James Saft

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.

It is also always a screaming sell signal, one that investors will put into action regardless of regulation.

Italy re-introduced a ban on short selling – bets that securities will fall in price – of financial stocks, this time for one week. Spain went further: banning for three months short selling for all Spanish shares, as well as index short bets, or any similar trade in derivatives on or off of established exchanges.

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.

Beware when leaders speak the truth: James Saft

Jul 19, 2012 04:00 UTC

July 19 (Reuters) – If there is one thing more worrying than
leaders avoiding the truth it is when they start to speak it.

Unusually frank comments from German Chancellor Angela
Merkel on Wednesday came, within this context, as quite a

“We have not yet shaped the European project in a way that
we can be sure that everything will turn out well, we still have
work to do,” Merkel said in an interview posted on her Christian
Democratic Union party’s website.

Forget TBTF, banks too big for investors: James Saft

Jul 17, 2012 12:07 UTC

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

By James Saft

(Reuters) – Never mind that our largest banks are too big to be allowed to fail, they show every sign of being too big for investors.

By now anyone committing capital to the largest banks must do so with the understanding that they aren’t just risky and volatile, but often badly managed and highly likely to produce further scandals in which insiders gain at the expense of everyone else in the capital structure.

For bondholders, the largest banks at least come with an implied backstop from governments, but shareholders have no-one else to blame for their woes but themselves.

Santa Claus Fed and equity returns: James Saft

Jul 12, 2012 12:19 UTC

By James Saft

(Reuters) – Since 1994, according to the New York Federal Reserve, 80 percent of U.S. stocks’ excess returns occurred in the 24 hours before scheduled announcements by the Federal Open Market Committee.

There can be no single data point that better explains the madness of official monetary policy in its interaction with financial markets.

As explained in a recently updated paper by New York Fed economists David Lucca and Emanuel Moench, an enormous proportion of the equity risk premium – the extra return investors get for holding stocks – occurs in the window directly around Fed policy announcements.

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.”

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.