James Saft

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

By James Saft

(Reuters) – Just as gold’s rise never showed the policies of central banks to be a failure, so its fall cannot show they have succeeded.

Yes, the attraction to gold is driven by mistrust, its principal virtue being that, unlike currencies, it can’t be created at will. No, the massive sell-off over two days in gold is not a sign that trust is back and policy-makers can soon declare victory over the crisis and make plans for restoring a more normal balance of policy.

Monday marked the second day of gold’s worst two-day tumble since 1983, as it fell more than 9 percent amid huge volumes, taking its total losses since Friday to 14 percent.

Because the rise in the price of gold is associated with distrust in the global financial system and its minders, there is a temptation to reason that its very abrupt fall shows confidence that currencies won’t be debased, and that growth with mild inflation will shortly be back. Unfortunately, the movement of most other financial markets on Monday was consistent with spluttering growth and a rising risk of deflation rather than a new-found and sudden belief that the fiscal and monetary medicine is working.

It isn’t simply that equities are falling, but more importantly that gold’s swoon has come at the same time as steep falls in a number of economically sensitive commodities. Oil is down nearly 6 percent since last week, copper fell to its lowest in a year and a half and aluminum touched 3.5-year lows. Even the prices of wheat, corn and soybeans are down.

By James Saft

(Reuters) – There are a bunch of kids out there trading on inside information, and you, me and the rest of the economy are paying the price.

A study of trading patterns in Finland shows a highly suspicious pattern of activity in accounts held on behalf of juveniles.

In reality, it is probably not the kids themselves who are playing at being junior insider traders, but instead it is their guardians who are likely using juvenile accounts as a safer way to profit from non-public knowledge.

April 11 (Reuters) – There are a bunch of kids out there
trading on inside information, and you, me and the rest of the
economy are paying the price.

A study of trading patterns in Finland shows a highly
suspicious pattern of activity in accounts held on behalf of
juveniles.

In reality, it is probably not the kids themselves who are
playing at being junior insider traders, but instead it is their
guardians who are likely using juvenile accounts as a safer way
to profit from non-public knowledge.

By James Saft

(Reuters) – The record-breaking rise of the stock market is in part a function of the lousy jobs picture, which ensures an ongoing prescription refill of Federal Reserve medicine.

The S&P 500 index hit a record high on Wednesday, rising more than 1 percent to as much as 1588. Since data showed on Friday that the economy added just 88,000 jobs in March, the S&P has added a cool 2.3 percent. And while the jobless rate fell to 7.6 percent this was largely thanks to almost 500,000 people falling out of the workforce, taking the labor force participation rate to its lowest since 1978.

This state of play isn’t indefinitely sustainable, but there is absolutely no contradiction between a spluttering economy and a levitating stock market.

April 10 (Reuters) – The record-breaking rise of the stock
market is in part a function of the lousy jobs picture, which
ensures an ongoing prescription refill of Federal Reserve
medicine.

The S&P 500 index hit a record high on Wednesday, rising
more than 1 percent to as much as 1588. Since data showed on
Friday that the economy added just 88,000 jobs in March, the S&P
has added a cool 2.3 percent. And while the jobless rate fell
to 7.6 percent this was largely thanks to almost 500,000 people
falling out of the workforce, taking the labor force
participation rate to its lowest since 1978.

This state of play isn’t indefinitely sustainable, but there
is absolutely no contradiction between a spluttering economy and
a levitating stock market.

By James Saft

(Reuters) – The Bank of Japan’s massive new bid for inflation will create growth but to its chagrin much of it may well be concentrated in financial markets and outside of Japan.

So long as Japanese consumers remained convinced that the new program will bring more inflation in what they buy rather than in what they earn, much of the benefit will be felt in Europe, the U.S. and the other economies into which the newly minted money will actually leak.

The BOJ last week vowed to spend $1.4 trillion in less than two years buying up bonds and assets in a bid to hit its avowed 2.0 percent inflation goal. The central bank will create money and wade into markets, vacuuming up Japanese government debt and other assets while targeting the amount of money in the economy rather than the rate of interest at which it will make loans.

NEW YORK (Reuters) – For a business whose main products fetch record prices, the financial services industry sure is firing a lot of people.

That combination may illustrate why finance is a sector you want to own, very possibly for the long haul.

Financial conditions are bank friendly; The stock market is at or near all-time records and demand for risky bonds is high. At the same time, announced layoffs in the financial sector are up 37 percent in the first quarter compared to a year ago, according to consulting firm Challenger, Grey & Christmas.

April 3 (Reuters) – Whether out of necessity, mistrust or
simply the feel-good factor of soaring asset markets, Americans
appear to be cutting back once again on saving.

The personal savings rate stood at just 2.6 percent in
February, down nearly one percentage point from the year before,
according to the most recent data. Taken with January’s 2.2
percent rate, this makes the first time since 2007 we’ve had two
months in a row below the 3 percent mark.

If low savings are driven by confidence, either in the
bounty of the stock market or the opportunities in the job
market, then the savings rate may stay low but interest rates
may soon need to rise. If, on the other hand, low savings are
being driven by a lack of faith in markets or institutions or
even by a simple lack of capacity, then we may well be looking
at an extended period of low rates and lousy growth.

By James Saft

(Reuters) – Whether out of necessity, mistrust or simply the feel-good factor of soaring asset markets, Americans appear to be cutting back once again on saving.

The personal savings rate stood at just 2.6 percent in February, down nearly one percentage point from the year before, according to the most recent data. Taken with January’s 2.2 percent rate, this makes the first time since 2007 we’ve had two months in a row below the 3 percent mark.

If low savings are driven by confidence, either in the bounty of the stock market or the opportunities in the job market, then the savings rate may stay low but interest rates may soon need to rise. If, on the other hand, low savings are being driven by a lack of faith in markets or institutions or even by a simple lack of capacity, then we may well be looking at an extended period of low rates and lousy growth.

April 2 (Reuters) – Just as Mario Draghi’s pledge to “do
whatever it takes” to preserve the euro is being challenged, the
very same unqualified promise, this time to simply stop prices
falling, is about to be put into action in Japan.

In both cases within months we may well discover if it is
the promises or the problems which are without limits.

In Japan, newly appointed Bank of Japan Governor Haruhiko
Kuroda will on Wednesday convene a two-day policy meeting, his
first after assuming office and pledging to do – again those
words – “whatever it takes” to end years of deflation.