Opinion

James Saft

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.

How Foxtons came to command such a premium price, its journey on the way, and the policies and forces which got it there form a very short tour of what has gone wrong in Britain over the past decade and a half.

House prices in London have more than tripled since 1998, rising far more than incomes and driven by a complex combination of forces. While difficulty getting planning approval has played a role, as has London’s popularity with rich foreigners seeking a bolt-hole against political risks at home, much of the gains have been driven by the financialization of the British economy.

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.

Market, economy in rare alignment on Summers: James Saft

Sep 17, 2013 04:46 UTC

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

By James Saft

(Reuters) – With the withdrawal of Larry Summers from consideration to run the Fed we have that rare thing: an alignment between what the market wants and the economy needs.

Markets celebrated on Monday after Summers, facing strong opposition to his confirmation should he be appointed to succeed Ben Bernanke as Federal Reserve chairman, wrote to President Obama saying he no longer wished to be in the running. Equities jumped and bond yields fell because investors see Summers’ exit as opening the way for Fed Vice Chair Janet Yellen, who in turn they expect to hew closely to the policies followed by Bernanke.

Yellen is seen as a gradualist who would only very slowly taper bond buying, a process that may well begin this week, and who is less likely to rapidly withdraw other support from the economy.

Lehman’s legacy of inequality: James Saft

Sep 12, 2013 21:05 UTC

Sept 12 (Reuters) – Of the many regrettable aspects of the
failure of Lehman Brothers, perhaps the worst is that it led to
policies which expanded and reinforced economic inequality in
the U.S., often through unfair means.

When Lehman went down five years ago it set in train forces
which could easily have led to the failure of many financial
institutions. Faced with the possibility of taking large swaths
of the banking system into effective government control, first
the Bush and later the Obama administrations chose instead to
shelter institutions and executives from the consequences of
their actions.

That involved creating a variety of policies which
subsidized large banks and helped to dig a moat around their
businesses. This went hand in hand with monetary policy which
both supported banks and kept artificially high the value of
financial assets and real estate.

Investing for peak population

Sep 11, 2013 20:50 UTC

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

By James Saft

(Reuters) – Peak population is coming, sooner than you think, and bringing with it enormous investment challenges.

Birthrates are falling, and will continue to do so, especially in fast-urbanizing emerging markets, according to Sanjeev Sanyal, an economist and demographer who is also global strategist at Deutsche Bank.

“We feel that the world’s overall fertility rate will fall to replacement rate by 2025. Population will continue to rise for a couple of decades, in large part because of increasing lifespan, but this is a major global turning point, and one with profound investment implications,” Sanyal wrote in a note to clients released on Monday.

Fed finally making policy for humans, not Vulcans: James Saft

Sep 10, 2013 04:13 UTC

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

By James Saft

(Reuters) – Someone at the Federal Reserve finally figured out that we are not Vulcans but humans.

Rather than pointy-eared aliens constantly performing discounted cash flow calculations, we are actually, as investors, often chumps, prone to irrational enthusiasms leading to bubbles, San Francisco Fed President John Williams acknowledged in a speech on Monday. (here)

The implication is that many of us are about to feel that very human emotion of chagrin as we watch the value of our houses and stocks go down.

India, Rajan and the Great Man fallacy: James Saft

Sep 5, 2013 20:09 UTC

By James Saft

(Reuters) – Enthusiasm for new Indian central bank head Raghuram Rajan is understandable, but blind faith in him is misplaced.

While Rajan, the former IMF chief economist who took over as Governor of the Reserve Bank of India on Wednesday, made promising first steps, he simply doesn’t have the tools or levers to do what is needed.

Almost more to the point, the euphoria around Rajan is evidence of the Great Man fallacy of central banking, an always foolish belief that complex events can be bent to the will of one magical civil servant.

The unwelcome return of risk-on, risk-off

Sep 4, 2013 20:01 UTC

By James Saft

(Reuters) – After ebbing for most of the year, correlations are creeping back into financial markets.

Many investors, especially stock pickers, hoped they’d seen the last of “risk-on, risk-off”, a pattern in which commodities, stocks, currencies and bonds move very tightly in predictable ways and which has been the dominant trade in the post-financial-crisis landscape.

That certainly was the way the world looked even a month ago, with more assets going up or down on their own merits and prospects rather than in a lemming-like flight from risk towards safety or vice versa.

Most news bad for emerging markets: James Saft

Aug 29, 2013 20:54 UTC

By James Saft

(Reuters) – Syria today, the taper tomorrow – emerging market policymakers are learning that once the market becomes concerned with a current account deficit, most news is bad news.

Having enjoyed easy funding and massive inflows for much of the post-financial crisis period, the prospect of structurally higher global interest rates has made the world suddenly a much less welcoming place for emerging markets.

Expectations that a U.S-led military strike against Syria would cause oil to spike in cost, driving up current account deficits for non-oil-producing countries, helped spur the latest weakness. And any bit of good U.S. economic news, bringing with it higher chances of a Federal Reserve cutback on bond purchases, have only made it worse.

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