Opinion

James Saft

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.

The clear implication is that China is seeking to rein in local governments, which have helped along what is clearly a boom and may be a bubble by borrowing and spending freely on local development. For China, this will act as another brake on already slowing growth. For the rest of the world, it means less demand, especially for the kinds of raw materials and energy which go into real estate development and infrastructure.

William ordered the 1086 “Domesday Book” census of property, so called because it was said to be as thorough and wide-reaching as the final judgement, shortly after the Norman conquest of England in order to nail down who owned what and who might have usurped something belonging to the crown he now possessed. Premier Li, who assumed office in March, has a related but different problem. Despite laws against it, local governments have taken on huge debts, an amount estimated by the last audit at about $1.75 trillion at the end of 2010.

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.

The Summers or Geithner nightmare: James Saft

Jul 18, 2013 20:55 UTC

By James Saft

(Reuters) – If you got me at gun-point, backed me up to the edge of a high cliff and forced me to choose between Larry Summers and Tim Geithner as the next Federal Reserve Chairman, I think I might jump.

And yet, the two former Treasury secretaries are the third and fourth favorites in the running for the job, according to Irish bookmakers Paddypower. (here)

Summers, at odds of 5.5 to 1, and Geithner, at 14 to 1, are still relative outsiders, with Federal Reserve Vice Chairman Janet Yellen the 1 to 4 favorite to take over if, as expected, Ben Bernanke steps down at the expiration of his term in January.

Bernanke drops a D-bomb

Jul 17, 2013 20:17 UTC

By James Saft

(Reuters) – Ben Bernanke dropped a D-bomb on Congress on Wednesday.

And no, though much of his testimony arguably depicted lawmakers as dumb, ‘D’ in this context stands for deflation.

“The (Federal Open Market) Committee is certainly aware that very low inflation poses risks to economic performance – for example, by raising the real cost of capital investment – and increases the risk of outright deflation,” Bernanke told the House of Representatives Financial Services Committee.

“Consequently, we will monitor this situation closely as well, and we will act as needed to ensure that inflation moves back toward our 2 percent objective over time.”

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.

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.

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