James Saft

March 1 (Reuters) – “Don’t just do something, stand
there!” might just be the best least-followed advice in
investing.

If there is one statistic that is, if anything, more
depressing than the last empty decade of equity returns it is
the fall and fall of average stock holding periods.

While the average holding period of a NYSE-traded stock was
10 years in the late 1930s the trend since 1995 has been down
and down, driven by ever more frenetic trading. By 2010 the
length of time the average share is held is down to a mere six
months, according to NYSE data, a real testament to the eternal
triumph of hope over experience.

To be sure, the rise of high frequency trading has
played a role in driving down average holding time, but others
have become more active traders too. Estimates vary, but the
average domestic equity actively-managed mutual fund in the U.S.
has an annual turnover rate of between 89 and 130 percent.

This may be great for the brokerage and mutual fund
industries, but for investors it is just about the opposite of
what should be happening.

By James Saft

(Reuters) – The most telling thing the ECB did on Wednesday’s leap day wasn’t the 530 billion euros in party favors they handed out to banks, but rather the paltry sum they were forced to commit to shoring up Portugal’s government bond market.

Around 800 euro area banks availed themselves of the three-year loans offered by the European Central Bank, money many analysts expected to be recycled into euro area government bonds. It was a clever plan: keep the banks alive with easy money and they in turn will support the ailing governments on Europe’s periphery, pocketing the spread.

It doesn’t seem to be working out that way, at least in Portugal’s case. Portuguese borrowing rates have remained stubbornly high and on Wednesday spiked higher, with 10-year borrowing rates above 13 percent. That brought the ECB into the market to make its first purchases of government bonds in two weeks.

By James Saft

(Reuters) – Nobody seems to like picking on China any more.

Not only did the official communique issued by G20 central bankers and finance ministers assembled in Mexico City not mention the yuan, China was actually praised by U.S. Treasury Secretary Tim Geithner.

What a change it makes from summits past, when complaining about the undervaluation of the yuan was a seemingly fixed item on the agenda.

“China has played I think a really responsible, stabilizing role, despite its relative newcomer status,” Geithner said in Mexico City. “There’s been a dramatic change in the organization and structure of the economy towards domestic demand.”

By James Saft

(Reuters) – If the Greek bailout has proved one thing it is this: we are now all creatures of government.

The rescue itself is only of passing interest – it won’t be the last and Greece’s virtual default will become real one of these days. Instead, it is the way in which the interests of private investors have been officially subordinated to public claims that will have a lasting impact.

Under the terms of the deal the European Central Bank and national central banks will be excused from taking any losses on their holdings of Greek debt. Private investors, in contrast, will take a loss of about 75 percent and are expected to be made subject to collective action clauses now wending their way through legislation in Greece. Those CACs will force investors to tender their bonds and take a hit, all while central banks skate serenely away. The ECB and national central banks will remit their profits on Greek bonds to the Greek government, a helpful gesture, but one which is cold comfort to an investor who now finds their interests subordinated.

By James Saft

(Reuters) – Italy is going to need considerably more – in luck, growth and cohesion – than is likely to be delivered by premier Mario Monti’s technocratic charms.

Monti, unelected and a former European Commissioner, is so much more reliable and authoritative than the opera buffa figure of Silvio Berlusconi that it is tempting to think that Italy, now enjoying the qualified backing of the ECB and financial markets, is past the worst. And in truth, progress in a few short months has been impressive; Monti makes the right noises on structural reforms and has been rewarded by a sharp fall in Italian interest rates.

And yet the country still faces enormous risks and uncertainties with multiple paths for the uncertainties to magnify the risks. Italy is only in the very early stages of a recession that could last for years, it is hostage to outside shocks from other weak euro zone members and there is no guarantee that the political consensus for reform will survive the effects of the resulting austerity.

By James Saft

(Reuters) – A strengthening U.S. jobs picture is the best news in months, carrying within it confirmation of the fruits of a pleasant rebound in American manufacturing.

That said, of the three sources of power for a recovery – private activity, public activity and monetary policy – only one will be a source of strength in the coming months, while the others may well prove a drag.

First, the good news; January’s payrolls data was strong, exceeded expectations, included positive revisions to previous months and, best of all, established something approaching a positive trend. Hours worked are growing more quickly than employment, hinting at hiring to come if employers gain confidence. It is just about possible to put together a thesis that those Americans with jobs are feeling a bit more secure and are finally going ahead with long-deferred purchases of big ticket items like autos.

By James Saft

(Reuters) – Can Americans build a sustainable recovery based on borrowing money to buy cars to drive to debt-financed cosmetology classes?

Perhaps not, but they appear to be trying, driving a surprising mini-recovery in the economy and, in the process, fueling a heck of a financial rally.

Consumer borrowing in the U.S. surged for the second month running in December, rising by $19.3 billion, a 9.3 percent rise on a seasonally adjusted basis. That makes a two-month increase of almost $40 billion, something not seen in more than 10 years. The data, which doesn’t include credit secured against real estate, includes a modest rise in revolving credit, such as credit cards.

James Saft is a Reuters columnist. The opinions expressed are his own.

A financial advisor who counsels 57-year-olds to lock themselves into large loan payments until they are approaching 90 probably ought to be looking for another line of work.

And yet here we have Ben Bernanke, perhaps the most powerful man in the global economy, following exactly that course. The Federal Reserve Chairman is putting his own assets on the line to walk that reflationary walk in a move that tells you a lot about the theory, practice, risk and rewards of the economic remedies he champions.

Bernanke, who turned 58 this week, refinanced his mortgage in September, less than two years after the last time he refinanced, according to a report in the Wall Street Journal, citing sources and public records.

James Saft is a Reuters columnist. The opinions expressed are his own.

Europe‘s rule-based approach to fiscal reform will fall short because it effectively ignores the dynamics of credit markets, which laid the tracks along which this train wreck traveled.

Europe moved last week to impose some discipline on its member states’ fiscal houses, choosing a rule-based fudge rather than the fiscal union that a common currency probably ultimately needs. It will thus take discretion away from member states, pre-committing them to austerity measures during tough times, while doing very little to address the malfunctions in the banking system which create destructive credit bubbles in the first place.

Reforming Europe‘s fiscal framework without addressing the financial system which created all of the credit is like having alcoholics take ever more severe pledges of sobriety and penalties but still allowing them to own cocktail lounges.

James Saft is a Reuters columnist. The opinions expressed are his own.

How do you save an economy during a debt bust without mass defaults or a lost decade?

From the evidence thus far the answer is: you don’t.

Both Europe and the U.S. have bent over backwards in trying to deal with excess private and public debts without default, hoping to keep the circus floating along for long enough so that they can be rescued by growth and inflation.

In the U.S. that has meant rescuing the banks while using various types of new leverage to try to keep housing and securities prices above the level where banks carry them. In Europe, quixotically, this has included both cutting back on public expenditure while at the same time refusing to recognize a 50 percent writedown on Greek debt. It has also meant keeping banks and countries on life support via loans or debt purchases from the European Central Bank.