Opinion

James Saft

Fed may wait, you shouldn’t: James Saft

Dec 17, 2013 05:01 UTC

Dec 17 (Reuters) – The Federal Reserve probably won’t taper
when it meets this week, though maybe it should.

Financial markets definitely ought to sell off no matter
what the Fed does, but almost certainly they won’t.

The Federal Reserve will announce its interest rate policy
on Wednesday, after which Ben Bernanke will get a chance to
explain why, or why not, they choose to reduce bond purchases.
While less than a fifth of economists polled by Reuters expect
the Fed to taper in December, a recent run of encouraging data
has driven that figure up four-fold in just one month.

By Bernanke’s own three-part test – jobs, economic growth
and inflation – things are not that bad. Employers took on
203,000 extra workers in November, in what is looking like a
trend, and unemployment fell to 7 percent. Manufacturing looks
to be reviving, budget negotiations are less toxic and the
global backdrop is supportive. Only inflation – at 0.7 percent
in October – remains stubbornly below-target.

Indeed from a risk management standpoint, continued bond
buying may carry more potential risks than putative benefits.
On the positive side, quantitative easing had made financing
cheaper, supporting the prices of everything from houses to cars
to art to stocks and bonds. That has helped to repair household
finances, at least for those lucky enough to have wealth and
borrowings in the first place.

Hot U.S. housing markets turning cold -James Saft

Dec 12, 2013 20:03 UTC

Dec 12 (Reuters) – After rapid gains, some of the hottest
housing markets in the United States look like they are starting
to roll over.

Whether this is a reaction to the run-up in mortgage
interest rates in recent months or represents a waning bid from
the all-cash financial investors who have so often been marginal
buyers is unclear. Either way, volatility in house prices may
now prove to be a feature of the system rather than a bug.

In Phoenix, where house prices have risen more than 40
percent in less than two years, pending sales fell 32 percent in
October, while the number of months (at current sales rates) of
supply is up 111 percent from May.

A taper won’t come cheaply

Dec 11, 2013 21:02 UTC

Dec 11 (Reuters) – Better economic data has pushed a
tapering of bond buying by the Federal Reserve higher up the
agenda – even as early as next week. A taper may come, but it
won’t come cheaply.

Risky assets (that means you, equities) will be in the
firing line.

Last week’s jobs data were encouraging, as are surveys of
manufacturers, making sagging inflation the chief argument for
delay.

“The Federal Reserve wants to taper. Wants very badly to
taper, in my opinion,” writes Fed watcher and University of
Oregon economist Tim Duy. (here)

Un-funny jokes about credit

Dec 10, 2013 13:06 UTC

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

By James Saft

(Reuters) – What happens when credit conditions are far too loose, the banking system is fragile and interest rates start to rise?

Yes, I know you have heard this joke before, and yes, I know it is not funny.

The Bank for International Settlement’s quarterly review of financial conditions is an exercise in nightmarish déjà vu: familiar to those who watched the last crisis but just different enough to be plausible. (here)

Not only are credit markets so loose that comparison with pre-Lehman Brothers days are fair, but this is happening within a context in which investors, on the whole, don’t really have faith in the strength of banks.

Un-funny jokes about credit: James Saft

Dec 10, 2013 05:01 UTC

Dec 10 (Reuters) – What happens when credit conditions are
far too loose, the banking system is fragile and interest rates
start to rise?

Yes, I know you have heard this joke before, and yes, I know
it is not funny.

The Bank for International Settlement’s quarterly review of
financial conditions is an exercise in nightmarish deja vu:
familiar to those who watched the last crisis but just different
enough to be plausible. ()

Not only are credit markets so loose that comparison with
pre-Lehman Brothers days are fair, but this is happening within
a context in which investors, on the whole, don’t really have
faith in the strength of banks.

Much at stake for EM on jobs Friday: James Saft

Dec 5, 2013 20:58 UTC

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

By James Saft

(Reuters) – Emerging markets will have a great deal at stake when Friday’s U.S. jobs figures are announced.

If the data is good and a Federal Reserve taper seems more likely, emerging markets will fall, hard, while if hiring was disappointing we can count on an outsized rally.

In part, this is for no more complicated a reason than emerging markets are at the riskier end of the investment spectrum. Bond buying works by exchanging cash for ‘safe’ assets and forcing a new investment decision with lower returns for safety. That is intended to prompt risk-taking and the riskier an investment the more, proportionally, it benefits.

Individual bonds are an investment, not an Ark

Dec 4, 2013 20:49 UTC

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

By James Saft

(Reuters) – Some day, perhaps soon, interest rates are going to start to go up decisively.

And on that day, when it comes, some investment advisors are going to stroke their chins and spout nonsense to the effect that you are better off in individual bonds rather than bond funds.

This fallacy, maybe one of the oldest and hardest investment misconceptions to stamp out, hinges on the idea that owners of bonds are not forced to take losses because they can hold their securities to maturity.

Amazon, drones and low returns: James Saft

Dec 3, 2013 05:01 UTC

Dec 3 (Reuters) – Jeff Bezos’ plan to deliver Amazon.com
packages by drone isn’t just an idea which skirts the line
between satire and reality.

It is also a neat little illustration of how technological
innovation may be lowering overall investment returns.

The online retailer is testing delivery by unmanned flying
vehicle, Bezos, Amazon.com founder and CEO, told CBS TV
show 60 Minutes on Sunday. Drones, heretofore best known for
their military uses, could be useful for packages up to 5 lbs in
weight, a segment which comprises 86 percent of Amazon.com
deliveries, he said. ()

Slow growth and the knowledge economy: James Saft

Nov 26, 2013 20:00 UTC

Nov 26 (Reuters) – Corporate cash hoarding may simply be an
unintended consequence of the rise and rise of the knowledge
economy.

If true, this may help to explain not only why companies see
fit to pile up mountains of cash, but also why the recovery and
job growth are so weak.

A study published by the Federal Reserve in September tied
the growth of cash on corporate balance sheets to the rise of
so-called intangible capital, things like intellectual property
or the processes and experience that allow a company to deliver
a good or service.

Taper on tap, sweeteners at ready

Nov 21, 2013 21:34 UTC

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

By James Saft

(Reuters) – If you want to know what Janet Yellen will do as Fed chair, ignore her congressional testimony and watch Ben Bernanke’s lips.

Yellen, approved Thursday by the Senate Banking Committee, will get the job, but the real action is in speeches by Bernanke, who is less inhibited as he is on the way out, and in the Fed minutes, released Wednesday.

Here is how it is going to go: The Fed will taper, probably early next year, and will try to grease the skids by offering some kind of forward guidance to ease the pain. A bit of fiddling with the interest rate paid by the Fed to banks on reserves is possible too, but a lot less likely.

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