Opinion

James Saft

Column: Rwanda, iBonds and the madness of the bond market

May 1, 2013 18:08 UTC

By James Saft

(Reuters) – In the past week we’ve had two object lessons in the madness of the bond market: Rwanda and Apple.

Apple Inc, maker of the ubiquitous iPhone and iPad, on Tuesday sold $17 billion of bonds, the largest-ever corporate issue, at rates of interest barely discernible with the naked eye.

Also recently, Rwanda issued a debut $400 million Eurobond in a sale that was heavily oversubscribed. As the market has taken to calling Apple’s issue iBonds, you could easily call Rwanda’s 10-year offering aidBonds, as foreign aid is one of the largest sources of government revenue for the tiny African country.

While Apple and Rwanda are at different ends of the risk spectrum, both deals neatly illustrate the headlong rush for anything investable and carrying something vaguely resembling an interest rate.

FRUIT OF THE TECHNOLOGY TREE

Apple’s historic deal, its first since 1994, was priced closer to what a AAA borrower would pay, rather than a AA+ company with a dominant position in the turbulent tech sector. A $5.5 billion 10-year piece yields 2.45 percent, while three years gets you 0.511 percent, five years 1.076 percent and 30-years just 3.883 percent. Demand was stratospheric, with offers to subscribe totaling more than $50 billion.

SAFT ON WEALTH: Rwanda, iBonds and the madness of the bond market

May 1, 2013 18:01 UTC

May 1 (Reuters) – In the past week we’ve had two object
lessons in the madness of the bond market: Rwanda and Apple.

Apple Inc, maker of the ubiquitous iPhone and iPad,
on Tuesday sold $17 billion of bonds, the largest-ever corporate
issue, at rates of interest barely discernible with the naked
eye.

Also recently, Rwanda issued a debut $400 million Eurobond
in a sale that was heavily oversubscribed. As the
market has taken to calling Apple’s issue iBonds, you could
easily call Rwanda’s 10-year offering aidBonds, as foreign aid
is one of the largest sources of government revenue for the tiny
African country.

Earnings’ fun-house mirror: James Saft

Apr 30, 2013 12:09 UTC

By James Saft

(Reuters) – U.S. corporate earnings appear as if reflected in a distorting fun-house mirror: profits are huge but revenues strangely shrunken.

Corporate profits have grown strongly, up 2.1 percent among S&P 500 companies reporting first-quarter earnings so far, with 70 percent exceeding analysts’ expectations. At first glance, that looks like a particularly good outcome, especially considering profits compared to the size of the economy are near recent all-time highs. Revenues, however, are falling; down 0.6 percent compared to a year ago, marking the second quarter out of three that cash coming into corporate coffers has shrunk.

Understanding how this unsustainable state came to be and how long it might go on is the key to knowing not just what will happen with stock markets but perhaps with the economy itself.

Column: BRICs hit the wall – restructure, or recycle?

Apr 25, 2013 19:55 UTC

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

By James Saft

(Reuters) – It may be time for emerging market investors to acknowledge the truth: the problem is not just cyclical, it is structural.

One of the puzzles of recent months is the underperformance of emerging markets compared to the rather more sclerotic and central-bank dependent developed world. Thus far this year emerging market stocks are down about 6.5 percent and trail developed market indices by a full 11 percentage points.

Given that growth in emerging markets seems to have bottomed late last year, you would normally expect the reverse, accompanied by strong commodity markets prices and supportive central bank policy.

Apple, the Fed and the financial fallacy

Apr 24, 2013 19:14 UTC

By James Saft

(Reuters) – Apple’s emphasis on share buybacks is a strikingly similar error to the Federal Reserve’s dedication to buying U.S. Treasuries.

Call it the financial fallacy, the modern tendency to concentrate on the often ephemeral movement of numbers on traders’ screens rather than the much harder to manage real world.

Both institutions are reacting to deteriorating fundamentals by concentrating their firepower on influencing securities markets.

The next crisis: Fed promised, Fed delivered – James Saft

Apr 23, 2013 12:01 UTC

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

By James Saft

(Reuters) – Don’t say you weren’t warned.

The next crisis is coming, driven on by Federal Reserve policy which in seeking to keep inflation and employment on target will also breed financial instability.

Don’t take my word for it – this is all straight from Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, who last week laid out his thinking on why low rates will be needed for years to come and what the side-effects will be.

“I’ve suggested that it is likely that, for a number of years to come, the Federal Open Market Committee will only achieve its dual mandate of maximum employment and price stability if it keeps real interest rates unusually low,” Kocherlakota said in a speech in New York.

Oh no, they are saying it’s different this time

Apr 18, 2013 20:42 UTC

By James Saft

(Reuters) – You never like to see the words “inflation,” “central banks” and “it’s different this time” in close proximity to each other.

That, however, is the essential message in the International Monetary Fund’s World Economic Outlook, which argues that the relationship between unemployment and inflation may have fundamentally changed.

What’s more, the IMF is giving credit to central banks, which it says have inspired new confidence in their ability to control inflation.

Meditation and the art of investment

Apr 17, 2013 20:29 UTC

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

By James Saft

(Reuters) – From Ray Dalio to Bill Gross, some of the biggest names in money management are practicing meditation.

At a conference last week in Washington, Dalio expounded on how his practice of meditation has helped his investment performance. Georgetown University, at the same conference, announced it would begin to offer a semester-long class on the discipline at its graduate business school. (link.reuters.com/kav47t)

While money managers often joke that clients are the biggest impediment to beating the market because they make emotional mistakes, the truth is that all investors, big and small, share traits which get in the way of making the best choices.

SAFT ON WEALTH: Meditation and the art of investment

Apr 17, 2013 20:28 UTC

April 17 (Reuters) – From Ray Dalio to Bill Gross, some of
the biggest names in money management are practicing meditation.

At a conference last week in Washington, Dalio expounded on
how his practice of meditation has helped his investment
performance. Georgetown University, at the same
conference, announced it would begin to offer a semester-long
class on the discipline at its graduate business school. ()

While money managers often joke that clients are the biggest
impediment to beating the market because they make emotional
mistakes, the truth is that all investors, big and small, share
traits which get in the way of making the best choices.

Gold’s fall not a harbinger of happy days: James Saft

Apr 16, 2013 12:07 UTC

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

By James Saft

(Reuters) – Just as gold’s rise never showed the policies of central banks to be a failure, so its fall cannot show they have succeeded.

Yes, the attraction to gold is driven by mistrust, its principal virtue being that, unlike currencies, it can’t be created at will. No, the massive sell-off over two days in gold is not a sign that trust is back and policy-makers can soon declare victory over the crisis and make plans for restoring a more normal balance of policy.

Monday marked the second day of gold’s worst two-day tumble since 1983, as it fell more than 9 percent amid huge volumes, taking its total losses since Friday to 14 percent.

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