James Saft

As Asian miracle wanes, U.S. may wax: James Saft

Sep 11, 2012 04:01 UTC

Sept 11 (Reuters) – Asia’s economic miracle may be waning
just as the foundations for an eventual resurgence in the U.S.
are being laid.

Asia, China in particular, may be bumping up against the
limits of a capital-intensive growth model predicated on cheap
labor. To counteract this, countries like China may have to
adapt legal, political and even academic practices which could
up-end existing power relationships.

At the same time, technology, geology and new manufacturing
techniques may in combination give U.S. growth an energy and
innovation boost.

“To pose the question about the Asian miracle is not to
doubt China’s and Asia’s economic potential and significance,
but to throw down the gauntlet to the conventional thinking that
extrapolates Asia’s past economic performance into the
indefinite future, and assumes that the competitive challenge
from the U.S. and other Western countries and companies is now a
spent force,” George Magnus, an economic consultant to UBS
writes Monday in a note to clients titled “Asia: is the miracle

To be sure, Asian growth rates won’t dip below those of the
U.S., other than under the most extraordinary scenarios. There
is, however, real potential for rates in China, India and
elsewhere to disappoint the sorts of forecasts now common, and
for the U.S. to stage a meaningful, and surprising, rally.

ECB death pact good for risk

Sep 6, 2012 18:05 UTC

By James Saft

(Reuters) – It may or not prove to be good policy, but the ECB’s decision to stand as effective lender of last resort is a pretty good reason for investors to take on risk.

The ECB on Thursday announced a new program to buy, under certain circumstances, unlimited amounts of euro zone bonds, a move intended to allow it to regain control over monetary policy in the euro zone’s periphery and to serve as an effective circuit breaker against sovereign financing panics.

The plan, slammed by Bundesbank chief Jens Weidmann as “tantamount to financing governments by printing banknotes,” will target 1-3 year bonds and will be sterilized, meaning that the amount of money in circulation will remain the same.

Negative rates and pension pain

Aug 14, 2012 04:04 UTC

By Jim Saft

(Reuters) – One of the overlooked victims of the fall and fall of interest rates are corporate pension plans which are facing a ballooning liability even as returns stay tepid.

That’s because market rates play a key role in valuing pension plan liabilities, and the lower they go the tougher things get for underfunded plans.

This may, over time, become a real issue for equity markets, as investors realize that purchases of shares bring not just a right to benefit from future streams of earnings but also the responsibility to meet potentially huge future streams of retiree payouts.

The agony of rebalancing

Aug 2, 2012 20:49 UTC

By James Saft

(Reuters) – Portfolio rebalancing is one of those things which sounds sensible until you actually have to do it.

At which point, it usually just seems terrifying.

Portfolio rebalancing — the art of selling what has gone up and buying what has gone down — has a good track record along with lots of research backing up the assertion that it, in aggregate, will improve investors’ portfolio returns.

But the most crucial and high-value opportunities to rebalance usually come at exactly the kinds of times when even rational investors feel like hiding under their desks. Imagine a market crash, where you lose 8 or 10 percent of your portfolio and then, being a sensible investor, realize that right now is the time to sell the bonds that have held their value and load up on equities.

central bank or hedge fund?: James Saft

Aug 2, 2012 04:01 UTC

By James Saft

Aug 2(Reuters) – Switzerland is rapidly turning into a large
hedge fund with a small country attached.

Switzerland on Tuesday revealed its foreign exchange
reserves now total 365 billion francs ($374 billion), a rise of
50 percent in just three months and taking it to a dizzying 62
percent of Swiss annual output. A small Alpine country with a
big banking industry is now the world’s sixth-largest reserves
holder, behind only much larger or resource-rich countries like
China, Japan, Russia and Saudi Arabia.

The reason: the Swiss National Bank’s strategy of imposing a
cap on the value of the franc against the euro, a
policy which obliges it to buy euros in unlimited amounts when
the exchange rate hits its line in the sand of 1.20 francs to
the euro.

Draghi and his magic bee: James Saft

Jul 31, 2012 12:02 UTC

By James Saft

(Reuters) – Beware central bankers selling euros employing false analogies.

European Central Bank President Mario Draghi invited us last week to believe a string of unlikely things when he compared the euro’s travails to the supposedly impossible flight of the bumblebee.

The news that drove markets upward last week, however, was Draghi’s pledge to “do whatever it takes” to preserve the euro, wording that investors interpreted as flagging another round of bond purchases of weak euro zone nations in the secondary market.

Not the summer of love

Jul 26, 2012 20:25 UTC

By James Saft

(Reuters) – With risks of a U.S. recession mounting, it is shaping up to be a hairy summer for investors.

The recent run of U.S. economic data has been disappointing, with weak employment and manufacturing numbers. The Economic Cycle Research Institute’s four-week moving average of its key gauge has now been negative for eight straight weeks, and consumer spending is down for the third month in a row. Moreover, and more crucially, government spending reductions pose a threat, both this year and next.

Secondly, the United States, at the very least, will have to contend with deflationary waves from Europe for the foreseeable future.

Spain’s scratch-card solution: James Saft

Jul 26, 2012 04:04 UTC

By James Saft

(Reuters) – It doesn’t get much worse than a state like, say, Spain, borrowing money through a lottery.

Well, maybe actually it does, as Spain’s state-owned lottery is seeking a 6 billion euro ($7.3 billion) loan from a syndicate of international lenders to fund its contribution to a bailout pot for cash-strapped regional governments.

That’s right, Spain’s solution to its debt problem is leveraging up its lottery. The only thing that would make this scheme more emblematic of Spain’s desperation is if the plan was to plow the 6 billion euros back into tickets for the annual Christmas draw — El Gordo — and live happily ever after on the winnings.

Italy, Spain and the war on short-selling: James Saft

Jul 24, 2012 04:03 UTC

By James Saft

(Reuters) – After four years of failure, Italy and Spain have opened yet another pointless front in Europe’s war against reality.

Spain and Italy both introduced short-selling bans on Monday, reacting to steep falls in their stock markets and as confidence slipped in their ability to repay their debts, prop up their banking systems and tend to their economies while remaining within the euro currency.

While only a fool could look on recent history and say that markets must always remain untrammeled, the instinctual urge to suppress reality by stopping investors from acting in their own perceived best interests is usually counterproductive.

Imagining a global crash every two years

Jul 19, 2012 20:34 UTC

By James Saft

(Reuters) – It just might be time to rethink that global diversification strategy.

New research shows that the chances of a global stock market crash have increased 15-fold in the past two decades, implying a crash about every two years.

That’s something to think about, given that international diversification has long been sold to investors as the next best thing to a free lunch.