Sovereign Wealth Funds: A Capitalist's Perspective
By Quint Tatro Jan 28, 2008 1:15 pm
We've seen corrections before, but for the first time in American history, the U.S. isn't completely reliant on its own regeneration
Those odd times when the conversation isn't centered on market volatility, it tends to focus on sovereign wealth funds. To date, these behemoths have invested $60 billion in primarily distressed financial firms within the U.S. The subject is onerooted in fear of the unknown, yet talk of the how and why is curiously sedate. I shudder to think how tunes will change when the investments result in outstanding returns for these patient capitalists. It's a sign that global diversification is here -- and here to stay -- but what will be the upshot of these giant capital infusions?
The U.S. currently finds itself in a world of financial trouble, as leverage unwinds and excess unravels. Consequences are being felt far and wide, but are never more visible than in the stock market, where valuations are quoted daily. Not only do these prices reflect the state of affairs, but the fear and uncertainty, too. The net result is that stocks such as Citigroup (C), Bank of America (BAC) and Merrill Lynch (MER) have been cut in half, and have seen billions in market capitalization disappear.
We've seen corrections before, but for the first time in American history, the U.S. isn't completely reliant on its own regeneration; now the U.S. has foreign suitors eager to pick up the pieces. Consider the dollar decline and depressed stock values, and the deals these sovereign funds are receiving are cringe-inducing. But fair's fair: The same deals are available to anyone willing to step in and ante up.
I firmly believe their investments will, in time, result in tremendous profit. Harder to gauge is the reaction of the general public when they do. Will Main Street respect these shrewd business decisions or feel anger towards the funds that made them? Will they direct their frustrations towards government or the private sector?
I've wrestled with my own thoughts for some time, and while I'm disheartened by the way the country has handled its economic affairs, I'm a capitalist with views that can't be restricted by geography, regardless of who's doing the buying. With each new deal, the transfer of wealth continues unabated. Is this wealth still available to anyone who wants to pursue it? Of course it is, but the landscape is no longer domestic. It's global.
So count me in as a buyer of distressed financials with an eye towards a new trend. I'm moving slow, and will step aside if new lows are put in, but I'm nibbling and watching many that have already put in a higher low and higher high. They are hated, low and possibly bottoming. I'm no sovereign wealth fund, but I'm a capitalist.
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No positions in stocks mentioned.
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