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Barclays, UK Look to Middle East for Funds


Sovereign wealth funds provide cash infusion.

While October may be the cruelest month, its final week was even crueler: It gave us false hope. The Dow was up 10%, the S&P was up 11% - their biggest one-week gains since 1974. Even staid blue-chip stocks, like Home Depot, moved 27% higher.

So what's crueler: False hope, or unrelenting punishment? At the moment, I'd say it's the latter - but if the market fades and takes out recent lows, the blow to investor confidence could be severe. That being said, most investors didn't make any money last week - but some definitely got hopeful.

A number of economic reports are set to be released this week, including the latest on construction (expected to be lower), the ISM (also expected to be lower) and employment: We should brace ourselves for the loss of 200,000 jobs and an unemployment rate climbing to 6.3%.

Then there are corporate earnings reports, which, while not great, have been better than most official and unofficial expectations. I'm not sure if earnings results could spark a substantial rally, but positive surprises and only marginal downward adjustments in guidance could help keep stocks from plummeting. On the other hand, the market did a pretty good job of ignoring shockingly disappointing economic data last week.

Maybe the numbers were so horrific that they couldn't be believed. The S&P 500 and other indices have been trading sideways, and found key support. Look for key resistance at 1000 to 1050. On the downside, the most important number is 850 - and it must hold.

Click to enlarge

The Lessons from England's Fall

Over the weekend, Prime Minister Gordon Brown arrived in Riyadh to ask Middle Eastern sovereign wealth funds to play a greater role in England's economic recovery.

Last week, Barclays (BCS) chose to tap into Middle Eastern money, rather than giving up voting stakes and board seats by taking a government handout. Abu Dhabi (along with Qatar) received a 16.3% stake and interest payments of 14% for forking over $11.8 billion.

This is a shocking turn of events. The visit is ostensibly on behalf of the Internal Monetary Fund, which may need more than the $250 billion currently in its coffers. But there have been pitches for companies in England, too. At the start of the year, Western nations were loath to take so much as a nickel from sovereign wealth funds. Now the Prime Minister of the world's fifth largest economy makes a trip to Saudi Arabia, hat in hand. Much has changed for Great Britain, and very quickly.

While I think the US's rigid rules governing sovereign wealth funds are anti-capitalistic, I sincerely hope we never have to see our president fly to the Middle East to beg for cash.
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