Opinion

James Saft

Suddenly, dividends matter again

May 7, 2014 19:43 UTC

By James Saft

(Reuters) – What we are witnessing isn’t simply a tumble in high-flying momentum stocks but a rush back into what passes these days for high yields.

While the sometimes stomach-turning falls in stocks like Twitter – down 23 percent this week – get much of the attention, to understand what is actually happening you ought to pay attention to far more boring names like Procter & Gamble, which carries a healthy yield and has outperformed in recent weeks.

This may imply not simply a sudden caution towards unproven business models and high valuations, but perhaps a wider set of concerns about the economy.

While the average stock in the Russell 1000 index is down 2.02 percent since March 5 there is a huge gap between the 300 shares in the index which pay no dividend and the 300 highest yielding, according to Bespoke Investment Group. The momentum shares, for want of a better term, are down more than 7 percent while the high-yielders are up a bit more than 2 percent.

According to Societe Generale data, the single most important characteristic driving equity returns in the past month has been dividend yields. High-dividend stocks in the UK, for example, have outperformed low-dividend ones so far this year by the most on record outside of a bear market.

Take a pass on TBTF crapshoot: James Saft

Apr 29, 2014 04:01 UTC

April 29 (Reuters) – Bank of America has given
investors one more datapoint suggesting that our biggest banks
aren’t just too big to fail but too big to manage and too big to
invest in.

Bank of America, acting under orders from the Fed, suspended
its share buyback plan and a planned increase in its dividend
after revealing that an error in basic math had caused the bank
to overstate its regulatory capital position.

After considering Bank of America’s own sorry history both
as an investment and a regulated entity, and that of its largest
peers, you have to conclude that owning these banks is a total
crapshoot.

Real estate weakness drives China rebalancing

Apr 25, 2014 16:00 UTC

April 25 (Reuters) – China’s economy is rebalancing.
Unfortunately it is changing a lot like the U.S.’s did in 2006
and 2007, with a sudden slowdown in real estate.

That was perhaps inevitable, but raises some familiar risks
- a chain reaction of real estate losses, debt defaults and a
sudden slowdown in growth.

The costs for the rest of the world could be high,
particularly in places like Brazil and Australia which have
prospered by feeding China’s formerly insatiable appetite for
raw materials.

International diversification is rising, but still slow

Apr 23, 2014 20:21 UTC

April 23 (Reuters) – U.S. retirement savers are increasingly
diversifying into international equities, but are still leaving
much of what has to be considered a free lunch on the table.

A new study of 3.8 million U.S. savers in 401(K) retirement
accounts over the 2006-2011 period shows a general trend towards
better diversification internationally, but with most accounts
still significantly under-diversified.

And yet, given the diminishing share of U.S. companies in
global equity capitalization, they are, as a group, far less
diversified than they ought to be.

U.S. labor force dropouts want back in: Saft

Apr 22, 2014 05:04 UTC

By James Saft

(Reuters) – An army of U.S. labor force dropouts stands ready to get back in the game when conditions improve, implying wages, prices and interest rates will stay lower for longer.

Rather than being the result of demographics or choice, the rise in the number of people who are not actively looking for work is in substantial part the result of low demand for labor, according to a new study by David Blanchflower and Adam Posen, both of whom are former members of the Bank of England’s rate-setting Monetary Policy Committee.

“A substantial portion of those American workers who became inactive should not be treated as gone forever, but should be expected to spring back into the labor market if demand rises to create jobs,” Blanchflower, of Dartmouth College, and Posen, of the Peterson Institute for International Economics write. ( here )

U.S. labor force dropouts want back in

Apr 22, 2014 05:00 UTC

April 21 (Reuters) – An army of U.S. labor force dropouts
stands ready to get back in the game when conditions improve,
implying wages, prices and interest rates will stay lower for
longer.

Rather than being the result of demographics or choice, the
rise in the number of people who are not actively looking for
work is in substantial part the result of low demand for labor,
according to a new study by David Blanchflower and Adam Posen,
both of whom are former members of the Bank of England’s
rate-setting Monetary Policy Committee.

“A substantial portion of those American workers who became
inactive should not be treated as gone forever, but should be
expected to spring back into the labor market if demand rises to
create jobs,” Blanchflower, of Dartmouth College, and Posen, of
the Peterson Institute for International Economics write. ( here
)

Career risk makes the world go round: James Saft

Apr 17, 2014 20:14 UTC

By James Saft

(Reuters) – Fund and pension investors who are watching their biotech and social media stakes melt before their eyes may well feel they’ve had their pockets picked by self-serving investment managers.

But actually they are also helping to fund, if only as an unintended side-effect, useful innovation which might not otherwise happen.

The lesson here: career risk makes the world go round.

William Janeway, economist and venture capital veteran, put it well at the Institute for New Economic Thinking conference last week:

Utilities flashing red

Apr 16, 2014 21:25 UTC

NEW YORK, April 16 (Reuters) – Utility share prices, a
reliable leading indicator of stock market ructions, are
flashing red.

Utilities have been particularly strong, especially relative
to the broader market, a set up which has historically been a
flag for relatively weak stock markets and high volatility.

The Dow Jones Utilities Index is up nearly 13 percent
this year, compared to a fall of nearly 4.0 percent in the
broader market. The divergence has been especially striking
since early March, since when utilities have outperformed by
nearly 12 percentage points.

Tech downdraft may spread: James Saft

Apr 15, 2014 12:01 UTC

By James Saft

(Reuters) – Calling the stock market downdraft a correction contained to technology may be both optimistic and premature.

With Federal Reserve aid to the stock market ebbing, and margin debt at all-time highs, what started with the most expensive stocks could easily do much damage to more conservative investments.

Last week was the worst for the tech-heavy Nasdaq index since June 2012, and though all major U.S. indices finished the week lower the most striking losses were among shares which had enjoyed very strong upward momentum. Twitter is down more than 40 percent from its high this year, while Netflix is off 27 percent and Facebook nearly 20 percent. Overall social media stocks, which rose 65 percent last year, are down 15 percent so far this year.

Words, charts, numbers all fail Fed: James Saft

Apr 10, 2014 20:18 UTC

April 10 (Reuters) – Since neither words, nor charts nor
numbers seem capable of expressing when the Fed will raise
interest rates, perhaps they need to adopt some new kind of
symbol.

What’s the symbol for “The first day of never”?

Didn’t Prince already use that?

Seriously, the Federal Reserve seems most comfortable with
that which expresses the least specific meaning.

We learned Wednesday from the minutes of the most recent
FOMC meeting that there was much concern that we not actually
believe the dot scatter charts the Fed goes to the trouble of
making which indicate their individual projections of the future
path of interest rates.

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