James Saft

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.

That’s right: if anyone, anywhere, wants to exit their
position in the troubled euro, no matter how large, the SNB will
buy at a guaranteed price and hand over in exchange francs.

Little wonder Switzerland is experiencing a property price
boom. That’s essentially a global macro hedge fund strategy,
though no hedge fund manage would be foolish enough to publish
and commit to it.

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.

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.”