Opinion

James Saft

Negative rates and the currency wars: James Saft

Jul 10, 2012 04:10 UTC

By James Saft

(Reuters) – It may be better to think of the outbreak of negative interest rates as simply another weapon in an ongoing and global low-grade currency war.

It’s not that negative interest rates – under which investors pay for the privilege of lending money – are not driven partly by terrible growth prospects and a rising threat of deflation.

They are, but they are also the manifestation of monetary policy that says, in essence, to global investors: “don’t let the door hit you on the way out.”

That’s because a central bank which is desperately looking for growth – and that means just about all of them – would like nothing more than to see its currency depreciate.

The European Central Bank is the latest to light the negative interest rate fuse, cutting key rates last week by 25 basis points to 0.75 percent. This gave rise to what has to be the 8th wonder of the financial crisis – the spectacle of France raising short-term money at negative interest rates. Germany and the Netherlands are also able to sell debt at negative yields, while Danish banks will end up owing their central bank hundreds of millions annually after their central bank cut a certificate of deposit rate to -0.20 percent.

Preparing for negative rates

Jul 5, 2012 19:29 UTC

July 5 (Reuters) – If you are not prepared for negative
interest rates, you may have left it too late.

The European Central Bank on Thursday cut interest rates by
25 basis points to a record low 0.75 percent, and ECB chief
Mario Draghi acknowledged afterward that actual negative
interest rates are part of his arsenal.

Following suit shortly thereafter the Danish central bank
cuts its own rates by 25 basis points, a move that took a
secondary certificate of deposit rate to -0.20 percent. That’s
right, some Danish savers will now be paying their central bank
for the privilege of lending it money.

Risks of deflation rising again: James Saft

Jul 5, 2012 04:24 UTC

By James Saft

(Reuters) – The Federal Reserve can and will fight the threat of falling prices.

What is a lot less clear is whether the extraordinary monetary policy we may soon be seeing will be effective in staving off another recession.

The recent run of data on prices has shown a clearly falling trend, doubtless driven by a recession in Europe and a marked slowing in China’s economy.

Diamond’s parting gift: James Saft

Jul 3, 2012 04:07 UTC

By James Saft

(Reuters) – Bob Diamond’s gift to the UK, perhaps a parting one, is that he has managed his bank badly enough to provoke real reform but, perhaps out of luck, not so badly as to blow up the whole economy.

That Diamond should go is obvious; that he hasn’t is further evidence of why he should.

Not that Diamond, the CEO of Barclays Plc, has made the case for root and branch reform all on his own. While Barclays has been heavily fined in the UK and U.S. for submitting fictitious borrowing rates to the key LIBOR and EURIBOR panels, it is very likely that it was not alone, either in masking its weakness during the height of the crisis or in manipulating figures for gain in good times. Nor was the bank alone in the further scandal of mis-selling complex and destructive interest-rate swaps to small businesses, a plea it copped along with HSBC, Lloyds Banking Group PLC and Royal Bank of Scotland Group Plc.

Saft on Wealth: The consumer finance mess

Jun 15, 2012 09:53 UTC

By James Saft

(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 Finances goo.gl/AxYTJ shows 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.

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.

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.

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