James Saft

A farewell to yuan whines

Feb 28, 2012 16:11 UTC

By James Saft

(Reuters) – Nobody seems to like picking on China any more.

Not only did the official communique issued by G20 central bankers and finance ministers assembled in Mexico City not mention the yuan, China was actually praised by U.S. Treasury Secretary Tim Geithner.

What a change it makes from summits past, when complaining about the undervaluation of the yuan was a seemingly fixed item on the agenda.

“China has played I think a really responsible, stabilizing role, despite its relative newcomer status,” Geithner said in Mexico City. “There’s been a dramatic change in the organization and structure of the economy towards domestic demand.”

Geithner also encouraged further appreciation of the yuan, saying it was in China’s best interest, but the overall tone was markedly different from one or two years ago.

The world has decidedly bigger problems these days than China artificially diverting demand towards its own exports, though it assuredly still is. An unfolding debacle in the euro zone is the rightful main focus, as it has the potential to greatly reduce demand rather than the lesser sin of simply redistributing it.

We are all junior investors now

Feb 23, 2012 16:29 UTC

By James Saft

(Reuters) – If the Greek bailout has proved one thing it is this: we are now all creatures of government.

The rescue itself is only of passing interest – it won’t be the last and Greece’s virtual default will become real one of these days. Instead, it is the way in which the interests of private investors have been officially subordinated to public claims that will have a lasting impact.

Under the terms of the deal the European Central Bank and national central banks will be excused from taking any losses on their holdings of Greek debt. Private investors, in contrast, will take a loss of about 75 percent and are expected to be made subject to collective action clauses now wending their way through legislation in Greece. Those CACs will force investors to tender their bonds and take a hit, all while central banks skate serenely away. The ECB and national central banks will remit their profits on Greek bonds to the Greek government, a helpful gesture, but one which is cold comfort to an investor who now finds their interests subordinated.

Italy needs miracle, not just Monti

Feb 14, 2012 20:58 UTC

By James Saft

(Reuters) – Italy is going to need considerably more – in luck, growth and cohesion – than is likely to be delivered by premier Mario Monti’s technocratic charms.

Monti, unelected and a former European Commissioner, is so much more reliable and authoritative than the opera buffa figure of Silvio Berlusconi that it is tempting to think that Italy, now enjoying the qualified backing of the ECB and financial markets, is past the worst. And in truth, progress in a few short months has been impressive; Monti makes the right noises on structural reforms and has been rewarded by a sharp fall in Italian interest rates.

And yet the country still faces enormous risks and uncertainties with multiple paths for the uncertainties to magnify the risks. Italy is only in the very early stages of a recession that could last for years, it is hostage to outside shocks from other weak euro zone members and there is no guarantee that the political consensus for reform will survive the effects of the resulting austerity.

Watch out for the policy drag: James Saft

Feb 9, 2012 19:04 UTC

By James Saft

(Reuters) – A strengthening U.S. jobs picture is the best news in months, carrying within it confirmation of the fruits of a pleasant rebound in American manufacturing.

That said, of the three sources of power for a recovery – private activity, public activity and monetary policy – only one will be a source of strength in the coming months, while the others may well prove a drag.

First, the good news; January’s payrolls data was strong, exceeded expectations, included positive revisions to previous months and, best of all, established something approaching a positive trend. Hours worked are growing more quickly than employment, hinting at hiring to come if employers gain confidence. It is just about possible to put together a thesis that those Americans with jobs are feeling a bit more secure and are finally going ahead with long-deferred purchases of big ticket items like autos.

The beauty school economy: James Saft

Feb 9, 2012 19:03 UTC

By James Saft

(Reuters) – Can Americans build a sustainable recovery based on borrowing money to buy cars to drive to debt-financed cosmetology classes?

Perhaps not, but they appear to be trying, driving a surprising mini-recovery in the economy and, in the process, fueling a heck of a financial rally.

Consumer borrowing in the U.S. surged for the second month running in December, rising by $19.3 billion, a 9.3 percent rise on a seasonally adjusted basis. That makes a two-month increase of almost $40 billion, something not seen in more than 10 years. The data, which doesn’t include credit secured against real estate, includes a modest rise in revolving credit, such as credit cards.