James Saft

Technocrats can’t cure the contagion

Nov 15, 2011 23:07 UTC

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

Now it is Spain.

The message from markets is not so much that Italy is too big to fail but that Greece will fail and in doing so ensnare others.

The prospect of two new avowedly technocratic governments and fresh pledges and plans for austerity proved not enough to stem contagion in the euro zone, as the financing drought spread beyond Greece and Italy to Spain. Spanish 10-year bond yields climbed above 6 percent for the first time since early August when the European Central Bank waded into bond markets in Spain’s support.

Perhaps that is because the contagion isn’t coming from Athens or Rome but from governments in Berlin, Paris and the ECB in Frankfurt, all of which seem unwilling to take the needed steps to save the euro.

The era of good feeling following Silvio Berlusconi’s resignation and the appointment of former European Commissioner Mario Monti as premier-designate was, well, short. While Italian bond yields are well below the mid-7-percent levels of last week, they rose again on Monday to 6.67 percent and Italy was forced to pay a euro-era record to sell five-year bonds.

It didn’t stop there, with the costs to insure French and Belgian bonds against default also rising to a euro-era high.

Waiting for deus ex ECB

Nov 10, 2011 20:36 UTC

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

It looks as if we will need to see some kind of miracle intervention from the European Central Bank — a Deus ex ECB — or the euro zone is heading for a nasty divorce.

Either the ECB comes across with a mandate-busting rescue, probably involving direct lending to Italy and rolling the currency printing presses, or the forces aligned against currency union will roll over Italy and into France.

Italian political chaos and a move by some clearing houses to demand more margin on Italian debt helped to drive 10-year yields of the troubled sovereign borrower to a euro-era record of 7.5 percent on Wednesday. The market appears to doubt that the EFSF rescue fund will be big enough and operative enough to back Italy effectively.

Euro plan drives into ditch

Nov 8, 2011 20:36 UTC

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

The early returns on the euro rescue are as straightforward as the plan was vague: it probably isn’t going to work.Two numbers tell the tale: the 177 basis points over German debt the supposedly AAA-rated euro rescue fund was forced to pay to borrow on Monday; and 6.67 percent, the 14-year record amount Italy had to pony up to borrow for 10 years.

Neither of those numbers fit in well with the plan announced last week to recapitalize banks, bail out Greece, erect a firewall around the larger weak economies and produce credible plans for fiscal and economic reform.

Put simply, these numbers are telling us that the market and debt investors do not believe the plan will work in its current form. And little wonder, it is now just days later and Greece’s government has fallen, Italy‘s Berlusconi is under siege and the much hoped-for support from outsiders like China has failed to materialize.

Europe’s three simple problems

Nov 3, 2011 15:40 UTC

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

The plan to rescue the euro zone faces only three hurdles; democracy, reality, and supply and demand.If they can overcome those, it is going to work perfectly, and, amazingly, they just might.

Democracy reared its rather large head when the Greek government decided suddenly that it wanted a sign-off from its voters and moved to put the plan to a plebiscite.

While it is hard to argue with the idea of a people getting a chance to vote directly on a plan that will mean tough times for the better part of the next decade, the move jeopardizes not only the confidence on which the entire rescue relies but also the next infusion of much-needed cash Greece is slated to get in November.

Going for crazy broke

Nov 1, 2011 19:54 UTC

Why aren’t Americans still saving?

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

A look at the fall in the U.S. savings rate raises one crucial question: are Americans crazy, or just broke?

The answer may hold the key for whether the country is headed for another recession or a policy-engineered recovery.

The personal savings rate fell in September to 3.6 percent, the lowest since December 2007. Given that household balance sheets are still under stress from tumbling housing prices — and tiny rates of savings for much of the last decade — this makes little sense as a strategy.

Tough times for momentum investing

Oct 27, 2011 21:08 UTC

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

It has been a tough few weeks for momentum investors.

One time darlings like Amazon, Netflix and Green Mountain Coffee Roasters have taken serious tumbles, dealing losses.

Meanwhile, the financial industry, the sector which arguably hasn’t produced positive returns since the 1980s, are on a bit of a tear, bolstered by the latest European rescue and some reassuring U.S. economic data.

There are several intriguing reasons to believe that momentum investing has seen its best days. Momentum investing, beloved by day traders and some hedge funds, is the strategy of riding hot stocks higher while selling laggards.

Treating debt wounds with Band-Aids

Oct 25, 2011 20:46 UTC

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

A new U.S. plan to aid underwater homeowners once again tries to treat a debt-inflicted wound with a cash flow Band-Aid.

Under changes to the Home Affordable Refinance Program (HARP) the Obama administration will shortly allow current borrowers whose home loans are backed by Fannie Mae or Freddie Mac to refinance to lower rates, even if they owe more than 125 percent of what their house is worth.

HARP covers borrowers who are not behind in their payments but who would otherwise be unable to refinance into a lower mortgage interest rate.

Time ripe for a new nifty fifty

Oct 20, 2011 21:31 UTC

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

Tough times make dependable excellence even more valuable, which is why we just might see the rise of a new “Nifty Fifty” of elite shares.

During their heydey in the 1960s and early 1970s the Nifty Fifty were a group of U.S. large cap companies which managed a spectacular period of outperformance during a generally downbeat and low growth period.

Featuring such household names as IBM , Coca-Cola , Procter & Gamble and Disney , the Nifty Fifty delivered strong and dependable earnings and dividend growth during a period where those were in short supply.

Europe’s coming credit austerity

Oct 18, 2011 20:48 UTC

By Jim Saft
James Saft is a Reuters columnist. The opinions expressed are his own.

Having demonstrated how poorly austerity worked in Greece, Europe may be on the verge of giving it a try in credit markets.

Plans to rescue the euro zone and its banks might land Europe in an extended credit crunch, a very poor outcome given the continent’s continued heavy reliance on bank financing.

China’s great divergence

Oct 13, 2011 18:15 UTC

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

China may be about to teach the world another lesson about what happens when speculative money learns that its favored markets aren’t panning out.

In the U.S. in 2007 the subprime bubble collapsed into a still-smoldering heap when borrowers and speculators realized that real estate was topping out.

In China speculative investments including so-called “private lending” don’t promise an exact repeat but have enough elements in common to make the two situations rhyme.