Opinion

James Saft

An ungovernable slump: James Saft

May 8, 2012 04:06 UTC

By James Saft

(Reuters) – Received wisdom on Europe’s electoral results is that the throw-the-bums-out events in France and Greece represent a vote against austerity.

Here’s another possibility: it is an anti-reality vote.

That’s not to say that policies of austerity are helpful; they are not, especially when they are, as in the euro zone, taken as a futile means to support unsustainable debts in the financial system.

Rather, the elections illustrate a truth which will vex whatever policies are enacted next in all of the economies which are struggling with high amounts of total debt, be it corporate, banking, government or household. No one, no electorate, reacts well to the policies put in place during times when living standards are grinding slowly lower. Voters, just like investors, endow the things they can control, like who is in office and what they are doing, with far more power and ability to turn the course of events than they probably possess.

France voted in Socialist Francois Hollande over the weekend, opting for his ‘pro-growth’ stance over Nicolas Sarkozy. In Greece all of the parties which supported the current bailout, which features a program of deep austerity for Greece, were soundly thrashed, and the electorate made its will known by voting in such a way as to make any kind of coalition difficult to form and even harder to sustain.

The latest U.S. polls provide further evidence of the difficulty of governing in tough times; no sooner do the Republicans stop making a spectacle of themselves in primaries and the polls for the presidential election tighten to a dead heat. While President Obama is not advocating the kind of austerity now getting the thumbs down in Europe, he is presiding over an economy which is, as economies do when they carry too much debt, failing to thrive and to create jobs.

Chesapeake and the executive pay sell signal

May 3, 2012 21:58 UTC

By James Saft

(Reuters) – As Chesapeake Energy Corp shows, fat executive compensation all too often comes twinned with lousy investor returns.

Shares of Chesapeake have tumbled in the last two weeks after revelations by Reuters of unusual and disturbing pay and other arrangements between the company and its CEO and founder Aubrey McClendon. McClendon borrowed up to $1.1 billion to fund private investments he was allowed to make in company oil and gas wells under its “Founder Well Participation Program,” a hilarious euphemism if ever there was one.

He also was, at least from 2004 to 2008, actively helping to manage a $200 million hedge fund that speculated in commodities his company produced.

UK’s economic cheese and debt pickle: James Saft

May 3, 2012 04:04 UTC

By James Saft

(Reuters) – Pity poor Britain: their own currency to depreciate, their own central bank to print and buy government debt, and yet here we have the second recession in three years.

Not only did GDP shrink by 0.2 percent in the first quarter – the second consecutive contraction, but a sickly manufacturing survey and a drop in exports both indicate that there is a risk of something more sustained and deeper.

And it’s not as if labor hasn’t been sharing the burden; unemployment is high and wage earners are taking home less in inflation-adjusted terms than they were in 2005. That leaves many British households struggling with debts which haven’t really shrunk and must be repaid while earning, effectively, less. Inflation is high, leaving even less for consumption, and households continue to show a preference for paying back money rather than borrowing.

Europe’s credit crunch: James Saft

May 1, 2012 12:44 UTC

By James Saft

(Reuters) – Europe looks to be entering a credit crunch, with loans harder to get and those that are made coming on tougher terms.

Strikingly, banks are being tight despite falling demand for credit, pointing to a nasty interaction between the economy, its banking system and the choices of wary and indebted households and companies.

That this is all happening despite the massive efforts of the European Central Bank, which twice recently has made extraordinary amounts of nearly free money available to the banks, tells the grimmest tale of all.

Investing in the wretched: James Saft

Apr 27, 2012 18:22 UTC

By James Saft

(Reuters) – At a time when one super-stock, Apple, is driving returns and portfolio construction, it is important to remember that there is usually more to be gained from the widely derided than from the universally loved.

Choosing stocks like Apple, which makes great products and has the glow of success about it, is an easy and comfortable choice. Investors feel they are affiliating with something successful, and they get that blast of pleasurable chemicals to the brain every time they see a positive story in the press or a surge in share price.

That success comes with a price tag. A review of the literature shows that portfolios with stocks in widely admired companies usually underperform baskets of stocks with companies nobody much likes.

SAFT ON WEALTH: Investing in the wretched

Apr 27, 2012 18:15 UTC

April 27 (Reuters) – At a time when one super-stock, Apple,
is driving returns and portfolio construction, it is important
to remember that there is usually more to be gained from the
widely derided than from the universally loved.

Choosing stocks like Apple, which makes great
products and has the glow of success about it, is an easy and
comfortable choice. Investors feel they are affiliating with
something successful, and they get that blast of pleasurable
chemicals to the brain every time they see a positive story in
the press or a surge in share price.

That success comes with a price tag. A review of the
literature shows that portfolios with stocks in widely admired
companies usually underperform baskets of stocks with companies
nobody much likes.

Bonds living on one lung: James Saft

Apr 26, 2012 10:47 UTC

By James Saft

(Reuters) – Guess what, bond investors: just like the Federal Reserve, you are trapped.

The Fed on Wednesday said it was keeping rates on hold until at least late 2014 but failed to tip its intentions clearly about any possible additional round of quantitative easing. The Fed once again stressed the “significant downside risks” from “strains in global financial markets,” a nod to the backwash from euro zone issues, having eliminated this language from its last statement.

Going strongly into equities seems brave given the bumpy recovery and with continued risks of fallout from Europe, even with an implied promise of a safety net from the Federal Reserve. That leaves the rather unlovely option of government bonds, now 30 years into a bull market and offering low yields and the, distant, possibility of big losses when the Fed eventually hikes rates or gets behind the inflation curve.

Euro zone’s backlash whiplash: James Saft

Apr 24, 2012 11:24 UTC

By James Saft

(Reuters) – It’s not simply an austerity backlash in the euro zone; it is a policy backlash, as everyone appears to blame everyone else for a host of overlapping and conflicting policies which clearly aren’t working.

A series of political and monetary ructions are showing that it is very difficult to predict with any confidence what path Europe will choose, much less who will lead it there or even how the euro zone will be constituted and organized.

All of this argues for increased risk premia on euro zone assets, a conclusion duly enacted on Monday by financial markets. Little surprise, given developments:

Get ready for election fun

Apr 19, 2012 20:02 UTC

By James Saft

(Reuters) – If worrying about the impact of politics on your portfolio makes you want to scream, you probably ought to just turn off your TV and phone for the next seven months.

The 2012 U.S. presidential and congressional elections could set the tone for years to come on the single issue that may have the most power to move markets: deficits.

The United States has dug itself a deep fiscal hole, and that means some combination of spending cuts and tax increases to get out of it. More worryingly, perhaps, is a political atmosphere in which cross-party cooperation isn’t likely, increasing the chances of policy gridlock and bigger issues later.

More firepower, less force for IMF: James Saft

Apr 19, 2012 04:03 UTC

By James Saft

(Reuters) – The International Monetary Fund may emerge from its meeting this week with more firepower but less force.

While the fund is looking on track to add at least the $400 billion it has argued it needs to deal with the potential fallout from the euro zone crisis, it will have to cope with a U.S. which is partly sidelined by domestic politics during a period of rising international economic tension and protectionism.

Even the $400 billion is a downgrade from a $600 billion figure bandied about earlier. IMF Managing Director Christine Lagarde has been busily putting a positive gloss on the shortfall, arguing that matters have improved substantially in Europe since the bigger figure was suggested.

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