James Saft

How you are paying for “too-big-to-jail”

Mar 8, 2013 16:40 UTC

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

By James Saft

(Reuters) – Now that it is official that the U.S. Justice Department pulls its punches when it comes to prosecuting the largest banks, it is time for investors to understand why they, too, are the losers.

Attorney General Eric Holder came right out this week and told the Senate Judiciary Committee what many observers have long suspected – that his department has refrained from more aggressive criminal prosecutions of the so-called too-big-to-fail banks, exactly because of their special status.

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that … if we do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder said on Tuesday. “I think that is a function of the fact that some of these institutions have become too large.”

Lawmakers have expressed surprise that no corporate or personal criminal prosecutions emerged from the HSBC Holdings Plc case, in which the bank was fined $1.9 billion over money laundering, including money from Mexican and Colombian drug cartels.

Justice Department officials also cited economic stability concerns in December when announcing a $1.5 billion fine, but no criminal charges, against UBS AG, in a multiyear scheme to manipulate Libor and other benchmark interest rates.

What if they held a bull market and no one came?: James Saft

Mar 6, 2013 20:35 UTC

March 6 (Reuters) – The remarkable thing about the Dow Jones
Industrial Average’s new all-time record is how few people give
a damn.

There are good reasons for this – the Dow is the doddering
uncle of stock market indicators and it, along with the rest of
the stock market, is being held aloft by the magic fingers of
Federal Reserve policy.

More importantly, there are important consequences of the
record’s lack of consequence: with no feel-good factor people
won’t be piling into stocks like the lemmings they usually are,
nor will they be as likely to go out and spend the (paper)

China’s debt and investment slow down: James Saft

Mar 5, 2013 05:13 UTC

By James Saft

(Reuters) – What can’t go on forever may be starting to stop in China.

China on Monday unveiled steps to curb runaway housing price inflation, including measures to make speculation less profitable and loans more expensive.

That sent stock markets down around the world but may prove less significant than new controls, reported in the Financial Times, which may be in the works to limit shadow banking, the taking of deposits and lending of money outside regulated channels.

Great Rotation a myth but stocks still a top pick

Feb 28, 2013 21:39 UTC

Feb 28 (Reuters) – Don’t hold your breath waiting for that
Great Rotation out of global bonds and into stocks. Even so, go
into stocks anyway if you are big enough and tough enough to
survive the inevitable volatility.

The idea that investors will soon start to move much of the
cash they’ve plunged into very low-yielding but safe government
bonds into stocks is intuitively appealing. After all rates have
to rise some time and the 30-year-plus bond bull market is
looking long in the tooth. It also makes intuitive sense given
the likelihood of lousy inflation-adjusted returns, even losses,
in bonds.

The only problem is the world is brimming with old people,
rickety banks and foreign central banks, all of whom want and
need safe assets almost without regard to the price.

Why Jamie Dimon is richer than you: James Saft

Feb 27, 2013 19:50 UTC

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

By James Saft

(Reuters) – In case you were wondering, Jamie Dimon has thoughtfully explained why he’s richer than you and all the analysts covering J.P Morgan.

It isn’t, as I thought, our inability to pick lottery numbers.

Hint: it is because he is chairman and CEO of a bank.

Actually, that’s not entirely fair. Dimon is richer than we because he runs a bank and understands the relationships between capital levels, regulation, profits and human nature.

At a J.P. Morgan investor event this week Mike Mayo, an analyst at CLSA, who has been a critic of large banks and, at times, Dimon, asked if J.P. Morgan wasn’t at a competitive disadvantage compared to more highly capitalized peers. (Here is a playback via Business Insider: here)

The coming dollar bull run: James Saft

Feb 26, 2013 06:04 UTC

By James Saft

(Reuters) – For all the dysfunction in Washington we could, it seems, be in the midst of an historic and potentially extended bull run for the U.S. dollar.

The dollar is up a bit less than 4.0 percent over a year against a trade-weighted currency basket, in substantial part because of economic weakness, fragility and radical policy in places like Japan, Europe and Britain.

It is remarkable that we should be entertaining the idea of an extended dollar bull run on the eve of “sequestration”, a program of mandatory federal budget cuts that highlights both U.S. fiscal and political weakness.

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.

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.