James Saft

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

By James Saft

(Reuters) – Consumption is increasingly driving China’s economy, perhaps marking the country’s much-needed transition to a more sustainable model.

But even if China is moving away, slowly, from its old model based on saving, investing, building and exporting, it is important to realize that the change brings with it new uncertainty, risks and the potential for disappointing growth.

China’s economy grew 7.4 percent in the third quarter, down from 7.6 percent in the preceding three months and marking the seventh consecutive quarterly slowing in growth. Underlying figures, however, gave some cause for optimism, particularly a 14.2 percent rise in September retail sales, a rise of a full point from the month before.

In the first nine months of the year consumption contributed 55 percent of Chinese GDP growth, outpacing the share of investment, which accounted for 50.5 percent (net exports subtracted 5.5 percent).

That’s welcome news: economists have long fretted about China’s growth model, which relied on capital investment at home and, supported by an artificially cheap yuan, exports abroad. While that helped to underwrite a stunning run of growth, it also kept savings rates high and consumption at home relatively low. It also helped to facilitate a build-up of debt which leaves China structurally vulnerable and subject to asset and investment bubbles.

By James Saft

(Reuters) – Corporate earnings and revenues can’t, as they are doing this earnings season, diverge forever.

Just about halfway through the U.S. third-quarter corporate reporting season and we find that 59 percent of S&P 500 companies have beaten their earnings estimates, down a bit from last quarter but still an upbeat number.

And yet about 60 percent have missed their sales targets, meaning that corporate America is somehow extracting more profit than promised despite bringing less money into the tills than expected.

By James Saft

(Reuters) – Now we have the pre-election Federal Reserve meeting out of the way, we can go back to worrying about the real issue.

Not who will be president, but who that president will slot in to park in Ben Bernanke’s parking spot when his term as Federal Reserve Chairman runs out in January 2014.

The New York Times this week reported Bernanke telling friends he is unlikely to stand for a third term as Fed chief, opening up the likelihood of a new person in the role in 2014 no matter who is elected president.

Oct 23 (Reuters) – What was that you were saying about
globalization being inexorable?

A quick look at a series of under-appreciated recent stories
- a Sino-Japanese territorial spat’s real economic consequences
and a drop in both global trade and cross-border lending – shows
a world becoming less tightly integrated and a lot more
economically unpredictable.

The idea that the world will continue to become more
economically integrated, with an ever more complex global supply
chain and increasingly international corporations and banks,
lies at the heart of most mainstream economic thinking.

By James Saft

(Reuters) – The big milestone this week is not the 25th anniversary of the Black Monday crash but falls a day later when we mark the far darker advent of the Greenspan put.

The Greenspan put, the now long-established policy of easing and appeasing when markets go cold, arguably created the world in which we live – one of low growth, bubbles and, every once in a while, huge busts.

On Monday, October 19, 1987, the U.S. stock market crashed, along with falls in Asia and Europe, culminating in a 22 percent tumble in the Dow.

Oct 17 (Reuters) – It is one thing when commentators burble
on about the possibility of outright central bank financing of
deficits, it is quite another when a viable candidate to lead
the Bank of England is reported to be thinking along these
lines.

Reported of course is different from said, but a speech last
week by Adair Turner, outgoing head of Britain’s Financial
Services Authority and a candidate to be the next governor of
the BOE, may serve as a warning or a promise, depending on your
view of money printing.

Turner, after ticking off the already extensive list of
support the BOE has given to the Treasury and economy, held out
the promise of more:

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

By James Saft

(Reuters) – Rather than peace, or even, at a stretch, economics, perhaps the European Union should get a Nobel Prize in literature, as it is a work of imagination, creation, and, at least for a time, the suspension of disbelief.

This is not necessarily a criticism.

The Nobel Committee awarded the EU this year’s peace prize, citing what it said was the evolution from being “a continent of war to a continent of peace.”

That can’t be gainsaid, but what is also remarkable is the way in which, as we witnessed the knitting together of the euro area, rational people, investors who prided themselves on only acting in their own cold self-interest, failed to appreciate the underlying structural absurdities.

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

By James Saft

(Reuters) – It has always been a tenet of faith in markets that individual investors are the financial equivalent of shark chum, forever bamboozled by news flow and buying high and selling low.

A close reading of the data reveals that things might not actually be all that bad.

If so, we might just have to revise our views, not just of individual investors but also of the role and contribution of financial advisers.

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

By James Saft

(Reuters) – The issue isn’t whether the Federal Reserve and European Central Bank are monetizing debt now, it is instead whether their actions make them more likely to later.

For both institutions the game is to get the benefit out of buying up government debt, with all the very considerable benefits that brings in current circumstances, while retaining the market’s faith that when things get too wild they will unwind their purchases.

It isn’t that the Fed, or ECB, is monetizing the debt, but rather that they are putting themselves in a situation where reasonable people might expect that they possibly would later. Not will, but might, but that is a big risk to introduce into events in and of itself.

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

By James Saft

(Reuters) – Maybe it is time to accept that there is no such thing, really, as a free and independent inter-bank lending market.

That’s because a genuine bank loan market, at least one which would be allowed by regulators and participants to exist, must be founded on some combination of good collateral, which is vanishingly scarce, and faith, which has gone away on a long trip.

Understanding why puts us a bit closer to reckoning with exactly how false and officially supported financing markets are, a realization which manages to be both terrifying and strangely reassuring.