James Saft

March 14 (Reuters) – The gusher of new money that has fed
the growth of the global asset management industry for a
generation has slowed to a trickle, making the next few years
make-or-break for many firms.

Growth in new money flows will slow to less than 1 percent
annually for each of the next five years, according to a study
by industry consultants Casey Quirk, as against 6 or 7 percent
in the good old days before the crisis.

That is sure to put pressure on many existing firms, many of
which owe their institutional framework to a time when a simple
focus on traditional products aimed at baby boomer savers was
enough to ensure success.

“In as soon as ve years, league tables of industry leaders
already will look different,” Kevin Quirk and Benjamin Phillips
of Casey Quirk wrote in a February industry study ().

“Most large rms today, saddled with the costs of serving
slower-growing legacy client segments and unable to redirect
resources toward newer, better opportunities, will struggle to
maintain their historical growth trajectories.”

March 13 (Reuters) – The 27-year-olds making the mistakes
change but the flaws in the incentives and risk models at the
heart of the global financial system remain basically unchanged.

Calling them ‘mistakes’ is charitable, as they are actually
systematic and predictable exploitation of loopholes by
employees without sufficient skin in the very risky game they
are playing.

Here is the game, as it was played in 2008 and as it is
being played now: work for a financial firm, sell insurance
against an event the probability of which, while rare, is
underestimated by your firms’ models. Sit back, collect the
premiums, appear to be “beating the market”, and be paid
accordingly. If the rare event does happen, and it likely will
before your firm has been fully compensated, off you go with
your pay, leaving investors and regulators to clean up the mess.

By James Saft

(Reuters) – Equity markets, especially in the U.S., are being held aloft by two historical anomalies – quantitative easing and high corporate profits – either of which could start to go away in 2013.

Friday’s surprisingly good update on the state of the U.S. job market raised the chances that soon the Federal Reserve will be more actively – and publicly – mulling how and when it will slow or end its purchases of assets.

At the same time, U.S. corporate profits are at vertiginous levels and climbing, arguing at the very least for caution about their future path.

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

By James Saft

(Reuters) – Now that it is official that the U.S. Justice Department pulls its punches when it comes to prosecuting the largest banks, it is time for investors to understand why they, too, are the losers.

Attorney General Eric Holder came right out this week and told the Senate Judiciary Committee what many observers have long suspected – that his department has refrained from more aggressive criminal prosecutions of the so-called too-big-to-fail banks, exactly because of their special status.

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that … if we do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder said on Tuesday. “I think that is a function of the fact that some of these institutions have become too large.”

March 6 (Reuters) – The remarkable thing about the Dow Jones
Industrial Average’s new all-time record is how few people give
a damn.

There are good reasons for this – the Dow is the doddering
uncle of stock market indicators and it, along with the rest of
the stock market, is being held aloft by the magic fingers of
Federal Reserve policy.

More importantly, there are important consequences of the
record’s lack of consequence: with no feel-good factor people
won’t be piling into stocks like the lemmings they usually are,
nor will they be as likely to go out and spend the (paper)
gains.

By James Saft

(Reuters) – What can’t go on forever may be starting to stop in China.

China on Monday unveiled steps to curb runaway housing price inflation, including measures to make speculation less profitable and loans more expensive.

That sent stock markets down around the world but may prove less significant than new controls, reported in the Financial Times, which may be in the works to limit shadow banking, the taking of deposits and lending of money outside regulated channels.

Feb 28 (Reuters) – Don’t hold your breath waiting for that
Great Rotation out of global bonds and into stocks. Even so, go
into stocks anyway if you are big enough and tough enough to
survive the inevitable volatility.

The idea that investors will soon start to move much of the
cash they’ve plunged into very low-yielding but safe government
bonds into stocks is intuitively appealing. After all rates have
to rise some time and the 30-year-plus bond bull market is
looking long in the tooth. It also makes intuitive sense given
the likelihood of lousy inflation-adjusted returns, even losses,
in bonds.

The only problem is the world is brimming with old people,
rickety banks and foreign central banks, all of whom want and
need safe assets almost without regard to the price.

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

By James Saft

(Reuters) – In case you were wondering, Jamie Dimon has thoughtfully explained why he’s richer than you and all the analysts covering J.P Morgan.

It isn’t, as I thought, our inability to pick lottery numbers.

Hint: it is because he is chairman and CEO of a bank.

Actually, that’s not entirely fair. Dimon is richer than we because he runs a bank and understands the relationships between capital levels, regulation, profits and human nature.

At a J.P. Morgan investor event this week Mike Mayo, an analyst at CLSA, who has been a critic of large banks and, at times, Dimon, asked if J.P. Morgan wasn’t at a competitive disadvantage compared to more highly capitalized peers. (Here is a playback via Business Insider: here)

By James Saft

(Reuters) – For all the dysfunction in Washington we could, it seems, be in the midst of an historic and potentially extended bull run for the U.S. dollar.

The dollar is up a bit less than 4.0 percent over a year against a trade-weighted currency basket, in substantial part because of economic weakness, fragility and radical policy in places like Japan, Europe and Britain.

It is remarkable that we should be entertaining the idea of an extended dollar bull run on the eve of “sequestration”, a program of mandatory federal budget cuts that highlights both U.S. fiscal and political weakness.

Feb 20 (Reuters) – The Federal Reserve minutes show real
concern and debate over how big its balance sheet can grow and
for how long it can stay that way.

You should share that concern, because a Fed which is buying
fewer bonds, or even, heaven forfend, selling some, is a central
bank creating, once again, the needed conditions for deflating
the bubbles they just blew.

“Several” members of the Federal Open Market Committee
argued that they should be prepared to vary the amount of bond
purchases, now $85 billion per month. “A number,” a form of
words meaning less than “several,” said the costs and risks of
asset buys might indicate that the Fed should taper or end them
before it has reached its avowed employment goal.