James Saft

Feb 28 (Reuters) – Don’t hold your breath waiting for that
Great Rotation out of global bonds and into stocks. Even so, go
into stocks anyway if you are big enough and tough enough to
survive the inevitable volatility.

The idea that investors will soon start to move much of the
cash they’ve plunged into very low-yielding but safe government
bonds into stocks is intuitively appealing. After all rates have
to rise some time and the 30-year-plus bond bull market is
looking long in the tooth. It also makes intuitive sense given
the likelihood of lousy inflation-adjusted returns, even losses,
in bonds.

The only problem is the world is brimming with old people,
rickety banks and foreign central banks, all of whom want and
need safe assets almost without regard to the price.

The upshot: equities will likely outperform bonds over the
medium and long term but returns will be low by historical
standards.

Behind the Great Rotation theory is a fear that when central
banks begin to unload their government bonds, private investors
will bail out, too, driving interest rates up. That will kill
portfolios with heavy bond exposure – and there are a lot of
them.

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

By James Saft

(Reuters) – In case you were wondering, Jamie Dimon has thoughtfully explained why he’s richer than you and all the analysts covering J.P Morgan.

It isn’t, as I thought, our inability to pick lottery numbers.

Hint: it is because he is chairman and CEO of a bank.

Actually, that’s not entirely fair. Dimon is richer than we because he runs a bank and understands the relationships between capital levels, regulation, profits and human nature.

At a J.P. Morgan investor event this week Mike Mayo, an analyst at CLSA, who has been a critic of large banks and, at times, Dimon, asked if J.P. Morgan wasn’t at a competitive disadvantage compared to more highly capitalized peers. (Here is a playback via Business Insider: here)

By James Saft

(Reuters) – For all the dysfunction in Washington we could, it seems, be in the midst of an historic and potentially extended bull run for the U.S. dollar.

The dollar is up a bit less than 4.0 percent over a year against a trade-weighted currency basket, in substantial part because of economic weakness, fragility and radical policy in places like Japan, Europe and Britain.

It is remarkable that we should be entertaining the idea of an extended dollar bull run on the eve of “sequestration”, a program of mandatory federal budget cuts that highlights both U.S. fiscal and political weakness.

Feb 20 (Reuters) – The Federal Reserve minutes show real
concern and debate over how big its balance sheet can grow and
for how long it can stay that way.

You should share that concern, because a Fed which is buying
fewer bonds, or even, heaven forfend, selling some, is a central
bank creating, once again, the needed conditions for deflating
the bubbles they just blew.

“Several” members of the Federal Open Market Committee
argued that they should be prepared to vary the amount of bond
purchases, now $85 billion per month. “A number,” a form of
words meaning less than “several,” said the costs and risks of
asset buys might indicate that the Fed should taper or end them
before it has reached its avowed employment goal.

By James Saft

(Reuters) – The Group of 20 major economies chose to whistle and look the other way, effectively encouraging further yen falls and the inevitable currency skirmishes that implies.

It will also support growth and, all else being equal, a continued rally in risky assets like stocks.

While the G20, as ever, appeared pompous, out of touch and ineffective, the communiqué was a masterpiece of officious pretend cluelessness in a good cause.

By James Saft

(Reuters) – Here’s a choice: take the typical hedge fund return and pay 2 percent annually and 20 percent of the spoils or use a derivative strategy so simple it doesn’t even need an elevator pitch.

Many investors would probably be better off ditching the manager. Hedge funds, according to a 2012 research paper by Jacob Jurek of Princeton and Erik Stafford of the Harvard Business School, just don’t deliver on their promise of superior risk-adjusted returns.

“Despite the seemingly appealing return history of alternative investments, many investors have not covered their cost of capital,” suggest the calibrations used in the research, Jurek and Stafford write.

By James Saft

(Reuters) – Acknowledging that sometimes banks chisel clients and bank employees chisel banks may sound obvious to you, but for the Federal Reserve this is a pretty big step forward.

Jeremy Stein, a member of the Board of Governors of the Fed, gave a speech last week in which he said that sometimes it may be necessary for the fed to raise interest rates to control overheating in credit markets.

While a lot was made about him being Wall Street’s new bubble cop, I’d argue that actually the big step here was that he specifically and convincingly argued that you can’t understand markets without understanding the way participants game the system to their own advantage.

Feb 12 (Reuters) – A government which sees its role as
driving stock market rallies is one suffering sad confusion
about the difference between appearance and reality.

Japan’s economy minister, Akira Amari, said on Saturday the
government will increase economic efforts in order to drive
Tokyo’s Nikkei index up another 17 percent by the end of March.

“It will be important to show our mettle and see the Nikkei
reach the 13,000 mark by the end of the fiscal year,” he was
quoted by Japan Times as saying in a speech. Japan’s fiscal year
ends March 31. “We want to continue taking steps to help stock
prices rise.”

By James Saft

(Reuters) – In a world of low structural investment returns retirees need to reconsider the assumption that they can draw down 4 percent a year of their savings.

Known as the 4 percent rule, this popular guideline is running smack into what looks to be an extended period of low returns in stocks and bonds.

Obviously, this is important not just for retirees, who may have little choice but to cut back on consumption, but for savers too, who will need to save more or work longer to safely meet their targets. It equally applies to foundations and endowments, which struggle with how much they can fund and still keep contributing in perpetuity.

Feb 7 (Reuters) – In a world of low structural investment
returns retirees need to reconsider the assumption that they can
draw down 4 percent a year of their savings.

Known as the 4 percent rule, this popular guideline is
running smack into what looks to be an extended period of low
returns in stocks and bonds.

Obviously, this is important not just for retirees, who may
have little choice but to cut back on consumption, but for
savers too, who will need to save more or work longer to safely
meet their targets. It equally applies to foundations and
endowments, which struggle with how much they can fund and still
keep contributing in perpetuity.