James Saft

April 11 (Reuters) – There are a bunch of kids out there
trading on inside information, and you, me and the rest of the
economy are paying the price.

A study of trading patterns in Finland shows a highly
suspicious pattern of activity in accounts held on behalf of
juveniles.

In reality, it is probably not the kids themselves who are
playing at being junior insider traders, but instead it is their
guardians who are likely using juvenile accounts as a safer way
to profit from non-public knowledge.

What’s worse, the data also demonstrates how the market
detects which companies’ stocks are most plagued by “informed
investing” and then imposes a penalty which effectively reduces
both investor returns and overall economic growth.

KID TRADERS

Using data on a half a million accounts from Finland from
1995 to 2010, the study came to a surprising conclusion:
accounts set up to benefit kids 10 years and under did really
well at stock picking, and did especially well just before
mergers, earnings releases and events that generate big stock
moves.

By James Saft

(Reuters) – The record-breaking rise of the stock market is in part a function of the lousy jobs picture, which ensures an ongoing prescription refill of Federal Reserve medicine.

The S&P 500 index hit a record high on Wednesday, rising more than 1 percent to as much as 1588. Since data showed on Friday that the economy added just 88,000 jobs in March, the S&P has added a cool 2.3 percent. And while the jobless rate fell to 7.6 percent this was largely thanks to almost 500,000 people falling out of the workforce, taking the labor force participation rate to its lowest since 1978.

This state of play isn’t indefinitely sustainable, but there is absolutely no contradiction between a spluttering economy and a levitating stock market.

April 10 (Reuters) – The record-breaking rise of the stock
market is in part a function of the lousy jobs picture, which
ensures an ongoing prescription refill of Federal Reserve
medicine.

The S&P 500 index hit a record high on Wednesday, rising
more than 1 percent to as much as 1588. Since data showed on
Friday that the economy added just 88,000 jobs in March, the S&P
has added a cool 2.3 percent. And while the jobless rate fell
to 7.6 percent this was largely thanks to almost 500,000 people
falling out of the workforce, taking the labor force
participation rate to its lowest since 1978.

This state of play isn’t indefinitely sustainable, but there
is absolutely no contradiction between a spluttering economy and
a levitating stock market.

By James Saft

(Reuters) – The Bank of Japan’s massive new bid for inflation will create growth but to its chagrin much of it may well be concentrated in financial markets and outside of Japan.

So long as Japanese consumers remained convinced that the new program will bring more inflation in what they buy rather than in what they earn, much of the benefit will be felt in Europe, the U.S. and the other economies into which the newly minted money will actually leak.

The BOJ last week vowed to spend $1.4 trillion in less than two years buying up bonds and assets in a bid to hit its avowed 2.0 percent inflation goal. The central bank will create money and wade into markets, vacuuming up Japanese government debt and other assets while targeting the amount of money in the economy rather than the rate of interest at which it will make loans.

NEW YORK (Reuters) – For a business whose main products fetch record prices, the financial services industry sure is firing a lot of people.

That combination may illustrate why finance is a sector you want to own, very possibly for the long haul.

Financial conditions are bank friendly; The stock market is at or near all-time records and demand for risky bonds is high. At the same time, announced layoffs in the financial sector are up 37 percent in the first quarter compared to a year ago, according to consulting firm Challenger, Grey & Christmas.

April 3 (Reuters) – Whether out of necessity, mistrust or
simply the feel-good factor of soaring asset markets, Americans
appear to be cutting back once again on saving.

The personal savings rate stood at just 2.6 percent in
February, down nearly one percentage point from the year before,
according to the most recent data. Taken with January’s 2.2
percent rate, this makes the first time since 2007 we’ve had two
months in a row below the 3 percent mark.

If low savings are driven by confidence, either in the
bounty of the stock market or the opportunities in the job
market, then the savings rate may stay low but interest rates
may soon need to rise. If, on the other hand, low savings are
being driven by a lack of faith in markets or institutions or
even by a simple lack of capacity, then we may well be looking
at an extended period of low rates and lousy growth.

By James Saft

(Reuters) – Whether out of necessity, mistrust or simply the feel-good factor of soaring asset markets, Americans appear to be cutting back once again on saving.

The personal savings rate stood at just 2.6 percent in February, down nearly one percentage point from the year before, according to the most recent data. Taken with January’s 2.2 percent rate, this makes the first time since 2007 we’ve had two months in a row below the 3 percent mark.

If low savings are driven by confidence, either in the bounty of the stock market or the opportunities in the job market, then the savings rate may stay low but interest rates may soon need to rise. If, on the other hand, low savings are being driven by a lack of faith in markets or institutions or even by a simple lack of capacity, then we may well be looking at an extended period of low rates and lousy growth.

April 2 (Reuters) – Just as Mario Draghi’s pledge to “do
whatever it takes” to preserve the euro is being challenged, the
very same unqualified promise, this time to simply stop prices
falling, is about to be put into action in Japan.

In both cases within months we may well discover if it is
the promises or the problems which are without limits.

In Japan, newly appointed Bank of Japan Governor Haruhiko
Kuroda will on Wednesday convene a two-day policy meeting, his
first after assuming office and pledging to do – again those
words – “whatever it takes” to end years of deflation.

By James Saft

(Reuters) – Just as Mario Draghi’s pledge to “do whatever it takes” to preserve the euro is being challenged, the very same unqualified promise, this time to simply stop prices falling, is about to be put into action in Japan.

In both cases within months we may well discover if it is the promises or the problems which are without limits.

In Japan, newly appointed Bank of Japan Governor Haruhiko Kuroda will on Wednesday convene a two-day policy meeting, his first after assuming office and pledging to do – again those words – “whatever it takes” to end years of deflation.

By James Saft

(Reuters) – One clear winner from Cyprus’S imposition of capital controls is the U.S. dollar, which stands to benefit from public and private flows after another round of damage to the euro’s reserve currency status.

The euro fell to its lowest against the U.S. dollar in four months on Wednesday, falling below $1.28 after Cyprus moved to limit the flow of money out of the country in the aftermath of a bank bailout which singed foreign bank lenders and depositors alike. The dollar was just below its 52 week high against a trade-weighted basket of currencies, indicating that its strength was broad-based.

Following a bailout package that includes a substantial hit to uninsured deposits, many of them Russian, Cyprus imposed a limit of 300 euros per day on account withdrawals and set a limit of 5000 euros per month on credit and debit cards used abroad.