Opinion

James Saft

Watch profits and yields, not jobs: James Saft

Jul 16, 2013 18:59 UTC

July 16 (Reuters) – The Federal Reserve is watching job
creation, but investors will be better off keeping a wary eye on
profits and bond yields.

Yields have risen in the past two months, while corporate
profits may be on the slide, both of which should undercut job
growth and exercise a powerful influence over the Fed’s next
move.

While the evidence from the first week of corporate profit
reporting season is mixed, profits and margins look to have
weakened in the second quarter as companies struggle with lower
spending by governments and a difficult environment of falling
inflation.

At the same time, evidence of an improving jobs picture, as
well as dovish statements (now partly taken back) from the Fed
have convinced markets that they are on a path towards ‘normal’
interest rates. In other words, higher rates.

Benchmark 10-year Treasury yields rose by more than a
percentage point from early May to early July, topping out above
2.71 percent.

Column: Watch profits and yields, not jobs – James Saft

Jul 16, 2013 12:16 UTC

By James Saft

(Reuters) – The Federal Reserve is watching job creation, but investors will be better off keeping a wary eye on profits and bond yields.

Yields have risen in the past two months, while corporate profits may be on the slide, both of which should undercut job growth and exercise a powerful influence over the Fed’s next move.

While the evidence from the first week of corporate profit reporting season is mixed, profits and margins look to have weakened in the second quarter as companies struggle with lower spending by governments and a difficult environment of falling inflation.

Ignore the bad news on emerging markets

Jul 10, 2013 18:24 UTC

By James Saft

(Reuters) – Truth is, emerging markets haven’t just been bad but are likely to get worse, especially in comparison to developed markets.

The bigger truth, however, is that most investors should simply ignore this and stick with their strategic allocations in order to get the benefit of diversification.

First I will make the medium-to-long-term bear case against emerging markets. Then I’ll explain why you probably shouldn’t really care.

Reckless bankers, or just stupid and idle?: James Saft

Jul 9, 2013 04:03 UTC

By James Saft

(Reuters) – As Supreme Court Justice Potter Stewart once said of pornography, we may not be able to fully define the proposed new British offense of “reckless banking” but I suppose we will know it when we see it.

Or perhaps, as has been the case about obscenity since 1964 when Stewart dissented in an opinion about the prosecution of a French film, we will just become more used to it.

The British Treasury on Monday said it planned to introduce legislation making possible criminal prosecution of senior bankers for reckless misconduct, a step suggested last month by a parliamentary commission on banking standards.

Column: Market turmoil could re-ignite euro zone risk – James Saft

Jun 13, 2013 19:58 UTC

By James Saft

(Reuters) – Right about now might be a good time to start worrying again about European peripheral debt.

Along with just about every other risk asset the debt of the weaker members of the euro has sold off in recent weeks, hit by rising yields in higher-rated government bonds and a general pullback from bonds.

If markets regain their equilibrium that’s all it may turn out to be – a short selloff in sympathy with global markets.

Bonds on sale but still too dear

Jun 12, 2013 20:55 UTC

June 12 (Reuters) – Sometimes, as with Treasury bonds right
now, a better deal just isn’t good enough.

A sharp selloff in Treasuries has taken yields higher,
theoretically offering better returns and better protection
against inflation. In fact, so-called real yields, meaning yield
adjusted for inflation, have actually gone into positive
territory. Benchmark 10-year Treasury Inflation Protected
Securities’ (TIPs) yields now stand at 0.13 percent, having
climbed into positive territory late last week after 18 months
in which investors paid for the privilege of getting some of
their money back later.

That’s better, but it is still not that good and does not
constitute much of a reason to load up on Treasuries.

Halfway to an emerging bear market: James Saft

Jun 11, 2013 04:05 UTC

By James Saft

(Reuters) – Already halfway to a bear market, emerging market stocks face slumping commodities prices and what looks very much like a global trade slowdown.

Benchmark shares in emerging markets are slumping, with the MSCI Emerging Markets index down 10 percent from its January peak, halfway to the 20 percent fall that qualifies as a bear market.

While this is in contrast to strong gains in developed markets, which have been well supported by quantitative easing by major central banks, a quick look at data released by China over the weekend reveals the underlying reasons.

As U.S. retools, commods, emerging markets lose: James Saft

Jun 6, 2013 19:50 UTC

By James Saft

(Reuters) – The rebirth of U.S. manufacturing may be the key which unlocks the puzzle of the divergence of commodity prices from equity markets.

If so, commodity prices may be in for more pain, U.S. growth may be better than expected over the longer term and U.S.-based companies stand to reap the benefits.

One of the most interesting trends over the past two years is the way in which agricultural, metals and energy prices have trended downward even as equity prices rise. This is especially hard to reconcile given that economic growth, while only moderate, has been positive. The Thomson Reuters CRB index of commodities and energy has fallen about 10 percent since last September, during which time Germany’s DAX is up 14 percent, the S&P 500 a bit more and the Nikkei 225 a whopping 50 percent.

The Abenomics effect deflates

Jun 5, 2013 19:39 UTC

June 5 (Reuters) – The Abenomics attempt to revive Japan is
already flagging, a development which will hurt equities
worldwide.

Nikkei 225 stock index futures fell another 4.22
percent ahead of Tokyo’s Thursday trading session, as investors
reacted with disappointment to Prime Minister Shinzo Abe’s plans
for structural reforms. That would take the index’s fall
well past the bear market barrier of 20 percent down from its
May 22 peak.

Any loss of faith in Abenomics, an ambitious cocktail of
fiscal and monetary stimulus poured over a base of reforms, will
not only reverse the stunning gains seen in Japanese markets but
crimp liquidity and stimulus which has been supporting growth
and risky assets elsewhere.

Economic tapering shackles Fed: James Saft

Jun 4, 2013 04:13 UTC

By James Saft

(Reuters) – The main thing tapering these days seems to be the global economy, punching a hole in expectations that the Federal Reserve will soon start to scale back its bond purchases.

San Francisco Federal Reserve President John Williams said on Monday that the U.S. central bank may in coming months start to ‘taper’ bond purchases, as part of a slow reeling back of monetary stimulus. Dennis Lockhart, president of the Atlanta Fed, held it out as a possibility, saying tapering might be considered as a possibility in August or September but stressed now was not the time.

It may happen, but if it does it will be the victory of hope over data.

Monday also brought news that orders at U.S. manufacturers were sharply lower in May, with a leading survey reporting its worst showing in four years, results consistent with an actual contraction of industrial output. And since the Fed must attempt to manage the U.S. economy in a global context, it is worth noting that this followed just hours after a similar survey in China showed very similar results.

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