James Saft

Government shutdown may kill corporate debt

Apr 14, 2011 16:03 UTC

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

If you are worried about the impact of a U.S. government shutdown on markets, you might just want to look past Treasuries and keep a weather eye on corporate bonds.

Investors will have good reason to dump U.S. corporate debt and shares in the event of a shutdown. Given that there are $29 trillion of corporate securities outstanding compared to only $9 trillion of Treasury debt in public hands some of those sales could flow into supposedly safer longer-term Treasuries even as corporate yields burst higher.

President Barack Obama proposed on Wednesday cutting the deficit by $4 trillion over 12 years, less than a week after Democrats and Republicans struck a last-minute stopgap deal to temporarily avert a government shutdown. Even so, the political divisions are deep and there are ample opportunities in coming months for impasse to lead on to nonpayment of bills, the sort of sort-of default that would doubtless send markets reeling.

“Markets will begin to anticipate a crisis,” said Rob Dugger, of Hanover Investment Group, a former partner in legendary hedge fund firm Tudor Investments.

“If government is forced into rapid adjustment it will be the private sector that gets hurt.”

Undone by our assumptions

Mar 15, 2011 14:14 UTC

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

As the people of the great state of California are finding out, very small changes in our assumptions about the world can have very large consequences.

The $230 billion California Public Employees’ Retirement System (CalPERS) will likely cut its expectation this week about how much the pension fund will earn in future years, reducing its “discount rate assumption” to 7.5 percent from 7.75 percent.

That is going to land the State and other employers with workers in the fund with a bill to make up the shortfall that could total upwards of $200 million.

Housing means QE is here to stay

Jan 6, 2011 17:45 UTC

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

A very poor outlook for housing will hold the U.S. economy back in coming months, making it very unlikely that the Federal Reserve will be able to step back from their emergency room monetary measures.

A genuinely encouraging run of data and very strong asset markets has encouraged some to argue that the Fed’s policy will prove to have been too much for too long, but housing stands out as the one asset market that has failed to respond encouragingly to the adrenaline of quantitative easing.

The Fed acknowledged this in the minutes of their December monetary policy meeting, listing a litany of factors holding housing back and stating: