Opinion

James Saft

No de-coupling for U.S.

Apr 6, 2012 17:19 UTC

April 6 (Reuters) – This time around it looks that when the
rest of the world comes down with a cold, the United States
starts sneezing, too.

Arguments for American exceptionalism, or even that
much-vaunted but seldom seen phenomenon known as “de-coupling,”
were undermined on Friday when U.S. payrolls data disappointed
deeply.

For investors, this is somewhat dispiriting, as many were
hoping to ride out the effects of a sharp European slowdown and
weakness in emerging markets by investing in U.S. shares, which
had a great first quarter, driven by strong signs out of
manufacturing and a brightening jobs picture.

Non-farm payrolls increased by 120,000 in March, a territory
barely in squinting distance from the 203,000 consensus of
economists’ estimates. The unemployment rate fell to 8.2
percent, but as a drop of 31,000 jobs in a survey of households
and participation data shows, this was driven entirely by people
getting out of the workforce.

Perhaps most disturbing of all was the extent to which the
poor showing was driven by weakness in manufacturing employment,
which after all is ultimately the U.S.’s path to sustainable
prosperity. Weekly hours worked in manufacturing actually
declined, by 0.3 hours to 40.7, in a sign that just maybe the
weakness being seen elsewhere in the globe is hitting home in
the United States.

Market loses Fed crutch: James Saft

Apr 5, 2012 04:13 UTC

By James Saft

(Reuters) – So now we will finally get to see if the stock market can stand on its own two feet.

The Federal Reserve signaled this week that an additional round of extraordinary help such as quantitative easing is probably not in our immediate future, and so far risk assets like stocks are not liking it one little bit.

Minutes from the Fed’s March meeting released on Tuesday showed a more constructive tone about the economy and, crucially, revealed that only two members of the policy-setting open market committee saw the case for more monetary stimulus. That’s a sharp change from the month before when ‘a number’ of members believed current conditions could justify additional easing. That slight chill breeze you felt was from the door slamming on any move in that direction at the Fed’s April meeting, implying that only a relapse in the economy will bring more help.

Will France remain in Europe’s core?: James Saft

Apr 3, 2012 04:06 UTC

By James Saft

(Reuters) – France faces the frightening and humiliating, if narrow, chance that by the end of this year it may no longer qualify as a paid-up member of core Europe.

That’s the risk if, lulled by the apparent calming of the debt market waters and without anything approaching a strong national consensus about reform, France sails later this year into another bout of euro insecurity and finds its own debt out of favor and its ability to borrow compromised.

With an April 22 first-round presidential vote fast approaching neither of the two likely survivors, incumbent Nicholas Sarkozy of the conservative UMP or Socialist front-runner Francois Hollande, have enunciated anything approaching a strong commitment to the sorts of labor market, retirement and fiscal reforms now being espoused, if not yet successfully pursued, by weaker euro partners such as Italy, Greece and Spain.

Saft on Wealth: High profits face a test

Mar 23, 2012 13:29 UTC

By James Saft

(Reuters) – With corporate profit margins at record levels, the stock market faces a challenge because the logical next move may well be down.

Economy-wide corporate profit margins are over 10 percent, not only the highest on record, but now fully 20 percent higher then they were at the most recent peak, before the onset of the great recession.

How we got here is pretty clear – technological innovation came alongside globalization, allowing for investment in processes and technology in combination with wage-lowering off-shoring of jobs.

High profits face a test

Mar 22, 2012 21:12 UTC

By James Saft

(Reuters) – With corporate profit margins at record levels, the stock market faces a challenge because the logical next move may well be down.

Economy-wide corporate profit margins are over 10 percent, not only the highest on record, but now fully 20 percent higher than they were at the most recent peak, before the onset of the great recession.

How we got here is pretty clear – technological innovation came alongside globalization, allowing for investment in processes and technology in combination with wage-lowering off-shoring of jobs.

Esperanto vs the middlemen: James Saft

Mar 22, 2012 19:00 UTC

By James Saft

(Reuters) – If you think the advent of a common tongue in banking will solve the problems of finance, you are probably disappointed that Esperanto did not usher in a new age of world peace.

Just as Esperanto, born in the late 19th century and touted as increasing international understanding, failed to do much to stem the bloodiest century in human history, so the imposition of new codes to make clear who does what to whom in finance faces a huge hurdle: those who might use it won’t think it is in their best interest.

Andrew Haldane, the executive director of financial stability at the Bank of England, thinks that the use of new global codes to track counterparties and financial products in markets has the potential to transform banking, rendering it safer, more competitive and easier to regulate.

Treasuries: Joy, woe or head fake? James Saft

Mar 20, 2012 04:00 UTC

March 20 (Reuters) – The price of money is going up, but
it’s difficult to know if this signals a return to normality, a
step down inflation’s slippery slope or just a cunning head
fake.

Yields on 10-year U.S. Treasuries hit 2.38 percent on
Monday, the latest leg in a move that’s taken the borrowing rate
up by nearly 25 percent in just three weeks.

The yield on 10-year Treasuries is perhaps the world’s most
important financial indicator. Besides representing the cost of
money for the U.S. government, it helps to set the price of
money for all borrowers in dollars, and for many world-wide.

Saft on wealth: What is gold for?

Mar 16, 2012 14:20 UTC

By James Saft

(Reuters) – An apparent economic recovery and a recent tumble in the price of gold has investors wondering if the precious metal has lost its place in a portfolio. Gold, having soared higher since the onset of the financial crisis, is down about 17 percent from its September peak, and has fallen 7.5 percent in less than a month. In large part, gold’s comeuppance is attributable to improving economic data and a sense that – terrible as things may be in Europe – the banking system will not implode. So, then, if the world’s not ending why own gold? Arguing the case against gold ownership is none other than Warren Buffett, who argues for equities and calls gold a non-productive asset. Why hold gold, which never innovates, never increases profit margins and never opens up new markets? “If you own one ounce of gold for an eternity, you will still own one ounce at its end,” Buffett wrote in his most recent annual letter to shareholders. here “This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future,” Buffett said. Gold, Buffett correctly points out, has benefited first from a fear trade, bought up by investors who worry that central banks and governments will engineer a raging inflation in order to erode away the debts they struggle under.

Secondly, as with all assets that rise sharply in price, gold has gotten a push higher by momentum buyers, those who add their money to the rush in hopes of getting out when the trend wanes. Remove those supports and gold should fall, sharply and rapidly.

THE BACKSIDE OF QE Buffett is surely right about gold’s inability to procreate or grow, but I think he presents the fear trade as too much of an all-or-nothing bargain. Gold is a kind of anti-investment, an insurance policy against the bad actions of other people.

The ‘long-term greedy’ canard: James Saft

Mar 15, 2012 13:10 UTC

By James Saft

(Reuters) – Nostalgia for the era when bankers were “long-term greedy” is a red herring, misdirecting our attention to how banks govern themselves when the true issue is how they are governed.

Greg Smith, until Wednesday a Goldman Sachs executive director in its derivatives business, dropped a bomb on his way out the door, publishing an op-ed piece in the New York Times in which he decried, as he describes it, the erosion of integrity at the firm and how the interests of clients take a back seat to short-term profits.

“It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you,” Smith writes.

Column – The ‘long-term greedy’ canard: James Saft

Mar 15, 2012 09:13 UTC

By James Saft

(Reuters) – Nostalgia for the era when bankers were “long-term greedy” is a red herring, misdirecting our attention to how banks govern themselves when the true issue is how they are governed.

Greg Smith, until Wednesday a Goldman Sachs executive director in its derivatives business, dropped a bomb on his way out the door, publishing an op-ed piece in the New York Times in which he decried, as he describes it, the erosion of integrity at the firm and how the interests of clients take a back seat to short-term profits.

“It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you,” Smith writes.

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