Opinion

James Saft

Warren Buffett’s bubble cash-out strategy

Aug 21, 2013 20:25 UTC

Aug 21 (Reuters) – Here is Warren Buffett’s pension fund
management advice in a nutshell: Be patient, buy only a few
things, ignore the stock market until it becomes irrationally
optimistic, at which point sell.

A recently released 1975 letter from Buffett to Washington
Post owner Katharine Graham on the subject offers new insight
into how early Buffett was to grasp both the difficulties of
pension fund management and the inability of Wall Street to
provide adequate solutions.

Perhaps even more valuable is the way the letter throws
light on Buffett’s approach to value investing. Buffett tries to
act not like a typical fund manager but like a company owner
thinking about buying another company. The crucial ingredients:
patience, to get a good purchase price; courage, to stick with
your investment if the business is doing well but the market
doesn’t agree; and a willingness to sell into a bubble when, as
so often happens, one comes along.

First, let’s talk about Buffett’s letter to Graham. It’s a
nice little story.

When Amazon.com founder Jeff Bezos bought the Washington
Post for $250 million earlier this month, he bought a lot of
problems, but none of them had to do with pension funds. That’s
in large part because the Post was lucky enough to have Buffett
as a board member, investor and adviser for many years, and
smart enough to take his advice. The result: a pension fund with
$1.4 billion in obligations and $2.4 billion in assets.

India, the taper and capital controls: James Saft

Aug 20, 2013 05:07 UTC

(The author is a Reuters columnist. The opinions expressed are his / her own.)

By James Saft

(Reuters) – India’s imposition of capital controls shows how the prospect of a rollback of U.S. monetary policy is already starting a global war for capital.

India has rolled out a series of capital controls to help support the partially convertible rupee, which has been hammered 13 percent lower so far this year and stands at an all-time low against the dollar. Besides limits on the amounts Indian individuals and business can shift out of the country, India on Monday banned the duty-free import of flat-screen televisions by airline passengers, a move that has the feel of clutching at straws.

Financial markets have been unimpressed by the moves, which started earlier this year, accelerating a shift in the wrong direction as investors weigh the possibility of further capital controls, perhaps even the capturing of foreign money.

Long bull market in Fed faith faces taper: James Saft

Aug 15, 2013 20:37 UTC

Aug 15 (Reuters) – For the first time in more than three
decades we may be entering a period of declining faith in the
Federal Reserve.

If the Fed does begin to taper in coming months, slowing its
bond purchases as many expect, it will mark a tacit
acknowledgment of the limits of the power of monetary policy. By
extension, it would also mark a decrease in the power or
willingness of the Fed to control the prices of financial
assets.

This realization – that the Fed can’t always play Santa
Claus and FOMC day isn’t a sort of secular Christmas – will hit
investors hard.

In praise of activist investment

Aug 14, 2013 20:34 UTC

By James Saft

(Reuters) – Here is a sentence I never thought I’d write: Hedge funds, activists to be specific, are a very good thing.

There has been a boomlet of activist investing headlines, good and bad. Bill Ackman quit the board of his money-losing project JC Penney after a battle over leadership on Tuesday, the same day BeaconLight Capital tore into management of Jos. A. Bank and Carl Icahn announced on Twitter that he had taken a position in Apple and was seeking a bigger share buyback program.

A mixed bag, to be sure, with plenty of ammunition for activists and also for their critics, who often accuse them of coming in for a short-term pop in shares and then leaving behind weakened companies.

Companies not playing along with Abenomics: James Saft

Aug 13, 2013 18:59 UTC

Aug 13 (Reuters) – Abenomics has a critical weakness:
Japan’s companies are not playing along and it’s hard to blame
them.

Japan’s economy, struggling to end decades of deflation and
recession, grew at a disappointing 2.6 percent annualized clip
in the second quarter, according to figures released on
Monday, a full percentage point below forecasts and a marked
slowing from the first three months of the year.

While the poor showing immediately focused minds on whether
the economy could withstand a planned hike in sales tax, the
real puzzle lies in the story behind yet another fall in
investment by companies.

Column: Companies not playing along with Abenomics – James Saft

Aug 13, 2013 11:04 UTC

By James Saft

(Reuters) – Abenomics has a critical weakness: Japan’s companies are not playing along and it’s hard to blame them.

Japan’s economy, struggling to end decades of deflation and recession, grew at a disappointing 2.6 percent annualized clip in the second quarter, according to figures released on Monday, a full percentage point below forecasts and a marked slowing from the first three months of the year.

While the poor showing immediately focused minds on whether the economy could withstand a planned hike in sales tax, the real puzzle lies in the story behind yet another fall in investment by companies.

Chief virtue of new BOE plan is it won’t work: James Saft

Aug 8, 2013 20:07 UTC

Aug 8 (Reuters) – The worry about the Bank of England’s new
policy of forward guidance is not so much that the market
doesn’t appear to believe it, though that can’t help, as the
extent to which the whole plan depends on house price gains.

The BOE this week enunciated a new policy of providing the
market with forward guidance, saying it was unlikely to raise
interest rates above their current all-time low of 0.5 percent
as long as unemployment, now 7.8 percent, is higher than 7
percent.

Forward guidance, introduced by star new BOE chief Mark
Carney, is intended to drive down longer-term rates and thus
goose asset prices. It also includes a few get-out clauses which
would allow for a hike. Carney said the bank might raise rates
even if unemployment remains high: if medium-term inflation
expectations rose too much; if its own, notoriously poor,
forecasts showed inflation in 18 to 24 months will be 2.5
percent or higher; or if low rates pose a threat to financial
stability.

The taper: let’s not call a retreat a victory – James Saft

Aug 6, 2013 04:05 UTC

By James Saft

(Reuters) – If the Federal Reserve does begin to taper its purchases of bonds in September there is really only one way to interpret the move: as a retreat.

Not a victory, because, as can be seen most clearly in last Friday’s U.S. July labor report, the employment market is not strong, not creating high-quality jobs, and wages are actually falling. If your dream is to flip burgers to pay off your education debt, this is your economy.

Certainly not a victory, because, despite the undoubted stimulus of low rates, the most important measure of core inflation is well below the Fed’s comfort zone and trending lower.

The very welcome death of the potash cartel: James Saft

Aug 1, 2013 20:45 UTC

By James Saft

(Reuters) – The death of the potash cartel is not only a great story, it is a great example of how hard human ingenuity makes it to fix markets.

Uralkali, a key Russian partner in an informal cartel which has helped to keep prices of the fertilizer artificially high, broke ranks this week, sending shares of the main producers crashing and leading to predictions of a fall in the price of potash of up to 30 percent. Uralkali did so after accusing a partner of selling outside an agreement, but also after users proved resourceful in sourcing alternatives and, importantly, before the completion of huge new projects which would bring on new supply in coming years.

While the list of losers in this is short – potash producers, especially higher-cost ones, their competitors and host countries – the winners include just about everyone else. Falling fertilizer prices will be great for China and India, which are heavily dependent on imports, and great for those who own farmland essentially anywhere. If you eat, you will benefit, and in places like emerging markets, where food is a higher percentage of household costs, falling prices could even give central banks more room to keep interest rates low and still control inflation.

Cash bites, but hold some anyway

Jul 31, 2013 20:45 UTC

By James Saft

(Reuters) – Cash: it loses value every day, will permanently impair your portfolio if you hold it long enough, but just might be your most important allocation right now.

Cash is not an investment I love; in fact, it is lousy, for reasons I will shortly explain. What cash is, however, is an option on future opportunities; powder to be used when prices are more attractive later.

With the prices on almost everything else available so high, and the risks from monetary policy similarly high, cash, while trash today, can be recycled into something a lot more valuable tomorrow.

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