 2.4 percent annual inflation – the highest since 2008 – by raising interest rates, probably by a quarter of a percent.

“Inflation rates … are now durably above the common definition of price stability in the euro zone,” ECB President Jean-Claude Trichet told an audience in Paris on Monday.

Housing raises US recession alert

Mar 24, 2011 16:35 UTC

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

If housing is the primary force behind the U.S. economic cycle, then the recession early warning bells just started ringing.

Sales of new single-family homes recorded a shocking fall in February, tumbling by 16.9 percent, to a seasonally adjusted 250,000 annual rate, hitting the lowest such figures since records began in 1963.

New home sales are down 28 percent compared to a year ago and the inventory of unsold new homes is now equal to 8.9 months of sales.

TBTF & AT&T — a poor combination

Mar 22, 2011 16:06 UTC

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

HUNTSVILLE, Ala. — We finally have an answer for what kind of financial service only a too-big-to-fail bank can provide: a record-setting loan to fund a takeover that will hugely reduce competition in U.S. wireless communications.

AT&T on Monday said it would pay $39 billion for Deutsche Telekom AG’s T-Mobile U.S. wireless unit, backed by $20 billion of financing from JPMorgan Chase & Co.

The deal, which is subject to regulatory approval, will leave AT&T and Verizon Wireless in control of 80 percent of the U.S. market for contract customers, according to rival Sprint Nextel Corp.

Sometimes there is no bright side

Mar 17, 2011 16:21 UTC


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

If rebuilding after tragedies is actually good for the global economy, someone clearly forgot to tell investors.

In the days after Japan’s earthquake and tsunami and its still unfolding nuclear disaster, global stock markets have fallen sharply, as have bond yields and even energy prices, all indicators that someone, presumably someone with quite a bit of money, thinks this all will not end well.

While replacing broken windows will flatter GDP, it does not do a whole heck of a lot to increase productive capacity. The contrary argument, of course, is that Japan is suffering from a surfeit of savings and that these funds will finally be given something worthwhile to do in rebuilding.

Undone by our assumptions

Mar 15, 2011 14:14 UTC

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

As the people of the great state of California are finding out, very small changes in our assumptions about the world can have very large consequences.

The $230 billion California Public Employees’ Retirement System (CalPERS) will likely cut its expectation this week about how much the pension fund will earn in future years, reducing its “discount rate assumption” to 7.5 percent from 7.75 percent.

That is going to land the State and other employers with workers in the fund with a bill to make up the shortfall that could total upwards of $200 million.

Patience is priceless, but doesn’t pay

Mar 10, 2011 12:49 UTC

Patience, particularly in investing, is one of those virtues everyone praises but for which no one seems willing to pay.

An investment manager given money to manage is going to do the same thing with it pretty much every time: put the money to work.

This is true almost always and almost without reference to how attractive the alternatives are. Partly this is because the fund manager reasons that you would not have given him money if you wanted him to keep it sitting idle in a liquidity account, but also because most fund managers spend most of their time managing a specific kind of risk: career risk.

Tech, jobs and continuing low rates

Mar 8, 2011 18:22 UTC

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

HUNTSVILLE, Ala. — Technology is limiting U.S. employers’ appetite for both lawyers and big box stores, two excellent reasons to expect monetary policy to remain loose for a long time to come.

In fact the underlying theme, an economy that uses technology to efficiently dispense with labor, raising productivity but forcing many into difficult transitions to new work, may well help to explain why rates were allowed to stay so loose for so long before the crisis broke.

While the U.S. employment report released last Friday was passably strong, the overall picture is of an economy that is going to take a long, long time to return to anything approaching full employment. The drop in the unemployment rate to 8.9 percent looks good at first glance, but the rate is flattered by a drop in labor force participation that is probably itself a marker of weak employment conditions. If the same percentage of the population were in the labor force as before the financial crisis, unemployment would be 12 percent.

A financial widening, not deepening

Mar 3, 2011 13:23 UTC

While Treasury Secretary Tim Geithner prepares for a “financial deepening” he hopes will be a boon to U.S. banks, we may be steering instead for broader, shallower waters which will drive down margins in financial services and favor simplicity.

Geithner told The New Republic that he sees a coming boom for demand for financial services from emerging markets as a newly affluent middle class seeks new and more sophisticated financial products.

“I don’t have any enthusiasm for … trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world,” Geithner said.

Bernanke’s children ignite loan party

Mar 1, 2011 15:25 UTC

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

By some measures the bank loan market is partying like it’s 2007, a remarkable turn of events considering three intervening years of recession, crisis and volatility.

This time the market is enjoying a rush of money from small investors, Bernanke’s children if you like, who have decided to take on risk in a world of zero interest rates and quantitative easing.

As a result 25.2 percent of all syndicated bank loans made in the U.S. so far this year have been “covenant-light” credits, according to Standard & Poor’s LCD, more than at the peak of the credit market frenzy year of 2007.