Opinion

James Saft

China Tobin tax, shadow banking and moral hazard: James Saft

Jan 30, 2014 21:50 UTC

By James Saft

(Reuters) – Sometimes it can be hard to understand just what exactly China’s regulators are trying to achieve.

Take, for example, two interesting but fundamentally conflicting stories in the past week: the bailout of a trust product and discussion of a Tobin tax on financial transactions.

The forces behind these two stories are pulling against one another, with the shadow banking bailout creating a moral hazard enticement for the capital flows the Tobin tax is intended to stem.

In a deal reportedly orchestrated by Chinese authorities, a $495 million wealth management product called Credit Equals Gold averted default this week, though investors will be singed by the loss of some promised interest payments. The deal, originally raised by China Credit Trust for an investment in a coal mining company and sold through the Industrial & Commercial Bank of China Ltd., is part of a burgeoning $6 trillion shadow banking sector.

While allowing the high-yielding deal to default would have dealt a blow to the banking sector, it would also have sent the much-needed message that risk and reward in China are connected. But with investors taking the rewards and someone else bearing the risks, moral hazard is the obvious outcome.

Ben Bernanke’s parting shot to emerging markets

Jan 29, 2014 21:59 UTC

By James Saft

(Reuters) – Ben Bernanke’s parting gift to emerging markets was some tacit advice they should have understood all along: you are on your own.

The Fed carried on with its tapering campaign at the conclusion of the Federal Open Market Committee meeting on Wednesday, slicing another $10 billion off of monthly purchases, and making no mention of the impact of a nascent crisis in emerging markets.

The statement accompanying the decision was reasonably upbeat, and carried no mention of recent upsets in emerging markets as a possible factor in their thinking. The Fed said the economy “picked up”, that the labor market indicators were “mixed” but showing “further improvement” and that household spending and business investment had advanced “more quickly”.

Emerging markets pray for Wall Street tumble: James Saft

Jan 28, 2014 05:18 UTC

By James Saft

(Reuters) – What struggling emerging markets need right about now is a big sell-off – in the U.S.

Without a substantial downdraft on Wall Street, the Federal Reserve is highly likely to carry on trimming the amount of bonds it buys every month, continuing at its meeting ending on Wednesday by taking it down another $10 billion to $65 billion.

That tapering will accentuate pressure on emerging markets, which have suffered substantial losses on currencies and securities with investors increasingly less interested in discriminating between the weak and the more stable.

Non-traded REITs are a relationship ender

Jan 22, 2014 21:46 UTC

Jan 22 (Reuters) – When a financial advisor tried to sell my
sister a fee heavy non-traded REIT last year, pitching it as an
alternative to fixed income, I told her she ought to fire him.

Then, having thought it over, I told her she ought to fire
him, re-hire him and fire him again.

Non-traded REITs are a species of real estate investment
trusts, specifically ones which are not traded on an exchange
and which typically lock investors in for seven or more years.

You must be joking, Mr. Bernanke

Jan 16, 2014 22:01 UTC

By James Saft

(Reuters) – Well, now we know: monetary policy certainly isn’t rocket science.

Asked on Thursday if he was confident before implementing quantitative easing that it would work, outgoing Federal Reserve Chairman Ben Bernanke quipped:

“The problem with QE is that it works in practice, but it doesn’t work in theory.”

You must be joking, Mr. Bernanke: James Saft

Jan 16, 2014 21:59 UTC

Jan 16 (Reuters) – Well, now we know: monetary policy
certainly isn’t rocket science.

Asked on Thursday if he was confident before implementing
quantitative easing that it would work, outgoing Federal Reserve
Chairman Ben Bernanke quipped:

“The problem with QE is that it works in practice, but it
doesn’t work in theory.”

Success has many fathers

Jan 15, 2014 21:10 UTC

Jan 15 (Reuters) – If you are like most investors, you
probably mistake catching a wave for being able to swim fast.

And considering that you also very likely can’t swim fast or
invest well, that is a dangerous combination.

It is easy to observe that people are more likely to give
themselves credit for good investment returns while blaming
their reverses on things outside their control, but now at last
we have data.

Fed taper may be vindicated, but watch from a distance: James Saft

Jan 14, 2014 05:01 UTC

Jan 14 (Reuters) – Sure, the Federal Reserve will probably
carry on tapering, and sure, they may ultimately be vindicated
by better economic data, but it is hard to see why you, as an
equity investor, should stick around to find out.

Friday’s U.S. jobs data, the worst by some measures in
years, was the equivalent for the Fed of one of those scenes in
a movie where the ground at the cliff face begins to give way
beneath the hero’s feet.

Having just last month inaugurated what they and investors
hope would be a stately and calm process of reeling back on the
amount of bond buying the Fed does every month, beginning with a
cut from $85 billion to $75 billion, the U.S. central bank was
unexpectedly confronted with some inconvenient facts. Not only
were the payroll figures the worst in nearly three years,
confounding market expectations, but the unemployment rate,
which is at the center of the Fed’s policy of trying to manage
longer-term expectations for when it will actually raise rates,
fell to 6.7 percent.

Deflation is deflation even if you deserve it

Jan 9, 2014 22:06 UTC

By James Saft

(Reuters) – Here is some unwelcome news for the likes of Greece, Ireland and Cyprus: Apparently it isn’t really deflation if you deserve it.

That’s the takeaway from remarks by ECB chief Mario Draghi, who despite persistently falling prices in some euro zone peripheral economies, was at pains on Thursday to define the problem away.

“We define deflation as a broad-based self-fulfilling, self-feeding fall in prices.” he told a press conference after the ECB left rates on hold. “We don’t see that in the euro area. We may see negative inflation rates in one or two countries, but we should also ask the question of ‘How much is due to the necessary rebalancing of an economy which lost competitiveness and had gone into financial and budgetary crisis and how much is due to actual true deflation?’”

Deflation is deflation even if you deserve it: James Saft

Jan 9, 2014 22:04 UTC

Jan 9 (Reuters) – Here is some unwelcome news for the likes
of Greece, Ireland and Cyprus: Apparently it isn’t really
deflation if you deserve it.

That’s the takeaway from remarks by ECB chief Mario Draghi,
who despite persistently falling prices in some euro zone
peripheral economies, was at pains on Thursday to define the
problem away.

“We define deflation as a broad-based self-fulfilling,
self-feeding fall in prices.” he told a press conference after
the ECB left rates on hold. “We don’t see that in the euro area.
We may see negative inflation rates in one or two countries, but
we should also ask the question of ‘How much is due to the
necessary rebalancing of an economy which lost competitiveness
and had gone into financial and budgetary crisis and how much is
due to actual true deflation?’”

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