James Saft

Invest like Fama but regulate like Shiller

Oct 16, 2013 20:43 UTC

Oct 16 (Reuters) – If the board awarding this year’s Nobel
Prize in economics didn’t get bogged down in a foolish
consistency, there is no reason for you to.

The award this year went to Eugene Fama, Robert Shiller and
Lars Hansen, leading to much hand wringing over the apparent
conflicts between the work of Fama and Shiller. (Hansen is
mostly known for research on risk, which may be why so few are
discussing him.)

Fama is famous for the efficient markets hypothesis, which
posits that securities prices reflect all available information,
which on the face of it makes quite a contrast to Shiller’s
central assertion that animal spirits – greed and fear, to you
and me – drive financial markets and make bubbles a regular

First off, economics is a social science, not a hard
science, so don’t kid yourself that anyone has the final word on
anything. You may as well go to the opera in hopes of finding
out whether it will rain next week.

That said, there is much of use in both men’s work, and
employing a strategy often used by Nassim Nicholas Taleb,
perhaps we can boil it down to the following rules of thumb:

China’s creaking export model: James Saft

Oct 15, 2013 04:00 UTC

Oct 15 (Reuters) – That creaking sound you hear just might
be the Chinese export-driven economy model about to break.

While most of the world’s attention is focused on the
interminable and badly sung opera in Washington, China just
released a set of data that indicate a serious slowing in demand
for its products, particularly from its emerging market trading

Chinese exports in September fell 0.3 percent from a year
ago, customs officials said. While demand for Chinese products
flagged in the European Union, the main culprit seems to have
been emerging markets, which have been hit hard by slowing
capital flows. Exports to Southeast Asia fell to a 17-month low,
while those to South Africa were also hit hard.

The debt deal and the risk-eating zombies: James Saft

Oct 10, 2013 20:38 UTC

By James Saft

(Reuters) – As if they weren’t already risk-eating zombies, investors are being further conditioned to close their eyes and buy.

House Republicans proposed a short-term plan to extend the U.S. borrowing limit by six weeks, a move which would avert, at least for the time being, a default on U.S. debt.

The deal, which would run through November 22, just before Thanksgiving, would not end the 10-day-old government shutdown, but would shelter the economy and financial markets from the carnage that a U.S. default would bring.

Meet the new Fed, same as the old Fed

Oct 9, 2013 21:12 UTC

Oct 9 (Reuters) – The Yellen era will feature more of the
same: the same monetary policy and the same unanswered

Appointed today as Ben Bernanke’s successor as Fed chief,
Janet Yellen is likely to pursue a similar approach to monetary
policy. That makes any taper in bond buying likely to be later
and gentler, a factor which will support, all things being
equal, riskier assets.

Less clear, and also unchanged, is how she and her highly
divided colleagues at the Fed will react as yet another year of
unsatisfactory growth and low inflation call into question the
wisdom of the whole approach.

By worshipping markets, we’ve crippled them: James Saft

Oct 3, 2013 20:24 UTC

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

By James Saft

(Reuters) – The interaction of financial markets and debt standoff shows how by worshipping markets, we’ve crippled them.

Stan Collender, who knows Washington politics, sees a 25 percent chance the debt ceiling is not raised in time which implies a slightly lower chance of default or partial default. (here)

This is not mild stuff: a U.S. sovereign default is the market equivalent of frogs raining out of the sky and zombies cruising the malls.

Gridlock holds perils for stocks

Oct 2, 2013 20:25 UTC

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

By James Saft

(Reuters) – Don’t kid yourself: if you hold equities you ought not to welcome political gridlock.

If you hold stocks, history shows you’ll do worse. If you are strictly a bond investor, or fear inflation above all else, perhaps you’ll be happier with finger pointing and inactivity in Washington.

Markets have been mildly spooked by the government shutdown and budget impasse, though not nearly as much as they would be if they came to believe that a debt default was on tap for later this month.

Forget fundamentals, it’s all about government: James Saft

Oct 1, 2013 04:05 UTC

By James Saft

(Reuters) – Get used to it: in today’s dysfunctional investment landscape, most risk is, at bottom, government risk.

Two stories illustrate this neatly: the threatened shutdown of or default by the U.S. government and the Keystone Cops-style slow-motion disintegration (or not) of Italy’s governing coalition.

Taking a step deeper, the amazing thing about both situations is that the principal counter-weight to terror in the markets is also government, namely the Federal Reserve and the European Central Bank, both of which are busily writing investors insurance against government malpractice.

Foxtons, the London bubble stock: James Saft

Sep 24, 2013 04:02 UTC

By James Saft

(Reuters) – It is hard to imagine, much less find, a better exemplar of how capital gets misallocated in a bubble than British property agent Foxtons, whose stock was publicly listed last week.

London-based Foxtons, which only three short years ago was taken over by its lenders, went public on Friday and by the end of its first trading day was worth $1.2 billion. That’s a bit more than double what it sold for in 2007, just before the crash, when its founder Jon Hunt sold out to private equity firm BC Partners in a deal which was at the time widely derided as marking a market top.

To put it in perspective, Foxtons is now trading for a bit more than 20 times what investors expect it to earn next year. That implies investors believe that either it will gain market share rapidly or, as real estate agent fees are a percentage of sales and rental prices, they think London real estate will continue its stratospheric rise.

Go along on Bernanke’s scary fun ride

Sep 19, 2013 19:07 UTC

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

By James Saft

(Reuters) – Sometimes it is better not to over-think things.

The Fed’s non-taper is one of those times.

The U.S. central bank is encouraging you as an investor to sit back, enjoy the warm water and take on some risk.

For now, maybe not for long, but for now, that is probably what you should do.

The Federal Reserve’s decision not to begin to cut back on its purchases of bonds caught investors unawares on Wednesday. Economists and Fed watchers had been in virtually unanimous agreement that the bank would shave back, or taper, bond purchases, with most of the debate centered on how they might sugar the pill by providing guidance indicating that interest rates might stay low for longer than anticipated.

Instead the Fed put off the taper and left investors remarkably unsure about why or when they might begin.

Fed does right thing in wrong way for wrong reasons

Sep 18, 2013 21:52 UTC

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

By James Saft

(Reuters) – The Federal Reserve did the right thing in the wrong way and very likely for the wrong reasons.

The Fed said on Wednesday it would continue buying bonds at an $85 billion monthly pace for now, citing concerns about a sharp rise in borrowing costs in recent months and the upcoming budget battle in Washington. This came as a huge surprise to most people, well anyone who listened to and believed what Fed Chairman Ben Bernanke has been saying for the past three months or so, when he did a masterful job of setting the market up for a tapering of bond purchases.

“The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market,” the U.S. central bank said in a statement explaining its decision.