Opinion

James Saft

Investors should “Viva!” the revolutions

Feb 22, 2011 13:12 UTC

Rather than fear the spread of people power revolutions, investors should welcome them.

Just don’t expect an easy ride in the near term.

Lots of people have made lots of money out of dictatorships, but you, dear reader, are probably not one of them and are likely to do better, in the long run, as they fall.

A spreading revolt in Libya, following closely on the overthrow of the Egyptian and Tunisian governments, sent a scare into global financial markets on Monday, hitting share prices and prompting a near six percent spike in the price of oil.

First the bad news: risk markets, already in a bullish delirium prompted by easy monetary policy, are ripe for a correction, and the threat of higher energy prices could easily be the catalyst.

Economist Nouriel Roubini points out that spikes in energy prices related to wars or conflict in the Middle East preceded three of the last five global recessions.

No jam today or tomorrow for Britain

Feb 17, 2011 12:46 UTC

Poor Mervyn King — damned if he doesn’t raise interest rates, futile if he does.

The Bank of England governor is in the unenviable position of having to steer interest rate policy during a period when living standards are being battered, his inflation target is being mocked by even small boys in the street and there is no obvious course of policy which can reconcile the two problems.

The BOE on Wednesday released its quarterly inflation report which judged the chances to be about equal of inflation being above or below its 2 percent target in two years’ time, this despite predicting that it will spike above its current 4 percent rate in the near term.

Bonds, risk and Bernanke’s intentions

Feb 10, 2011 20:49 UTC

Will bond investors keep faith with U.S. government debt amid signs of growing global inflation?

In the end, as with all banks, even central banks, it boils down to trust.

Asked on Wednesday at an appearance before the U.S. House of Representatives Budget Committee if the Fed’s $600 billion programme of quantitative easing amounted to monetization — that Peter to Paul transfer when a government prints money to pay for a shortfall — Ben Bernanke said an interesting thing:

“Monetization involves a permanent increase in money supply though money creation. (QE) is a temporary measure that will be reversed. Money will be normalized and there will be no permanent increase in outstanding balance sheet or inflation.”

Good luck hedging against inflation

Feb 3, 2011 13:42 UTC

Looking to hedge against a spike in inflation? Equities may not be much help.

Neither, for that matter, will you do all that well over the longer haul with bonds, cash or even commodities, at least on the historical evidence. In short, when it comes to investing, inflation is a real drag.

It’s impossible to know if, much less when, the current very stimulative monetary policy in the developed world will spur inflation, but increasingly indicators are raising concerns. Emerging market economies show signs of overheating, while prices of food and many other commodities are surging.

The traditional view has been that equities are an effective hedge against inflation, in least over the long term, because companies will, all things being equal, eventually pass on inflation to their clients as higher prices.

Egypt, inflation and Japan debt crisis

Feb 1, 2011 13:16 UTC

Markets are busy speculating on which country might follow Egypt on the revolutionary road, but watch out for the impact on a country where bellies are full and the chances of revolt are exactly nil: Japan.

The same inflation in food and energy which fanned discontent in Tunisia and Egypt could badly hit real wages and purchasing power among Japanese citizens, potentially undermining their willingness to hang on to the debt which the government desperately needs them to own.

That’s right, deflation could actually ease in Japan and, that’s right, its demise could help tip the country into the long-awaited financing crisis.

Good-bye credit crunch, Hello slog

Jan 25, 2011 14:04 UTC

If you have forgotten the credit crunch it appears you have company: U.S. banks are lending again.

Bank earnings reports and data from the Federal Reserve confirm that, at long last, banks are beginning to step up lending, a much-needed ingredient for a stronger and more sustainable recovery.

The good news is that lending is growing to commercial and industrial companies — exactly where you want to see growth if the U.S. is going to address its unsustainable dependence on domestic consumption. That’s good so far as it goes, but with a fragile euro and an undervalued yuan the upside is decidedly limited.

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