James Saft

By James Saft

(Reuters) – In a world of low structural investment returns retirees need to reconsider the assumption that they can draw down 4 percent a year of their savings.

Known as the 4 percent rule, this popular guideline is running smack into what looks to be an extended period of low returns in stocks and bonds.

Obviously, this is important not just for retirees, who may have little choice but to cut back on consumption, but for savers too, who will need to save more or work longer to safely meet their targets. It equally applies to foundations and endowments, which struggle with how much they can fund and still keep contributing in perpetuity.

For all investors, a low-return world is one in which high fees are especially damaging.

Popularized by financial advisor William Bengen, who did the original research behind the idea in the 1990s, the 4 percent rule holds that an investor who wants her retirement assets to last for 30 years should draw down 4 percent of the principal in the first year, increasing drawdowns annually by inflation.

Feb 7 (Reuters) – In a world of low structural investment
returns retirees need to reconsider the assumption that they can
draw down 4 percent a year of their savings.

Known as the 4 percent rule, this popular guideline is
running smack into what looks to be an extended period of low
returns in stocks and bonds.

Obviously, this is important not just for retirees, who may
have little choice but to cut back on consumption, but for
savers too, who will need to save more or work longer to safely
meet their targets. It equally applies to foundations and
endowments, which struggle with how much they can fund and still
keep contributing in perpetuity.

Feb 6 (Reuters) – The music is playing again and the
pressure for investors to get out on the dance floor is, like in
2007, intense.

By most measures financial conditions are as easy, as
relaxed, as at any time since the summer of 2007, meaning that
markets and investors simply aren’t demanding that much
compensation for taking on risk.

That does not in and of itself mean that a rout is coming,
nor does it mean that the rally can’t continue, but it does
imply we should be very cautious about the returns we’ll get
from here.

Feb 5 (Reuters) – The Netherlands’ nationalization of bank
SNS Reaal underlines the euro zone’s weak spots while
illustrating the dangers of its plans to address them.

In wiping out SNS shareholders and some bond holders the
Dutch government is trying to do the right thing, can’t quite
bring itself to go that far, and may end up paying the price
anyway.

The Netherlands last week seized control of SNS, its
fourth-largest financial services firm, in a $14 billion rescue,
employing powers granted it under a new law passed last year.
While senior bondholders and depositors were sheltered, the
stakes of equity holders and subordinated bondholders were
effectively expropriated.

Jan 31 (Reuters) – It looks like the central bankers are
winning: cash is being put back to work.

Equities are having, by some measures, their best January in
more than a decade. Signs point to cash coming off of the
sidelines as an important supporting factor. Global stocks are
up almost 5 percent for the month and the Standard & Poor’s 500
Index is on track for its best January since 1997.

Meanwhile, flows of money into equity funds and ETFs have
been strong, while cash has drained out of major banks and money
market accounts.

Jan 30 (Reuters) – A bank-led credit crunch, a newly strong
euro and the shrinking of the European Central Bank’s balance
sheet are tightening conditions in the euro zone at just the
wrong time.

This should heighten pressure on the ECB to cut rates or
take other measures when it meets next week. Just don’t count on
the central bank doing much.

A confluence of forces, some positive, are combining to
effectively tighten financial conditions in the euro zone, even
as the continent struggles with unemployment and recession.

By James Saft

(Reuters) – The after-effects of the Great Crisis may still be with us, but the great correlation in global financial markets may be coming to an end.

After years of seemingly disparate markets all going up or down in concert, recent weeks have shown signs of assets actually trading on their own merits. If sustained, this would be an important sign not just of a return to normality in financial markets, but that investors see a more stable world.

Then again, it might be a giant head-fake.

Sometimes called “risk-on, risk-off”, or Ro-Ro, this has been the dominant trade since the financial crisis broke, with commodities, stocks and especially currencies moving very tightly together in predictable ways, mostly driven by major economic news and global events.

By James Saft

(Reuters) – The problem, investors, lies not in Apple but in ourselves.

Apple’s disappointing earnings report and its subsequent 10 percent-plus stock market fall on Thursday are a timely reminder that there are a lot of idiots out there.

The issue – and your source of risk as an investor – isn’t just Apple, but rather the panting hoard of trend following investors who drove its stock price so far above a reasonable valuation.

Apple is a great company making great products, and has an outstanding record of creating new markets. It enjoys margins closer to those of a software company than a consumer giant, has more than $130 billion in cash and a historically unique franchise, one it has been able to expand time and again.

Jan 23 (Reuters) – You might want to learn to stop worrying
and love currency wars, which are here to stay and, for
investors, might not be all that bad.

A host of central bankers and policy makers have been
talking currencies in recent days, generally about how their own
should be weaker and other peoples’ should be strong.

This is a natural result of the interaction of growth being
scarce and of aggressive monetary easing in many leading
economies. Everyone wants to capture what growth there is, and
those who ease monetary conditions through asset purchases get
the benefit of weaker currencies which make their exports more
competitive.

By James Saft

(Reuters) – Allegations that Timothy Geithner, then head of the New York Federal Reserve, may have told banks ahead of time about a surprise policy move in 2007 underscores the pressing case for reform to safeguard the integrity and independence of the central bank.

Specifically Congress needs to act to make the lines between the banking industry and the governance of the regional Federal Reserve banks cleaner, guarding against a “we are all boys in this together” attitude and ensuring a diversity of views from outside the financial services industry.

As revealed in transcripts released last week of Fed meetings from 2007, Richmond Fed President Jeffrey Lacker said Geithner, now the outgoing Secretary of the Treasury, discussed with banks an upcoming change in the discount rate, a move which proved highly price sensitive when it was publicly announced.