Opinion

James Saft

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.

And while Germany did surprisingly well, growing by 0.8
percent in the quarter, the data elsewhere was far less good.
Growth in France was at a standstill, while in Italy it
contracted by 0.1 percent and the Netherlands’ shrank by 1.4
percent. Inflation in April was at 0.7 percent with large
swaths of the euro zone in or near outright deflation.

No surprise then that what has been a source of calm – the
fact that borrowing markets are ticking over nicely for euro
area sovereigns – is now looking like a warning sign. German
10-year yields were as low as 1.37 percent on Thursday, while
even Italy can now borrow for 10 years at just over 3 percent.
Euro zone bonds are telling you that yes, as the European
Central Bank essentially promises, you will get your money back,
but don’t hope for too much economic growth or inflation to go
along with it.

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
banking.

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
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:

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