Tuesday, January 29, 2008

SWF's ~ The Bad Kind


Sovereign Wealth Funds - The New Superpower?
Until now, the United States has been the biggest force in the global markets. The U.S. has held this title since U.S. dollar became the world's reserve currency. However, a day is coming when this all may change. So what country will take its place? Who says it has to be a country? Actually, it could be just a sovereign wealth fund owned by a country or several countries. A few nations could literally "join forces" (pool their funds) together to knock the U.S. off its pedestal and become the next "superpower." Check out the comments from Morgan Stanley:Sovereign wealth fund assets may more than quadruple in value by 2015 to US$12 trillion - equal to the current capitalization of the Standard & Poor's 500 Index - from about US$2.5 trillion now, according to Morgan Stanley. It predicts the funds will have assets of US$28 trillion by 2022, more than double the size of the U.S. economy. So if these funds end up becoming TWICE the size of the United States, then the U.S. may lose their dominant influence that it's had throughout the world. Abu Dhabi seems to have more in assets than the next three biggest combined. However, Norway, Singapore and Saudi Arabia all supposedly have over US$300 billion to their name. Abu Dhabi supposedly has US$1.3 Trillion in assets. Kuwait and China supposedly have at least US$250 billion in their Sovereign Wealth Funds. So you can see that if a few "funds" aligned themselves, they could easily become the newest "superpower" of the 21st century very quickly.As you can imagine, most of these countries have built up their "war chest" through selling their countries resources - especially oil. Now they are diversifying these profits away from oil so that it brings even more stability to their economies. I really can't blame them. It's like Warren Buffett diversifying profits away from the textile industry when he took over Berkshire Hathaway and went into other industries. Textiles eventually went out of favor, yet Buffett still had a war chest because he took those profits and reinvested them elsewhere. This is what these funds are doing. That way, if there came a day where oil ran out or demand shifted away to alternative energy sources, then they'd still survive just fine. Obviously, that would be a long time away but countries can't readjust on a dime, they have to plan accordingly many, many years in advance for major adjustments like that. So watch what these new 800 pound gorillas do and where they invest. We should know more about them as time goes on. Even as of this writing, Washington is putting more pressure on nations to lay their cards on the table. U.S. politicians want these nations to be more transparent about their intentions and objectives to invest in American companies. This will be a new trend to keep an eye on for sure.

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