Opinion

James Saft

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.

It is certainly true that equities have been helped by official intervention, with the Bank of Japan and the Federal Reserve in full quantitative easing mode and the European Central Bank standing behind its pledge to save the euro. Still, though the support might be more diluted, why would commodities and energy be less susceptible to QE than equities?

In part, argues Manoj Pradhan, economist at Morgan Stanley, this is a supply side story, but more interestingly it is also about a huge structural shift under way in the global economy.

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.

Column: Revenge of the markets – James Saft

May 23, 2013 19:58 UTC

By James Saft

(Reuters) – For months, markets have been dancing to central bankers’ tune, but that may now be changing.

It must have been fun to be a central banker in the early part of 2013: You say “jump” and Mr. Market says “how high?”

That seems to have ended rather abruptly in the 24 hours beginning with the Bank of Japan’s disappointing response to bond market volatility on Thursday and including Ben Bernanke’s anodyne but market-roiling comments on Wednesday on the possibility of a policy taper.

COLUMN: Revenge of the markets: James Saft

May 23, 2013 19:54 UTC

May 23 (Reuters) – For months, markets have been dancing to
central bankers’ tune, but that may now be changing.

It must have been fun to be a central banker in the early
part of 2013: You say “jump” and Mr. Market says “how high?”

That seems to have ended rather abruptly in the 24 hours
beginning with the Bank of Japan’s disappointing response to
bond market volatility on Thursday and including Ben Bernanke’s
anodyne but market-roiling comments on Wednesday on the
possibility of a policy taper.

Japan rates may torpedo recovery

May 22, 2013 20:10 UTC

By James Saft

(Reuters) – Spiking interest rates in Japan threaten to undermine, and possibly end, the recovery being engendered by Abenomics.

That could reverse gains not only in Tokyo stocks, but in stock markets world-wide which have benefited from Japanese liquidity.

While a rebound in activity has allowed the Bank of Japan to upgrade its assessment of conditions for a fifth straight month, bond yields have risen sharply in extremely volatile conditions.

Bernanke’s dangerous optimism: James Saft

May 21, 2013 04:00 UTC

May 21 (Reuters) – Federal Reserve Chairman Ben Bernanke is
an optimist about economic growth in the coming decades,
rejecting “depressing” views about a slowdown to put his faith
in collaborative innovation driven by a jackpot culture for
inventors.

For his mental health, let’s hope he believes it.

For our economic wellbeing, let’s hope he doesn’t act on it.

While a series of economic revolutions has driven a 30-fold
increase in living standards between 1700 and 1970, economists
have recently fretted that the information technology changes of
recent years will yield less growth.

Bernanke, speaking last weekend to graduates at Bard College
at Simon’s Rock, in Massachusetts, was having nothing of it. Not
only will humans continue to innovate and to find ways to wring
value out of recent innovations, the rise of the Internet allows
for massive and rapid collaboration, he argued. And, as Mark
Zuckerberg can tell you, the potential rewards for innovation
exceed those in the past.

Column: QE and the portfolio puzzle – James Saft

May 16, 2013 20:50 UTC

By James Saft

(Reuters) – Quantitative easing may well be pushing investors to hold more cash rather than risk assets, blunting its impact as monetary policy.

Known as the portfolio rebalancing channel, the thinking behind QE rests partly on the assumption that buying up government bonds will drive interest rates down and entice investors to tilt their holdings towards riskier investments like stocks. That in turn is supposed to goose investment and consumption.

Unfortunately, that assumption may be running afoul of, or fouling up, the way in which most investors construct their portfolios, according to Toby Nangle, head of multi-asset investments at London-based Threadneedle Investments.

QE and the portfolio puzzle: James Saft

May 16, 2013 20:03 UTC

May 16 (Reuters) – Quantitative easing may well be pushing
investors to hold more cash rather than risk assets, blunting
its impact as monetary policy.

Known as the portfolio rebalancing channel, the thinking
behind QE rests partly on the assumption that buying up
government bonds will drive interest rates down and entice
investors to tilt their holdings towards riskier investments
like stocks. That in turn is supposed to goose investment and
consumption.

Unfortunately, that assumption may be running afoul of, or
fouling up, the way in which most investors construct their
portfolios, according to Toby Nangle, head of multi-asset
investments at London-based Threadneedle Investments.

The U.S. factory renaissance and your portfolio

May 15, 2013 19:40 UTC

May 15 (Reuters) – The possible coming rebirth of U.S.
manufacturing might turn out to be the most important investment
story of the next decade, up-ending the winners and losers of
the former world order.

The U.S.’s share of global manufacturing output fell by 23
percent in the 40 years to 2010, as China rose, outsourcing
boomed and a new highly integrated global supply chain was born.
This has utterly remade the U.S. and global economies, affecting
everything from how much and how U.S. workers make money to how
most companies are organized and compete.

Now a combination of factors – from cheap U.S. energy to new
technology to a falling wage gap – may partly reverse some of
those changes, bringing some manufacturing back on-shore.

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