Opinion

James Saft

Cheap vs affordable, Apple edition: James Saft

May 29, 2014 20:46 UTC

May 29 (Reuters) – Apple’s $3 billion purchase of
headphones and music business Beats shows exactly how foggy our
thinking about the distinction between ‘cheap’ and ‘affordable’
has become.

At first glance the deal, which values Beats at about three
times more than when it sold a roughly 50 percent stake in
itself to the Carlyle Group in September, appears to be at a
very rich valuation.

And yet in analyzing the deal, media and analyst reports lay
stress on how the deal is only about 0.5 percent of Apple’s
massive market cap. Or better yet, that the $2.6 billion cash
portion of the deal is only 1.7 percent of Apple’s $151 billion
cash hoard as at the end of March.

Seriously, people, that’s how percentages work: if you take
a large number like, say, $3 billion and compare it to a very
large number like $151 billion you will come up with a small
percentage. That does not imply, however, that because one is
small in comparison to the other it is cheap or even a good
deal, only that it is affordable.

This kind of thinking is rife in the markets for tech assets
which are bubbly, and may really only demonstrate that things
are out of whack.

Cheap vs affordable, Apple edition: James Saft

May 29, 2014 20:46 UTC

May 29 (Reuters) – Apple’s $3 billion purchase of
headphones and music business Beats shows exactly how foggy our
thinking about the distinction between ‘cheap’ and ‘affordable’
has become.

At first glance the deal, which values Beats at about three
times more than when it sold a roughly 50 percent stake in
itself to the Carlyle Group in September, appears to be at a
very rich valuation.

And yet in analyzing the deal, media and analyst reports lay
stress on how the deal is only about 0.5 percent of Apple’s
massive market cap. Or better yet, that the $2.6 billion cash
portion of the deal is only 1.7 percent of Apple’s $151 billion
cash hoard as at the end of March.

Leverage, complexity and amnesia

May 28, 2014 20:32 UTC

May 28 (Reuters) – Investors appear to have forgotten two
prime lessons of the last crisis: complexity is expensive and
leverage is dangerous.

Not that you have to look far, but two recent trends – funds
which mimic hedge fund strategies and leveraged exchange-traded
funds – exemplify the extent to which five years of market gains
and easy central bank money have lulled investors.

It is almost as if the financial crisis never happened.

First, let’s look at leveraged ETFs – exchange traded
vehicles which use derivatives or other means to create leverage
and amplify gains and losses – which have multiplied and come
in for increasing criticism.

Economics and politics align for ECB: James Saft

May 27, 2014 12:13 UTC

By James Saft

(Reuters) – If there is anything more sobering for a central banker than failing to meet the bank’s mandates, as the European Central Bank arguably has, it is having one’s very legitimacy challenged.

The recent round of European Parliament elections were, if not a disaster for supporters of the euro project, resounding notice that many voters are deeply unhappy and suffering economically, with eurosceptic parties more than doubling their seats.

And given that an ECB-engineered weaker euro would help to shelter hard-hit euro zone workers and bring inflation closer to the bank’s 2 percent target, that is exactly what we should expect.

Whacking the economy with a wrench: James Saft

May 22, 2014 20:34 UTC

May 22 (Reuters) – Did you ever get to the point when trying
unsuccessfully to fix something you just start whacking it with
a wrench?

I am getting the feeling that the Federal Reserve is
approaching that point with the economy.

Fed officials have recently outlined some unconventional
policy options that may indicate desperation, bravado or even,
perhaps, a backward kind of genius.

Sidelined Fed a boon for emerging markets

May 21, 2014 20:20 UTC

May 21 (Reuters) – U.S. interest rates are staying low for
quite some time, a backdrop which should, all else equal, favor
emerging markets.

Remember the taper tantrum last year, when fragile emerging
market countries took huge hits as investors moved to tighten
liquidity ahead of an anticipated Fed cutback on bond buying?
Well that’s all in the past and, particularly in the past week,
the noises from within and around the Federal Reserve are
painting a newly dovish picture.

That’s significant for all markets but it is an
unadulterated bonus for emerging markets, particularly those
which need to attract capital and are therefore highly sensitive
to its global cost and availability.

Modi mania and activism show growth premium: James Saft

May 20, 2014 04:04 UTC

By James Saft

(Reuters) – Investor enthusiasm for new Indian Prime Minister-to-be Narendra Modi and for activist investment may spring from a common underlying cause: the reality of lower, less explosive growth.

India handed Modi and his Bharatiya Janata Party (BJP) a thumping victory in elections last week, setting off an equally explosive rally in shares, which jumped as much as 6 percent on the day of voting.

On the surface India’s rally, essentially a bet that Modi’s pro-business and development policies will succeed, seems very different from the joy with which investors have taken to greeting news that an activist investor has taken a stake in a company and is banging the table for change.

Europe, U.S. show similar profiles: James Saft

May 15, 2014 20:16 UTC

May 15 (Reuters) – Very poor European growth figures add a
hint of concern about a cyclical downturn to enliven the ongoing
worries about a structural malaise.

What is particularly striking is the way in which the euro
zone and the U.S., though operating in vastly different
conditions, are both exhibiting some common traits: very poor
economic growth, very low inflation and a bond market which is
predicting more of the same.

The news from Europe on Thursday was disappointing, with
euro area GDP advancing only 0.2 percent in the first quarter.
Most of that paltry growth seems to have come from a buildup in
inventories rather than an expansion in actual final demand.

Xi’s new normal with Chinese characteristics: James Saft

May 13, 2014 04:01 UTC

May 13 (Reuters) – The world needs to get ready for a new
normal with Chinese characteristics.

Reacting to yet more evidence that China’s growth is
moderating quickly, President Xi Jinping this weekend more or
less told us to get used to it.

“We must boost our confidence, adapt to the new normal
condition based on the characteristics of China’s economic
growth in the current phase and stay cool-minded,” Xi was quoted
as saying by Xinhua news agency.

Was Barclays the problem, or was it the business model?: James Saft

May 8, 2014 21:21 UTC

May 8 (Reuters) – When the world applauds your obituary, as
it has the death of Barclays Plc’s global ambitions, it seems
you have been doing something wrong.

Barclays’ shares rallied 7.69 percent on Thursday
after the bank announced a sweeping restructuring, the central
planks of which are the creation of a bad bank to house impaired
assets and, more importantly, huge cut-backs in investment
banking.

It all amounts to an end for Barclays’ long-time goal to be
a global universal bank, a project fertilized by the ashes of
Lehman Brothers but ultimately undone by inadequate profits.

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