James Saft

Economics and politics align for ECB: James Saft

May 27, 2014 12:13 UTC

By James Saft

(Reuters) – If there is anything more sobering for a central banker than failing to meet the bank’s mandates, as the European Central Bank arguably has, it is having one’s very legitimacy challenged.

The recent round of European Parliament elections were, if not a disaster for supporters of the euro project, resounding notice that many voters are deeply unhappy and suffering economically, with eurosceptic parties more than doubling their seats.

And given that an ECB-engineered weaker euro would help to shelter hard-hit euro zone workers and bring inflation closer to the bank’s 2 percent target, that is exactly what we should expect.

How to interpret the vote? At the very least a substantial minority of EU voters are dubious of the sort of closer integration which is needed to prevent another crisis. And at the margin there is a small, but growing, rump of voters who seem to have had enough of the project entirely. In short, the ECB’s constituency includes many who feel they’d be better off with a different euro, a different currency altogether, or a differently constituted central bank.

To be sure, mainstream pro-European parties will still hold nearly 70 percent of parliament seats, and the results in Italy, where Prime Minister Matteo Renzi’s centre-left Democratic Party scored a strong win, are somewhat reassuring.

Whacking the economy with a wrench: James Saft

May 22, 2014 20:34 UTC

May 22 (Reuters) – Did you ever get to the point when trying
unsuccessfully to fix something you just start whacking it with
a wrench?

I am getting the feeling that the Federal Reserve is
approaching that point with the economy.

Fed officials have recently outlined some unconventional
policy options that may indicate desperation, bravado or even,
perhaps, a backward kind of genius.

Sidelined Fed a boon for emerging markets

May 21, 2014 20:20 UTC

May 21 (Reuters) – U.S. interest rates are staying low for
quite some time, a backdrop which should, all else equal, favor
emerging markets.

Remember the taper tantrum last year, when fragile emerging
market countries took huge hits as investors moved to tighten
liquidity ahead of an anticipated Fed cutback on bond buying?
Well that’s all in the past and, particularly in the past week,
the noises from within and around the Federal Reserve are
painting a newly dovish picture.

That’s significant for all markets but it is an
unadulterated bonus for emerging markets, particularly those
which need to attract capital and are therefore highly sensitive
to its global cost and availability.

Modi mania and activism show growth premium: James Saft

May 20, 2014 04:04 UTC

By James Saft

(Reuters) – Investor enthusiasm for new Indian Prime Minister-to-be Narendra Modi and for activist investment may spring from a common underlying cause: the reality of lower, less explosive growth.

India handed Modi and his Bharatiya Janata Party (BJP) a thumping victory in elections last week, setting off an equally explosive rally in shares, which jumped as much as 6 percent on the day of voting.

On the surface India’s rally, essentially a bet that Modi’s pro-business and development policies will succeed, seems very different from the joy with which investors have taken to greeting news that an activist investor has taken a stake in a company and is banging the table for change.

Europe, U.S. show similar profiles: James Saft

May 15, 2014 20:16 UTC

May 15 (Reuters) – Very poor European growth figures add a
hint of concern about a cyclical downturn to enliven the ongoing
worries about a structural malaise.

What is particularly striking is the way in which the euro
zone and the U.S., though operating in vastly different
conditions, are both exhibiting some common traits: very poor
economic growth, very low inflation and a bond market which is
predicting more of the same.

The news from Europe on Thursday was disappointing, with
euro area GDP advancing only 0.2 percent in the first quarter.
Most of that paltry growth seems to have come from a buildup in
inventories rather than an expansion in actual final demand.

Xi’s new normal with Chinese characteristics: James Saft

May 13, 2014 04:01 UTC

May 13 (Reuters) – The world needs to get ready for a new
normal with Chinese characteristics.

Reacting to yet more evidence that China’s growth is
moderating quickly, President Xi Jinping this weekend more or
less told us to get used to it.

“We must boost our confidence, adapt to the new normal
condition based on the characteristics of China’s economic
growth in the current phase and stay cool-minded,” Xi was quoted
as saying by Xinhua news agency.

Was Barclays the problem, or was it the business model?: James Saft

May 8, 2014 21:21 UTC

May 8 (Reuters) – When the world applauds your obituary, as
it has the death of Barclays Plc’s global ambitions, it seems
you have been doing something wrong.

Barclays’ shares rallied 7.69 percent on Thursday
after the bank announced a sweeping restructuring, the central
planks of which are the creation of a bad bank to house impaired
assets and, more importantly, huge cut-backs in investment

It all amounts to an end for Barclays’ long-time goal to be
a global universal bank, a project fertilized by the ashes of
Lehman Brothers but ultimately undone by inadequate profits.

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.

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

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.