Opinion

James Saft

Japan’s big leak: James Saft

Apr 9, 2013 12:13 UTC

By James Saft

(Reuters) – The Bank of Japan’s massive new bid for inflation will create growth but to its chagrin much of it may well be concentrated in financial markets and outside of Japan.

So long as Japanese consumers remained convinced that the new program will bring more inflation in what they buy rather than in what they earn, much of the benefit will be felt in Europe, the U.S. and the other economies into which the newly minted money will actually leak.

The BOJ last week vowed to spend $1.4 trillion in less than two years buying up bonds and assets in a bid to hit its avowed 2.0 percent inflation goal. The central bank will create money and wade into markets, vacuuming up Japanese government debt and other assets while targeting the amount of money in the economy rather than the rate of interest at which it will make loans.

While this is a step change in scale, the logic behind the plan is no different than the monetary policies followed over most of the past two decades in Japan, policies notable mostly for their lack of success. To break the self-reinforcing spiral of falling prices, wages and output, the BOJ must convince businesses and households that cash spent or invested today will buy more than that tucked away for tomorrow.

By any standard this is a big plan, roughly three times the size of U.S. quantitative easing relative to the size of Japan’s government bond issuance.

As jobs go, banks become better bets

Apr 4, 2013 21:40 UTC

NEW YORK (Reuters) – For a business whose main products fetch record prices, the financial services industry sure is firing a lot of people.

That combination may illustrate why finance is a sector you want to own, very possibly for the long haul.

Financial conditions are bank friendly; The stock market is at or near all-time records and demand for risky bonds is high. At the same time, announced layoffs in the financial sector are up 37 percent in the first quarter compared to a year ago, according to consulting firm Challenger, Grey & Christmas.

Stockton, Cyprus, and the savings puzzle: James Saft

Apr 3, 2013 20:09 UTC

April 3 (Reuters) – Whether out of necessity, mistrust or
simply the feel-good factor of soaring asset markets, Americans
appear to be cutting back once again on saving.

The personal savings rate stood at just 2.6 percent in
February, down nearly one percentage point from the year before,
according to the most recent data. Taken with January’s 2.2
percent rate, this makes the first time since 2007 we’ve had two
months in a row below the 3 percent mark.

If low savings are driven by confidence, either in the
bounty of the stock market or the opportunities in the job
market, then the savings rate may stay low but interest rates
may soon need to rise. If, on the other hand, low savings are
being driven by a lack of faith in markets or institutions or
even by a simple lack of capacity, then we may well be looking
at an extended period of low rates and lousy growth.

Stockton, Cyprus, and the savings puzzle

Apr 3, 2013 20:09 UTC

By James Saft

(Reuters) – Whether out of necessity, mistrust or simply the feel-good factor of soaring asset markets, Americans appear to be cutting back once again on saving.

The personal savings rate stood at just 2.6 percent in February, down nearly one percentage point from the year before, according to the most recent data. Taken with January’s 2.2 percent rate, this makes the first time since 2007 we’ve had two months in a row below the 3 percent mark.

If low savings are driven by confidence, either in the bounty of the stock market or the opportunities in the job market, then the savings rate may stay low but interest rates may soon need to rise. If, on the other hand, low savings are being driven by a lack of faith in markets or institutions or even by a simple lack of capacity, then we may well be looking at an extended period of low rates and lousy growth.

A time of unqualified promises: James Saft

Apr 2, 2013 18:59 UTC

April 2 (Reuters) – Just as Mario Draghi’s pledge to “do
whatever it takes” to preserve the euro is being challenged, the
very same unqualified promise, this time to simply stop prices
falling, is about to be put into action in Japan.

In both cases within months we may well discover if it is
the promises or the problems which are without limits.

In Japan, newly appointed Bank of Japan Governor Haruhiko
Kuroda will on Wednesday convene a two-day policy meeting, his
first after assuming office and pledging to do – again those
words – “whatever it takes” to end years of deflation.

A time of unqualified promises

Apr 2, 2013 12:04 UTC

By James Saft

(Reuters) – Just as Mario Draghi’s pledge to “do whatever it takes” to preserve the euro is being challenged, the very same unqualified promise, this time to simply stop prices falling, is about to be put into action in Japan.

In both cases within months we may well discover if it is the promises or the problems which are without limits.

In Japan, newly appointed Bank of Japan Governor Haruhiko Kuroda will on Wednesday convene a two-day policy meeting, his first after assuming office and pledging to do – again those words – “whatever it takes” to end years of deflation.

“Cyprus euro” a boon to U.S. dollar: James Saft

Mar 27, 2013 19:08 UTC

By James Saft

(Reuters) – One clear winner from Cyprus’S imposition of capital controls is the U.S. dollar, which stands to benefit from public and private flows after another round of damage to the euro’s reserve currency status.

The euro fell to its lowest against the U.S. dollar in four months on Wednesday, falling below $1.28 after Cyprus moved to limit the flow of money out of the country in the aftermath of a bank bailout which singed foreign bank lenders and depositors alike. The dollar was just below its 52 week high against a trade-weighted basket of currencies, indicating that its strength was broad-based.

Following a bailout package that includes a substantial hit to uninsured deposits, many of them Russian, Cyprus imposed a limit of 300 euros per day on account withdrawals and set a limit of 5000 euros per month on credit and debit cards used abroad.

COLUMN: “Cyprus euro” a boon to US dollar: James Saft

Mar 27, 2013 19:04 UTC

March 27 (Reuters) – One clear winner from Cyprus’S
imposition of capital controls is the U.S. dollar, which stands
to benefit from public and private flows after another round of
damage to the euro’s reserve currency status.

The euro fell to its lowest against the U.S. dollar in four
months on Wednesday, falling below $1.28 after Cyprus moved to
limit the flow of money out of the country in the aftermath of a
bank bailout which singed foreign bank lenders and depositors
alike. The dollar was just below its 52 week high against a
trade-weighted basket of currencies, indicating that its
strength was broad-based.

Following a bailout package that includes a substantial hit
to uninsured deposits, many of them Russian, Cyprus imposed a
limit of 300 euros per day on account withdrawals and set a
limit of 5000 euros per month on credit and debit cards used
abroad.

Europe chokes moral hazard: James Saft

Mar 26, 2013 05:00 UTC

March 25 (Reuters) – Moral hazard may not be quite dead in
Europe but it has a bad, hacking cough.

A new, tougher policy on banking bailouts, made flesh in
Cyprus and enunciated by Dutch Finance Minister Jeroen
Dijsselbloem, will shrink Europe’s arguably overly-large banking
system and, ultimately, may put unbearable pressure on the
currency union.

Actually the policy, allowing holders of bonds and uninsured
depositors in insolvent banks to actually lose money, is not so
much new as a return to following the rules of capital
structure, with equities taking the first loss and uninsured
deposits the last to suffer.

Learning from Cyprus

Mar 22, 2013 17:20 UTC

By James Saft

(Reuters) – Even if you have zero exposure to the euro, the sad tale of Cyprus teaches investors about important old and new realities.

This tutorial comes compliments of the tiny euro zone island off the coast of Greece, which has been a favored haven for billions of euros from mostly Russian investors but is now facing a financial meltdown.

First, there is still no free lunch. High-reward, low-risk investment products aren’t.

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