Opinion

James Saft

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?’”

This strikes me as being an unnecessarily narrow definition,
though useful for a man in Mr. Draghi’s predicament. Not only is
euro zone-wide inflation, at just 0.7 percent, well below the
ECB’s target of just under 2.0 percent, but both Spain and
Portugal are teetering on the edge of deflation, with yearly
inflation increases of, well, nothing.

While it is true that the self-perpetuating effect of
deflation – the tendency to put off to tomorrow what may well be
cheaper – is particularly pernicious, the fact remains that
prices are falling in significant areas of the euro zone due to
a huge slump in demand and, as Draghi implies, as countries
attempt to make themselves competitive without being able to
sink their currencies.

Japan stocks may have strong 2014 follow-up

Jan 8, 2014 22:28 UTC

By James Saft

(Reuters) – You probably missed last year’s epoch-making rally in Japanese stocks, and if you are still underweight, you might just do it to yourself again.

After rising a massive 57 percent last year, its best year in four decades, Tokyo’s Nikkei 225 index will be supported in 2014 by support from local buyers, by the continued benefits of a cheap yen and, most of all, by massive quantitative easing.

None of this is to say that Abenomics, the program of reflation and reform pursued by Prime Minster Shinzo Abe and the Bank of Japan, will ultimately be successful. There is plenty to worry about there – from the fashion in which households appear to be carrying the worst of the burden to the deeply difficult medium-term demographic issues.

Column: Default, and other ugly words: James Saft

Jan 7, 2014 13:04 UTC

By James Saft

(Reuters) – Default, capital controls and high inflation are all such ugly words but they may, for many of the world’s largest economies, prove to be necessary tactics.

Thus far the official response to the crisis has concentrated on rather less painful measures: a bit of austerity, a willingness to create conditions which are helpful to debtors (AKA kicking the can down the road), and the hope of growth.

But the sheer size of the debt burden in large economies, not to mention the historical record, argue that ultimately we may need to turn instead to more painful measures, ones which unfortunately make it much easier to see who is benefiting at whose expense.

Default, and other ugly words: James Saft

Jan 7, 2014 05:01 UTC

Jan 7 (Reuters) – Default, capital controls and high
inflation are all such ugly words but they may, for many of the
world’s largest economies, prove to be necessary tactics.

Thus far the official response to the crisis has
concentrated on rather less painful measures: a bit of
austerity, a willingness to create conditions which are helpful
to debtors (AKA kicking the can down the road), and the hope of
growth.

But the sheer size of the debt burden in large economies,
not to mention the historical record, argue that ultimately we
may need to turn instead to more painful measures, ones which
unfortunately make it much easier to see who is benefiting at
whose expense.

After go-go decade, farmland faces threats

Dec 26, 2013 20:32 UTC

Dec 26 (Reuters) – The rise and rise of farmland values
faces two tough challenges: falling crop prices and rising
interest rates.

Because farmland is not a widely-held investment, with the
exception of large institutions, its remarkable rise gets
comparatively little attention.

Illinois average farmland prices more than doubled, to
$7,900 per acre in the six years to 2013, according to one
Department of Agriculture measure.

The trouble with forward guidance: James Saft

Dec 24, 2013 05:02 UTC

By James and Saft

(Reuters) – Keeping your word is hard, and people simply hate it when you don’t, something that central bankers enamored of the vogue for “forward guidance” may soon learn.

The Federal Reserve put forward guidance – essentially a pledge or promise to keep policy within certain parameters for a set period of time or given certain conditions being met – at the center of its strategy for keeping control over market interest rates while withdrawing from bond buying. In announcing a $10 billion per month taper, or reduction in bond buying last week, the Fed sweetened the medicine by hardening forward guidance to indicate that rates could remain near zero “well beyond” the time unemployment drops below 6.5 percent so long as inflation remains below a 2 percent target.

In some ways this has worked admirably – markets for risky investments remain upbeat. But in other areas, namely the exchanges where people make bets about future interest rate moves, things seem to be getting away from the Fed.

The “smart beta” oxymoron

Dec 19, 2013 20:34 UTC

Dec 19 (Reuters) – As is so often true in investments, in
the case of “smart beta” it turns out that if it sounds like an
oxymoron, it probably is.

Beta – the opposite of alpha, otherwise known as beating the
market through skill – is the return you get from market
exposure. In other words, if you buy an index fund you get beta.
Pay up for an active fund and you are betting on receiving alpha
in return.

Smart beta is a strategy which tries to improve on index
tracking returns by adjusting away from the typical cap-weighted
style, in which a given fund will hold shares or securities in
proportion to market capitalization.

A taper is whatever the market says it is: James Saft

Dec 18, 2013 22:44 UTC

By James Saft

(Reuters) – Coming months will answer decisively a question the Federal Reserve insists is already settled: is a tapering a tightening?

Score one for the Fed today: it cut purchases of bonds to a monthly $75 billion from $85 billion, but paired the move with a confection of sweeteners which touched off a startling rally in equities and only a small increase in long-term interest rates.

“Tapering is not meant to be a tightening,” Bernanke said after the Federal Open Market Committee announced the move. “The Federal Reserve means to keep the level of stimulus more or less the same.”

Fed may wait, you shouldn’t

Dec 17, 2013 13:04 UTC

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

By James Saft

(Reuters) – The Federal Reserve probably won’t taper when it meets this week, though maybe it should.

Financial markets definitely ought to sell off no matter what the Fed does, but almost certainly they won’t.

The Federal Reserve will announce its interest rate policy on Wednesday, after which Ben Bernanke will get a chance to explain why, or why not, they choose to reduce bond purchases. While less than a fifth of economists polled by Reuters expect the Fed to taper in December, a recent run of encouraging data has driven that figure up four-fold in just one month.

Fed may wait, you shouldn’t: James Saft

Dec 17, 2013 05:01 UTC

Dec 17 (Reuters) – The Federal Reserve probably won’t taper
when it meets this week, though maybe it should.

Financial markets definitely ought to sell off no matter
what the Fed does, but almost certainly they won’t.

The Federal Reserve will announce its interest rate policy
on Wednesday, after which Ben Bernanke will get a chance to
explain why, or why not, they choose to reduce bond purchases.
While less than a fifth of economists polled by Reuters expect
the Fed to taper in December, a recent run of encouraging data
has driven that figure up four-fold in just one month.

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