I have written a couple of other posts about sovereign wealth funds (here and here). Nouriel Roubini had a post on the subject the other day that is a good read.
There is an obvious path to something going wrong at one of these funds, and there will be more of them in the future, at some point that will cause a market event. This is not a prediction of when but new market participants with a lot of capital at their disposal will add up to a problem. Realistically these are so new that this is not a threat to worry about now.
These funds come about as a function of prosperity of some sort. It seems like most of them have to do with natural resources but not all (Singapore as an example). A country in the position of having a healthy and growing SWF is probably a good choice for an investment destination for a diversified portfolio.
As I have disclosed, clients own Norway and Australia across the board, I have Russia for a few clients and although I have been out of China for a while I expect to be back in within a year. In the big picture these destinations all have investment merit but in the interest of being really diversified I have exposure to all sorts of countries with different attributes an vulnerabilities.
The deficit countries would seem to be at the opposite end of this spectrum and they too have investment merit. When risk is in vogue these countries have a chance of beating the surplus countries. The deficit countries include New Zealand, Hungary, Turkey and Iceland but there are others.
I think it is very important, for people inclined to pick countries, to have a diverse mix. It might not be much help in a given month of panic but I believe this approach will add a lot of value when there are more serious, slower declines in the US.
UPDATE at 6:54 am
I found this link about Sovereign Wealth Funds on Seeking Alpha from Bloomberg.
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19 comments:
Rober,
irish bank,
aig, any thoughts?
AIG? the insurer? not a fan.
I own an Irish bank personally and for clients.
Just wondering what kind of correction you would need to jump back into China? Or will it be more of a touchy-feely thing?
Thanks again for keeping the past posts up. Working my way through them and it is fun reading stuff from 05 and 06 (big downside days, you think back and don't even remember these blips on the radar).
cheers
dnf
The best fund during these anxiety
ridden times:
http://tinyurl.com/2ybed5
Wondering what kind of thing could go wrong that would affect other market participants? These guys likely won't borrow. They may make bad investments and lose money but it won't make them have to liquidate other investments of default on loans they don't have. On the other hand I guess a change in government policy could see them sell a lot of stuff if it is decided to shut the fund down. A bit like what the UK did with the BOE gold.
Australia's fund is supposed to fund public sector pensions which used to be funded out of current taxes. The fund contains the part of Telstra that couldn't be sold off and recent accumulated budget surpluses. Over time they will diversify out of their Telstra position.
getting back into china will depend on what happens there but for now I am not certain.
What could go wrong in an SWF?
Were you involved when Robert Citron traded Orange county into bankruptcy?
He bought products he did not understand. That could happen again.
involved with the market i mean not the orange county blow up
Anon 6:6.
A little juxtaposition problem with your b&g perhaps?
It's Roger and AIB.
http://www.marketwatch.com/quotes/aib
The yield is about 2.9% now. USB, UBS & BAC all have better yields if you're interested in long term holding of bank stocks now.
What about CS...?
thanks
Like those foreign banks huh? In this case an investment bank.
CS has about a 2.7% yield and is recommended as a buy rating from First Call, Thomson Financial, & Standard & Poor's. Actually FC & S&P rate it a strong buy. Lehman Brothers as of this morning downgraded it from overweight to equal weight.
It is down $1.13 today on that news and the weak sector.
http://www.marketwatch.com/news/story/financial-stocks-drop-economic-slowdown/story.aspx?guid=%7BDC1C277B%2D00A3%2D4223%2DAC5C%2D65E29DB8C9DA%7D&dist=TQP_Mod_mktwN
That's sometimes a nice time to place a buy though. I would use a limit order of $59-60.00 if interested. I would only buy 1/3-1/2 my position though, buying the rest on dips until I saw what the market is doing. Some fear though that if the Fed lowers rates this month the financials will rally and they will somewhat miss the boat.
Long term you could not go wrong buying CS IMHO.
I should also have mentioned DB as a good foreign bank to own. It is currently paying out a 4.11% yield and is about $34.00 off it's recent (5/11) high.
Five firms rate it a overweight, two firms rate it peer perform, and one (Ned Davis Group) rates it a sell.
I guess that Ned doesn't like the whole sector, but that would only be a guess on my part.
The Fed and everybody else is asking lenders to work out mortgages for those that can not pay.
But, the loans are in CDO's so nobody really owns them they are chopped up all over the place. What lender in there right mind would give a new loan to someone with poor credit now? If the company servicing the loan agrees to reduced terms without the approval of the various CDO's that holds the loan wouldn't they risk being sued later to make up the difference?
Is it me or is this problem not being properly addressed in the news?
To the previous post.
Sure, anyone and/or anything can sue the same. However, changing terms to avoid the bank becoming a de facto real estate entity should be in the best interests of the shareholders. Therefore, litigation is not likely to succeed.
Banks are already giving away real estate assets with a very wide discount (short sale). Re-arranging the terms of loans in limbo prevents a capital loss and gives the bank a better financial base for more effective lending procedures, many which are already having an impact.
I would like to see the banks go after the liar loans where fraud was intentionally presented by the applicant(s).
T,
I do not think you get my point. The banks are not at risk for these loans they do not own the mortgage. They do not suffer a capital loss if the home owner stops paying.
I do not know if they make more money servicing the mortgage loan or repossessing the house come to think of it. They simply charge fees for servicing the loan for the various CDO's.
Does anyone know if the banks make more money if the home owner defaults? This could be kinda screwy as they would have to provide a lot more service with associated fees.
I have a relative who works at a mortgage lender...First Residential, should you have hear of it....will these companies suffer?...or like a bank they are just the middle guy and their biggest loss will be the slow down in mortgage applications?
Does this company need short term access to capital? If so are they still able to get it?
As a point..banks loose on a default. It hurts their overall cap rate and, by nature, banks loathe being in the real estate business.
Which is a good thing for me.
T,
If the bank still owned the loan I would agree with you that they would suffer greatly on a default. But, they have sold most of these loans so their response to a default by the home loan will be very different.
The difference in their response and if they are actually incentiveised to truly help is in question.
For real sovereign wealth one in retirement might consider a Swiss annuity through BFI:
http://www.bfi-consulting.com/
Unlike other annuities that I loathe, you can cash out of this holding at any time. It is very save.
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