James Saft

By James Saft

(Reuters) – The International Monetary Fund may emerge from its meeting this week with more firepower but less force.

While the fund is looking on track to add at least the $400 billion it has argued it needs to deal with the potential fallout from the euro zone crisis, it will have to cope with a U.S. which is partly sidelined by domestic politics during a period of rising international economic tension and protectionism.

Even the $400 billion is a downgrade from a $600 billion figure bandied about earlier. IMF Managing Director Christine Lagarde has been busily putting a positive gloss on the shortfall, arguing that matters have improved substantially in Europe since the bigger figure was suggested.

Japan, Norway, Denmark and Sweden have pledged a combined $86 billion but the IMF will have to make shift without additional money from the U.S., where ponying up more cash during election season is considered politically unwise.

That is causing difficulties in raising cash from emerging market states, which want more power over the IMF to go along with bigger financial commitments, a step requiring U.S. congressional approval which simply isn’t going to happen this year.

By James Saft

(Reuters) – One of these days, and it might start soon, investors are going to begin to reverse their multi-year rotation out of stocks and into bonds.

We are now fully 30 years into perhaps the greatest bond bull market in history, as interest rates have slid from the high teens to a level that feels like it’s change for a Coke. As well, equities have returned virtually nothing for a decade for most investors. To make matters for equity bulls worse, these lousy returns have come along with huge volatility as the market worked its way through first the dotcom bubble then the housing bubble and now very possibly the social media bubble.

The last 30 years have been marked by two related trends. Inflation has fallen, benignly at first but painfully after the bursting of the housing bubble. At the same time debt levels surged, first in private hands before the crash and now in public ones.

By James Saft

(Reuters) – Instagram founders Kevin Systrom and Mike Krieger ought to get down on their knees every night and thank Ben Bernanke.

That’s because the Federal Reserve chief has been crucial in creating an atmosphere in which two 20-somethings can sell an 18-month-old company with 13 employees and no significant revenue for $1 billion.

Facebook agreed on Monday to pay $1 billion in cash and stock for Instagram, which develops photo-sharing applications, just a week after the infant company closed a funding deal valuing it at a paltry $500 million.

By James Saft

(Reuters) – Things are getting sticky for the Swiss and their franc.

Twice in the past week the market, that nebulous but inexorable force, took a run at the cap on the value of the franc established by the Swiss National Bank last September.

Last Thursday, amid low pre-holiday volume, the franc actually pierced the 1.20 per euro line the Swiss central bank had drawn in the sand. Suspected intervention soon drove the franc lower but then once again over the weekend the franc came within a hairsbreadth of that line.

“We won’t accept any exchange rate below 1.20. We are committed to buying foreign exchange in unlimited quantities to defend this level,” a spokesman for the SNB said, re-enunciating a policy intended to insulate Swiss exporters and fend off deflation.

April 6 (Reuters) – This time around it looks that when the
rest of the world comes down with a cold, the United States
starts sneezing, too.

Arguments for American exceptionalism, or even that
much-vaunted but seldom seen phenomenon known as “de-coupling,”
were undermined on Friday when U.S. payrolls data disappointed
deeply.

For investors, this is somewhat dispiriting, as many were
hoping to ride out the effects of a sharp European slowdown and
weakness in emerging markets by investing in U.S. shares, which
had a great first quarter, driven by strong signs out of
manufacturing and a brightening jobs picture.

By James Saft

(Reuters) – So now we will finally get to see if the stock market can stand on its own two feet.

The Federal Reserve signaled this week that an additional round of extraordinary help such as quantitative easing is probably not in our immediate future, and so far risk assets like stocks are not liking it one little bit.

Minutes from the Fed’s March meeting released on Tuesday showed a more constructive tone about the economy and, crucially, revealed that only two members of the policy-setting open market committee saw the case for more monetary stimulus. That’s a sharp change from the month before when ‘a number’ of members believed current conditions could justify additional easing. That slight chill breeze you felt was from the door slamming on any move in that direction at the Fed’s April meeting, implying that only a relapse in the economy will bring more help.

By James Saft

(Reuters) – France faces the frightening and humiliating, if narrow, chance that by the end of this year it may no longer qualify as a paid-up member of core Europe.

That’s the risk if, lulled by the apparent calming of the debt market waters and without anything approaching a strong national consensus about reform, France sails later this year into another bout of euro insecurity and finds its own debt out of favor and its ability to borrow compromised.

With an April 22 first-round presidential vote fast approaching neither of the two likely survivors, incumbent Nicholas Sarkozy of the conservative UMP or Socialist front-runner Francois Hollande, have enunciated anything approaching a strong commitment to the sorts of labor market, retirement and fiscal reforms now being espoused, if not yet successfully pursued, by weaker euro partners such as Italy, Greece and Spain.

By James Saft

(Reuters) – With corporate profit margins at record levels, the stock market faces a challenge because the logical next move may well be down.

Economy-wide corporate profit margins are over 10 percent, not only the highest on record, but now fully 20 percent higher then they were at the most recent peak, before the onset of the great recession.

How we got here is pretty clear – technological innovation came alongside globalization, allowing for investment in processes and technology in combination with wage-lowering off-shoring of jobs.

By James Saft

(Reuters) – With corporate profit margins at record levels, the stock market faces a challenge because the logical next move may well be down.

Economy-wide corporate profit margins are over 10 percent, not only the highest on record, but now fully 20 percent higher than they were at the most recent peak, before the onset of the great recession.

How we got here is pretty clear – technological innovation came alongside globalization, allowing for investment in processes and technology in combination with wage-lowering off-shoring of jobs.

By James Saft

(Reuters) – If you think the advent of a common tongue in banking will solve the problems of finance, you are probably disappointed that Esperanto did not usher in a new age of world peace.

Just as Esperanto, born in the late 19th century and touted as increasing international understanding, failed to do much to stem the bloodiest century in human history, so the imposition of new codes to make clear who does what to whom in finance faces a huge hurdle: those who might use it won’t think it is in their best interest.

Andrew Haldane, the executive director of financial stability at the Bank of England, thinks that the use of new global codes to track counterparties and financial products in markets has the potential to transform banking, rendering it safer, more competitive and easier to regulate.