Opinion

James Saft

SAFT ON WEALTH: The consumer finance mess

Jun 14, 2012 20:10 UTC

June 14 (Reuters) – It won’t be the American consumer who
powers the economy and financial markets.

An examination of the Federal Reserve’s new tri-annual
Survey of Consumer Financesshows we didn’t
just suffer a debt bubble – we had an income drought.

The statistics are stark: in the three years through 2010
the median family saw its net worth fall by nearly 40 percent,
wiping almost two decades of asset accumulation off of the
books. The real source of concern was a 7.7 percent drop in real
income in the period, leaving many families still struggling
with intractable debts.

There are two really important takeaways from the survey.

First, U.S. households, far from being a source of real
pent-up demand, are sailing into their retirement years with
very little wriggle room. Saving has been deferred, yet again,
and consumption will have a very difficult time driving growth.

Second, and unsurprisingly, the poor and volatile
performance of equities during the bubble years has driven
savers away from the asset class, setting them up for another
potential disappointment.

Watch German bunds for euro fate: James Saft

Jun 14, 2012 09:42 UTC

By James Saft

(Reuters) – The recent fall in German bunds is the most interesting development in markets in months, and may contain hints of the fate of the euro itself.

German bunds have sold off sharply in June, driving yields higher. In recent days they have also broken a longstanding relationship and are now falling along with Italian and Spanish bonds, rather than, as they have almost throughout the crisis, rising as things in the periphery get hairy.

Since June 1, benchmark German 10-year yields have risen by nearly a quarter to 1.42 percent. To be sure, German yields are still very low, and the rise in and of itself is meaningless to Germany’s ability to manage its debt and borrow.

Same thing, same results in Spain: James Saft

Jun 12, 2012 12:09 UTC

By James Saft

(Reuters) – It is shaping up to be a vintage year for doing the same thing over and over again but expecting different results.

The latest: Europe’s attempt to bail out Spain’s banks but not, somehow, have it count against Spain. This is akin to a dieter eating a cookie and telling himself he’s feeding his arms and legs but not his belly.

And while there are different bells and whistles this time, the thread that connects all of the European crisis resolution efforts is an unwillingness, or inability, to address the issue of who will pay for the destruction of excess debt. All efforts, from the LTRO to the bailouts, successively, of Greece, Ireland and Portugal dissembled on this point.

U.S. bonus culture limits equity returns: Jame Saft

Jun 7, 2012 20:30 UTC

By James Saft

(Reuters) – Quarter-by-quarter management and a compensation-driven obsession with company share prices may be impairing the long-term prospects of U.S. stocks as executives live off of their companies’ seed corn rather than disappoint a market obsessed with short-term results.

U.S. corporations are holding a record $1.74 trillion in liquid assets, according to the Federal Reserve’s quarterly “flow of funds” report released on Thursday.

That’s up 16 percent since the end of the last recession in June 2009. A variety of explanations has been posited for this – ranging from fear of regulation to a reluctance to repatriate gains and pay taxes.

US bonus culture limits equity returns

Jun 7, 2012 20:28 UTC

June 7 (Reuters) – Quarter-by-quarter management and a
compensation-driven obsession with company share prices may be
impairing the long-term prospects of U.S. stocks as executives
live off of their companies’ seed corn rather than disappoint a
market obsessed with short-term results.

U.S. corporations are holding a record $1.74 trillion in
liquid assets, according to the Federal Reserve’s quarterly
“flow of funds” report released on Th ursday.

That’s up 16 percent since the end of the last recession in
June 2009. A variety of explanations has been posited for this -
ranging from fear of regulation to a reluctance to repatriate
gains and pay taxes.

Monetary policy the wrong weapon: James Saft

Jun 7, 2012 04:07 UTC

By James Saft

(Reuters) – Ben Bernanke and Mario Draghi are keeping their powder dry but may find, in the end, that there is a limit to the usefulness of monetary policy bullets.

The Federal Reserve and the European Central Bank are both keeping their options open as global economic conditions worsen and the euro zone looks, if anything, more fragile than in recent months.

The ECB did the absolute minimum at its meeting on Wednesday, leaving rates unchanged and extending some liquidity provisions until the end of the year. This despite clear signs of broad-based weakening in the euro zone economy and a widespread credit drought which looks very likely to worsen.

For euro zone, life does not equal hope: James Saft

Jun 5, 2012 04:02 UTC

By James Saft

(Reuters) – As events in Europe show, an unhappy marriage can be prolonged indefinitely but where there is life there is not always hope.

The two current arguments for enthusiasm about asset and risk markets seem to be these: that policy forbearance and the European Central Bank can keep the euro zone intact until someone thinks of something, and; that coordinated central bank and fiscal policy will rescue the global economy anyway.

Both are untrue but, like most untruths, both contain interesting elements of truth.

No banking union without fiscal union: James Saft

May 31, 2012 04:08 UTC

By James Saft

(Reuters) – A banking union, as espoused by the European Commission, is probably totally unworkable unless accompanied by a full fiscal union.

Which is to say a euro zone which features banking union is no different than the current state of affairs, the solution to which, short of a break-up, also almost certainly requires much greater centralization of taxing and spending.

The Commission, the European Union’s executive arm, on Wednesday floated the idea of a banking supervision union to run alongside the 17-nation currency zone.

In praise of simplicity: Jame Saft

May 24, 2012 21:34 UTC

By James Saft

(Reuters) – It is perhaps the single easiest rule of thumb in investment: favor the simple over the complex.

Complexity, whether it be in a strategy or in a financial product, makes investors vulnerable: to being overcharged, to misunderstanding risks and to being unable to exit the position easily and economically.

To understand why this is true, on so many levels, look no further than JP Morgan’s chief investment office disaster. It involves a trading position which, despite being put on and overseen by people who ought to be the best in the world, landed the bank with a loss that is almost literally unquantifiable.

In praise of simplicity

May 24, 2012 21:30 UTC

May 24 (Reuters) – It is perhaps the single easiest rule of
thumb in investment: favor the simple over the complex.

Complexity, whether it be in a strategy or in a financial
product, makes investors vulnerable: to being overcharged, to
misunderstanding risks and to being unable to exit the position
easily and economically.

To understand why this is true, on so many levels, look no
further than JP Morgan’s chief investment office
disaster. It involves a trading position which, despite being
put on and overseen by people who ought to be the best in the
world, landed the bank with a loss that is almost literally
unquantifiable.

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