Opinion

James Saft

The Fed and the pain of unwinding: James Saft

Feb 20, 2013 21:46 UTC

Feb 20 (Reuters) – The Federal Reserve minutes show real
concern and debate over how big its balance sheet can grow and
for how long it can stay that way.

You should share that concern, because a Fed which is buying
fewer bonds, or even, heaven forfend, selling some, is a central
bank creating, once again, the needed conditions for deflating
the bubbles they just blew.

“Several” members of the Federal Open Market Committee
argued that they should be prepared to vary the amount of bond
purchases, now $85 billion per month. “A number,” a form of
words meaning less than “several,” said the costs and risks of
asset buys might indicate that the Fed should taper or end them
before it has reached its avowed employment goal.

Yet another “several” advocated against an early decrease,
while “a few” offered the alternative of just pledging to hold
on to bonds longer as a kind of palliative or supplement.

Something there for everyone, but the upshot is that the
discussion over how and when the great bond-buying experiment
might be unwound is getting more serious, which, for risk asset
investors, is a little like being told they will have to move
out of their parents’ basement and fend for themselves.

G20 waves rally on, yen down: James Saft

Feb 19, 2013 05:04 UTC

By James Saft

(Reuters) – The Group of 20 major economies chose to whistle and look the other way, effectively encouraging further yen falls and the inevitable currency skirmishes that implies.

It will also support growth and, all else being equal, a continued rally in risky assets like stocks.

While the G20, as ever, appeared pompous, out of touch and ineffective, the communiqué was a masterpiece of officious pretend cluelessness in a good cause.

Hedge funds peddle pricey risk

Feb 14, 2013 20:30 UTC

By James Saft

(Reuters) – Here’s a choice: take the typical hedge fund return and pay 2 percent annually and 20 percent of the spoils or use a derivative strategy so simple it doesn’t even need an elevator pitch.

Many investors would probably be better off ditching the manager. Hedge funds, according to a 2012 research paper by Jacob Jurek of Princeton and Erik Stafford of the Harvard Business School, just don’t deliver on their promise of superior risk-adjusted returns.

“Despite the seemingly appealing return history of alternative investments, many investors have not covered their cost of capital,” suggest the calibrations used in the research, Jurek and Stafford write.

The Fed discovers chicanery: James Saft

Feb 13, 2013 20:38 UTC

By James Saft

(Reuters) – Acknowledging that sometimes banks chisel clients and bank employees chisel banks may sound obvious to you, but for the Federal Reserve this is a pretty big step forward.

Jeremy Stein, a member of the Board of Governors of the Fed, gave a speech last week in which he said that sometimes it may be necessary for the fed to raise interest rates to control overheating in credit markets.

While a lot was made about him being Wall Street’s new bubble cop, I’d argue that actually the big step here was that he specifically and convincingly argued that you can’t understand markets without understanding the way participants game the system to their own advantage.

Japan confuses appearance and reality: James Saft

Feb 12, 2013 19:59 UTC

Feb 12 (Reuters) – A government which sees its role as
driving stock market rallies is one suffering sad confusion
about the difference between appearance and reality.

Japan’s economy minister, Akira Amari, said on Saturday the
government will increase economic efforts in order to drive
Tokyo’s Nikkei index up another 17 percent by the end of March.

“It will be important to show our mettle and see the Nikkei
reach the 13,000 mark by the end of the fiscal year,” he was
quoted by Japan Times as saying in a speech. Japan’s fiscal year
ends March 31. “We want to continue taking steps to help stock
prices rise.”

Rethinking the 4 percent rule

Feb 7, 2013 21:06 UTC

By James Saft

(Reuters) – In a world of low structural investment returns retirees need to reconsider the assumption that they can draw down 4 percent a year of their savings.

Known as the 4 percent rule, this popular guideline is running smack into what looks to be an extended period of low returns in stocks and bonds.

Obviously, this is important not just for retirees, who may have little choice but to cut back on consumption, but for savers too, who will need to save more or work longer to safely meet their targets. It equally applies to foundations and endowments, which struggle with how much they can fund and still keep contributing in perpetuity.

SAFT ON WEALTH: Rethinking the 4 percent rule

Feb 7, 2013 21:05 UTC

Feb 7 (Reuters) – In a world of low structural investment
returns retirees need to reconsider the assumption that they can
draw down 4 percent a year of their savings.

Known as the 4 percent rule, this popular guideline is
running smack into what looks to be an extended period of low
returns in stocks and bonds.

Obviously, this is important not just for retirees, who may
have little choice but to cut back on consumption, but for
savers too, who will need to save more or work longer to safely
meet their targets. It equally applies to foundations and
endowments, which struggle with how much they can fund and still
keep contributing in perpetuity.

They are playing the Chuck Prince Waltz: James Saft

Feb 6, 2013 21:34 UTC

Feb 6 (Reuters) – The music is playing again and the
pressure for investors to get out on the dance floor is, like in
2007, intense.

By most measures financial conditions are as easy, as
relaxed, as at any time since the summer of 2007, meaning that
markets and investors simply aren’t demanding that much
compensation for taking on risk.

That does not in and of itself mean that a rout is coming,
nor does it mean that the rally can’t continue, but it does
imply we should be very cautious about the returns we’ll get
from here.

A costly but worthy Dutch treat: James Saft

Feb 5, 2013 19:59 UTC

Feb 5 (Reuters) – The Netherlands’ nationalization of bank
SNS Reaal underlines the euro zone’s weak spots while
illustrating the dangers of its plans to address them.

In wiping out SNS shareholders and some bond holders the
Dutch government is trying to do the right thing, can’t quite
bring itself to go that far, and may end up paying the price
anyway.

The Netherlands last week seized control of SNS, its
fourth-largest financial services firm, in a $14 billion rescue,
employing powers granted it under a new law passed last year.
While senior bondholders and depositors were sheltered, the
stakes of equity holders and subordinated bondholders were
effectively expropriated.

SAFT ON WEALTH: About that cash flowing into equities

Jan 31, 2013 20:56 UTC

Jan 31 (Reuters) – It looks like the central bankers are
winning: cash is being put back to work.

Equities are having, by some measures, their best January in
more than a decade. Signs point to cash coming off of the
sidelines as an important supporting factor. Global stocks are
up almost 5 percent for the month and the Standard & Poor’s 500
Index is on track for its best January since 1997.

Meanwhile, flows of money into equity funds and ETFs have
been strong, while cash has drained out of major banks and money
market accounts.

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