Opinion

James Saft

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 BOE, again citing its own highly fallible forecasts,
said it didn’t see rates rising before late 2016.

There are two big problems with this strategy: it probably
won’t work and, if we really think about it, we probably don’t
want it to.

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.

Column: China’s Domesday debt survey

Jul 30, 2013 04:35 UTC

By James Saft

(Reuters) – Like William the Conquerer before him, Premier Li Kequing is initiating his own Domesday survey in China, and this time the attempt to curb local abuses of power will have global economic consequences.

China’s State Council, chaired by Premier Li, has ordered the National Audit Office to begin auditing what could total $2 trillion or $3 trillion of debt taken on by local governments.

The Audit Office will suspend other work and give all staff “crash” training so that auditors can begin fanning out across the country this week, according to a report by the state-run People’s Daily.

China’s Domesday debt survey: James Saft

Jul 30, 2013 04:00 UTC

July 30 (Reuters) – Like William the Conquerer before him,
Premier Li Kequing is initiating his own Domesday survey in
China, and this time the attempt to curb local abuses of power
will have global economic consequences.

China’s State Council, chaired by Premier Li, has ordered
the National Audit Office to begin auditing what could total $2
trillion or $3 trillion of debt taken on by local governments.

The Audit Office will suspend other work and give all staff
“crash” training so that auditors can begin fanning out across
the country this week, according to a report by the state-run
People’s Daily.

The case against commodities grows

Jul 24, 2013 20:32 UTC

By James Saft

(Reuters) – Buying commodities in order to diversify your portfolio might not be that bright an idea after all.

A new study from the Bank for International Settlements disputes the idea that adding commodities to a portfolio can lower the volatility of returns. Considering that this has been the bedrock idea underlying the buying and selling of commodities as an asset class over the past 15 years or so, this is big news.

Taken in combination with trends negative for commodities markets like the migration of manufacturing back to developed markets and 3-D printing, there may be fewer reasons for investors to consider the asset class.

SAFT ON WEALTH: The case against commodities grows

Jul 24, 2013 20:20 UTC

July 24 (Reuters) – Buying commodities in order to diversify
your portfolio might not be that bright an idea after all.

A new study from the Bank for International Settlements
disputes the idea that adding commodities to a portfolio can
lower the volatility of returns. Considering that this has been
the bedrock idea underlying the buying and selling of
commodities as an asset class over the past 15 years or so, this
is big news. ( www.bis.org/publ/work420.pdf )

Taken in combination with trends negative for commodities
markets like the migration of manufacturing back to developed
markets and 3-D printing, there may be fewer reasons for
investors to consider the asset class.

Column: Detroit and the importance of failure – James Saft

Jul 23, 2013 04:15 UTC

By James Saft

(Reuters) – Here is the real meaning of Detroit: human institutions sometimes fail and we are far better off acknowledging and accommodating this than fighting it.

Information from failure is a large part of the value created by markets and by experimentation, and we ignore and suppress that information, as we are now in the banking system and elsewhere, only at great cost.

Detroit filed for what would be the largest municipal bankruptcy in U.S. history on Friday, a move which will be bitterly fought in the courts by its creditors and by municipal workers who stand to lose promised retirement and health benefits.

Detroit and the importance of failure: James Saft

Jul 23, 2013 04:00 UTC

July 23 (Reuters) – Here is the real meaning of Detroit:
human institutions sometimes fail and we are far better off
acknowledging and accommodating this than fighting it.

Information from failure is a large part of the value
created by markets and by experimentation, and we ignore and
suppress that information, as we are now in the banking system
and elsewhere, only at great cost.

Detroit filed for what would be the largest municipal
bankruptcy in U.S. history on Friday, a move which will be
bitterly fought in the courts by its creditors and by municipal
workers who stand to lose promised retirement and health
benefits.

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