Sovern Funds are assets of government, differing from their reserves mainly by NOT being applied principally in foreign treasury bonds. They are growing rapidly as faith in the US Treasury is falling. It is falling for two main reasons:
(1) Central banks that have held assets in US treasury bonds have been losing purchasing power for about two years now. (Just my estimate: perhaps only one, perhaps three years.) Even loyal (to US) and very stupid central bankers are learning that the interest paid has not compensated for the dropping value of the dollar. Except for TIPs, the "face value" of the bond is a fixed number of dollars. If need be, the US can just run the mint's printing press to pay the bond when it comes due, and someday this will be the done because offering ever higher interest to have the bonds "rolled" instead of paid will destroy the US economy. (Politicians always choose inflation instead of depression as home owners with mortgages to pay are also voters.)
(2)US is going deeper into debt every year and with the slowing growth the real economy the debt as a percent of GDP, is rising (above 6% now). Thus the interest paid to service the debt is also growing even faster. This is why many central bankers are now at least questioning the "security" of holding their reserves in dollars. Almost all are converting reserves into sovern funds. (Unfortunately, Brazil is still only discussing doing so.)

Here are the current leaders in this trend (sovern funds in billions of US$):
Arab Emirates...875
Cinapour .........430
Norway...........315
China..............300
Saudi Araba.....300
Kuait...............250

The Emirates are the leaders of this trend, especially when compared to their reserves, which are much, much smaller. I.e. the Emirates have essentially ceased to hold dollars or other US Treasury issue.

Cinapour is well on the way to total conversion also. Their total reserves are only 144 billion dollars. Thus, sovern funds represent 75% of their total assets.

I do not have data on the reserves of the other four named aboved (and too lazy to search for it) but suspect they too are at least 3/4 converted to sovern funds.

The total of all sovern funds is 2.5 trillion and the global total of reserves is 5.3 trillion. Thus, the world as a whole is now 1/3 converted (holding 1/3 of all governmental assets as sovern funds). Morgan Standly's Jen Stephen projects that in 2011 the division will be 50/50 with each totally 6.5trillion, as China and the oil exporters continue to have large net influxes of dollars.

Two examples of how sovern funds grow: Dubai just bought 5 billion of MGM and China's new agency to run its foreign funds bought 3.2 billion of the Blackstone IPO.

The US is in the process of "selling the family farm" but some parts are not for sale. For example: China was not allowed to buy Unical and Dubai was not allowed to become the owner/operator of most US ports. This effectively is a statement that dollars can not be used to buy whatever you want. This is also contributing to the dropping real value of the dollar. What good is that green paper if you can not buy what you want with it?

SUMMARY: US, under GWB is destroying the faith on which the value of the dollar is based, by:
(1) converting Clinton's surpluses to history's greatest deficits,
(2) refusing to let buyers buy what they want to with their dollars,
(3) foreign policy based on the US military (also a big contributor to the uncontrolled and growing debts).

This destruction is so extensive now that US dollar will collapse - my estimate is in 4 + or - 3 years - in a run to get out. (no longer possible to avoid the associated depression in US and EU.)

The creation and rapid growth of foreign sovern funds is the "pre cursor" of the dollar collapse. After the dollar collapse, the leaders of this movement into sovern funds will official link their currency to their sovern funds holdings, not gold and certainly not dollars.

Billy do you mean sovereign wealth funds (http://en.wikipedia.org/wiki/Sovereign_wealth_funds)? I haven't heard of sovern funds

edit: Ah I think perhaps its sovereign investment funds

http://en.wikipedia.org/wiki/Sovereign_investment_fund

Billy do you mean sovereign wealth funds (http://en.wikipedia.org/wiki/Sovereign_wealth_funds)? I haven't heard of sovern funds
edit: Ah I think perhaps its sovereign investment funds
http://en.wikipedia.org/wiki/Sovereign_investment_fundYes. they are usually compactly refered to as SWFs, but my new thread title is long so I dropped the "wealth."
Also I intentionally wanted to refer to all financial asset other than treasury issues, which only require printing presses to produce. E.g. Dubai will own ~9% of MGM and the number of dollars this is expressed in will roughly double when the dollar has half its current value. - i.e. it is a real asset, not a piece of paper printed by the US government as the majority of conventional reserves are. I feared (but do not know) that SWFs may not refer to all real assets, so avoided that term also for this reason.

PS you seem to have switched your loyalty to dogs from cats. Any reason?

Yes. they are usually compactly refered to as SWFs, but my new thread title is long so I dropped the "wealth."
Also I intentionally wanted to refer to all financial asset other than treasury issues, which only require printing presses to produce. E.g. Dubai will own ~9% of MGM and the number of dollars this is expressed in will froughly double when the dollar has half its current value. - it is a real asset, not a piece of paper printed by the US government as the majority of conventional reserves are. I feared (but do not know) the SWFs may not refer to all real assets, so avoided that term also for this reason.

So what is the difference between a wealth fund and an investment fund? Also, what differentiates them from central banks with large foreign exchange reserves?

Are there political ramifications to the Arabs having such an interest in SWFs? Does that give them some sort of leverage over US economy? I cannot believe it is a coincidence that they are rapidly accumulating so many of them. There MUST be a political advantage to it, if I know the Arabs.

So what is the difference between a wealth fund and an investment fund? Also, what differentiates them from central banks with large foreign exchange reserves?I do not know, or care much about precise definitions. I am trying to point out that governments are rapidly getting out of treasury PAPER and into REAL ASSETS.

Are there political ramifications to the Arabs having such an interest in SWFs? Does that give them some sort of leverage over US economy? I cannot believe it is a coincidence that they are rapidly accumulating so many of them. There MUST be a political advantage to it, if I know the Arabs.This is too complex to be confident in all the ramifications. There will be enormous political consequences to a dollar collapse, perhaps even an end to democarcy in the US, if grocery stores in cities do not have food on the shelves, roits, martial law, acceptance of a "strong man" as new leader? I am not predicting this, only noting that "strong men" like Napolen and Hilter do come to power as "solutions to social chaos."

I do not fully share your POV that the arabs have some hidden motive by switching assets out of US Treasury paper. I think they are just tired of watching that lose real value and wanting protection of their wealth so now are putting at least all of the new petro dollars into real (not paper) assets.

Norway is not an "Arab nation" and is doing the same, I think for the same simple self-interest reason.

Where could I get a list of the assets that the countries are accumulating? I'd like to see if there is a pattern there.

Here is an interesting POV:

http://www.ft.com/cms/s/0/8c9dea94-3e30-11dc-8f6a-0000779fd2ac.html
A signal event of the past quarter-century has been the sharp decline in the extent of direct state ownership ofbusiness as the private sector has taken ownership of what were once government-owned companies. Yet governments are now accumulating various kinds of stakes in what were once purely private companies through their cross-border investment activities.

In the last month we have seengovernment-controlled Chinese entities take the largest external stake (albeit non-voting) in Blackstone, a big private equity group that, indirectly through its holdings, is one of the largest employers in the US. The government of Qatar is seeking to gain control of J. Sainsbury, one of Britain's largest supermarket chains. Gazprom, a Russian conglomerate in effect controlled by the Kremlin, has strategic interests in the energy sectors of a number of countries and even a stake in Airbus. Entities controlled by the governments of China and Singapore are offering to take a substantialstake in Barclays, giving it more heft in its effort to pull off the world'slargest banking merger, with ABN Amro.

To date most of the official commentary on the issue of SWFs has been framed in terms of traditional arguments about cross-border capitalflows. US and UK officials have raised -concerns that focus only on the desirability of reciprocity and transparency and on how to treat sectors that trigger national security questions. Others, particularly in -continental Europe, have been less positive and have emphasised nationalist considerations about the benefits of local ownership and control.

What has received less attentionare the particular risks associatedwith ownership by government-controlled entities, particularly where the ownership stake is taken through direct investments. The logic of the capitalist system depends on shareholders causing companies to act so as to maximise the value of their shares. It is far from obvious that this will over time be the only motivation of governments as shareholders. They may want to see their national companies compete effectively, or to extract technology or to achieve influence.


An another interesting development:
http://www.economist.com/displayStory.cfm?story_id=9556414&fsrc=RSS
THE mission of China Development Bank (CDB) is to support “the state’s policies to implement disciplined development and build a harmonious society.” Barclays bank, which was founded in the early days of the Qing dynasty, exists to serve its customers and shareholders. The fortunes of this unlikely pair are now joined: the Chinese bank announced this week that it is taking a stake in Barclays—as is Temasek Holdings, part of the government of Singapore’s investment arm. This will boost Barclays in its bid for ABN AMRO, a Dutch bank. It also marks a new adventurousness on the part of China’s government.



So it looks like developing countries are tired of short term gains and are going long term in their outlook.

And some people are getting worried:



"The U.S. can ill afford the prospect of foreign interests moving in on important commodity and energy sources," said Russ Winter in his Web log, wallstreetexaminer.com. "One can easily envision a scenario where large sovereign funds legitimately take controlling interest of, say, a major oil producer or even a state-owned entity."

http://www.iht.com/articles/2007/06/17/bloomberg/bxatm.php

Washington has asked the International Monetary Fund and WorldBank to establish a code of good practice for SWFs. Berlin is eyeing new legislation to deal with these funds, modelled on US procedures for screening incoming foreign direct investment. Brussels is considering a European-wide set of guidelines. But so far no western government has had the courage to admit that dealing with SWFs may require departures from the conventional liberal orthodoxy concerning global trade and investment flows. Yet this is precisely what is needed.

These funds are going to have the ability to buy any global company, to create panic in markets if they move too precipitously, even to dwarf the political clout of international financial institutions. They can no longer be ignored.
http://www.ft.com/cms/s/0/0b5e0808-454a-11dc-82f5-0000779fd2ac.html

The funds are a product of decades of the United States importing more than it exports. High energy prices have yielded trillions for oil and natural gas producers, from Norway and Russia to the Middle East, while the American thirst for imports of other goods and services has built up the reserves of China, Japan and other exporting giants in Asia.

The political furor over these funds so far has been limited. Efforts this year by China and Singapore to buy stakes in Barclays Bank in Britain, and by Qatar to take over the J Sainsbury supermarket chain in Britain, have caused little stir among British leaders.

Neither Dubai's bid for Barney's, the American retailer, nor China's purchase of nearly a 10 percent stake in Blackstone earlier this year has produced an outcry in the United States, although there have been some repercussions in China over the Blackstone investment's recent losses.

But in Germany, where there is concern about Russia buying up pipelines and energy infrastructure and squeezing Europe for political gain, Chancellor Angela Merkel has warned that purchases by foreign governments or government-controlled companies pose a risk.

"How do we actually deal with funds in state hands?" Merkel said at a news conference in July. "This is a phenomenon which until now has not existed on such a scale."
http://www.iht.com/articles/2007/08/20/business/wealth.php

Thanks Billy, I hadn't realised how much the debate had heated up.

Post 1 gives the 6 leaders in the switch from dollar reserves into real assets (sovern funds invested in companies, real estate, etc. instead of pieces of PAPER, printed by US Treasury.) and notes that the central banks of the world are now 1/3 converted out of dollars (Treasury PAPER) on average.

This post gives some details about Brazil, which as yet is 0% converted and thus lossing lots of value as the dollar drops. Even the stupid management of Brazil's central bank is learning and will soon join the other central banks moving out of Treasury PAPER. Here is why:

For several years now there has been a large net flux of dollars into Brazil.
This due to:
(1)Strong buying, mainly by China, of soy beans, iron ore, etc. and paying with some of China's surplus dollars. (I have advocated that Brazil refuse to accept dollars and insist on payment in Yuan, which are rising in value instead of dropping - perhaps the central bank will force this to be done soon)
(2)Because Brazil's real interest rate on bank deposits is the highest in the world, still even after very significant reduction (now only about 1% per month instead of 2% / month) Brazil has been the target of much of the "carry trade"* and also increasingly the destination of wealty individuals, smart enough to seen that they need to get their wealth out of dollars and gold is not a good alternative. Gold is same price as a year ago but Brazilian stocks, on average, have more than doubled in dollars or at least doubled in local currency because of all the foreign demand for them. (35 to 40% of all the buying of stocks in Brazil is by foreigners, mainly with dollars converted into Reals.)

Brazil has struggled hard to develop its industry (even using high tarrifs and technical devices such as TV transmission in format "PAL B" that US made** TVs can not recieve, etc.). Because when factories are closing workers lose jobs and vote against the government, "de-industralization" is being resisted by the government, especially by the central bank, but despite this resistance it is proceeding rapidly.*** This hugh influx of dollars into Brazil, is making excessive demand for the Real. (You can not invest in Brazil without first converting the dollars into Real, so there is excess of Dollars, which no one wants.)

The central bank resists the rapid increase in the value of the Real caused by the surplus of dollars (which no one needs, except tourist going to US and now that Real is so strong some importers) flowing into Brazil by buying them up. In less than two years, the central bank has paid off all of the IMF loans and watched its reserves go from 40 to 160 billion dollars. This is very costly for the central bank because to buy the dollar (take them out of the public hands) it must issue bonds locally and as the local interest rates are the highest in the world, this is big money loser. (Borrow locally at 12 to 15% and get 5% on the US treasury bonds it has been buying with the dollars it takes in) Despite this effort to help prop up the declining dollar (or keep the Real from getting so strong that Brazilain companies can not export at a profit - same thing just a POV from other "side of the same coin") it now takes only 1.95R$ to buy a dollar instead of 4R$ it took a few years ago. I.e. in Brazil the dollar has lost more than half of its value already!

This problem (buying and holding "dropping dollars" as reserves instead of growing "sovern funds") is rapidly becoming worse and can not continue. I.e. if the Brazilian central bank had simply bought Brazilian stocks, the real value of the "sovern assets" would have doubled instead of dropped to half of what it was! The loss experienced in the first 6 months of 2007, by Brazil's central bank was $30,304 million dollars, vs. only 12,219 million in first 6 months of 2006!!!

Surely there is a limit to the stupidity of even Brazil's central bank. I.e. they too will soon cease to hold US paper and instead invest in real assets.

Long SUMMARY:
The policy of GWB (wars, tax rebates for the wealthy terminating Clinton's surpluses, etc) plus the continued "twin deficits" will collapse the dollar and send the US and EU into deep depression. Brazil will "de-industralize" and become an "economic colony" of Asia, mainly suppling China with food stock, minerals, and energy (oil and soon alcohol, if Japan does not have the total alcohol production capacity all locked up first). Interest rates paid by the US Treasury will rise, reaching double digits, as foreigners are learning (even Brazil's stupid bankers) that financing the US's deficits by buying Treasury PAPER, at current interest rates is the surest way to lose purchasing power. ALL governments will soon cease buying US Treasury PAPER at current rates. The alternative of investing in "sovern funds," which make profits, instead of loses is irresistable and well under way already (see post 1 for details).

short SUMMARY:
GWB's wars, surplus destroying tax rebates and resulting "twin deficits" have doomed the the dollar. At this point, there is no way to recover - no way to avoid a deep depression in US and EU coming in 4 + or - 3 years.

PS of course I am sad about this - all my grandchildern live in the US, but the efforts I made (posting warnings here and my book) trying to avoid this fate back when it could have been avoided have failed.

----------------------
*For those readers not well informed economically: "carry trade" is borrowing mainly in Japan where real interest rates have been very low (even negative at times) and then imediately investing the borrowed funds where the interest rates are high, (often Brazil as they have been the highest with much less risk that Turkey which has had the second highest real rates) Now that rastes are rising in Japan, and falling in Brazil, some of the borrowed funds are being repaid (this requires buying Yen to repay with). Thus the cost of buying yen is rapidly rising and this stimulates others to also want to repay their loans before it gets too expensive and wipes out all their profits. This self acceleration process is called "unwinding" the carry trade.

**Later by edit: My age is showing - I forgot that the US does not make TVs anymore. I think Sylvania was the last to do so and they quit 25 or more years ago, but none-the-less PAL B was designed in Brazil (only place it is used, I think) to keep the then US makers of TVs out of the local market.

***The sugar / alcohol complex provided approximztly 60% of all the net new jobs in Brazil last year, mainly cutters in the expanding cane fields. Car makers are hiring as sales are at all time high with the growing wealth of the population but this gain is largely wiped out by the closing factories job loses. Two years ago, while waiting for wife to shop in NYC's Macys, I sat bored in the ladies shoe department. Most of the shoes came from Brazil then - now those labor intensive factories are closed. (Workers must be paid in Real and the dollars the shoes can be sold for are worth too few Real to pay them.)

Final SUMMARY / ADVICE: Get out of dollars while they still have some value. Buy ADRs.

new buy for Qatar's sovern funds:

"Qatari Investment Authority have indicated a willingness to pay as much as 15 pounds a share for Nasdaq's 31 percent stake in the London Stock Exchange the Sunday Times newspaper said. ... Deutsche Boerse , Borse Dubai , ASX and Singapore's Temasek all were interested buyers, but each has {now} distanced itself from the notion either publicly or privately. ..."

More at:
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&Date=20070902&ID=7407245

Note: This is a high bid (approximatly US$ 2 billion). The others interested appear to have dropped out. Temasek is the second largest of all of the sovern funds and may still try to buy. - see post 1. To pay US$ 2 billion for a third of the LSE, Quatar will probably* need to sell some of its US Treasury holdings. I.e. Quatar is obviously joining the leaders listed in post 1 in the move to get out of Treasury paper.
---------------------
*I doubt if there is that much cash under the shiek's bed. :D

Although most of the move to get out of dollars is coming from those who hold them, not all. Others are betting on the dollar's continued fall by borrowing them now with obligation to pay dollars back later (when many, including me, think they will cost less to buy with almost any other currency):

For example:

" ... second largest lender, ICICI Bank, on Tuesday said it has signed a multi-tranche dual currency USD 1.5-billion syndication loan agreement in Singapore.*
"The syndication is a benchmark deal as this facility marks India's largest offshore syndicated loan financing by a financial institution," ...
The facility is split into three tranches - a USD 500 million 364-day tranche (tranche A), USD 500 million three-year tranche (tranche B) and USD 500 million five-year tranche (tranche C). ..."
---------------------
*Singapore is already mainly out of dollars - See post 1 - so they may be "hedging their bets" to cover the possibility that the dollar will not continue to fall.

"... Dubai Group, a government-controlled investment fund, reportedly has said it is investing $2.5 billion into China and India over the next two years, with a focus on large-scale investments in manufacturing, finance and real estate.
Announcements of this kind are notable given the subprime crisis, which while shaking up Western economies is making emerging markets in Asia and the Middle East look increasingly attractive. "Sovereign wealth funds are looking for longer term value and these are increasingly to be found in emerging markets, '''
FROM:
http://www.forbes.com/2007/09/10/dubai-china-india-markets-equity-cx_po_0910markets20.html?partner=globalnews_newsle tter
-------------------------------------
"... Singapore operates one of the world’s oldest and largest sovereign funds--and arguably its most transparent one--in Temasek, its aggressive state investment agency. Temasek has waded deep into the region’s financial industry and, lately, has become involved in the United Kingdom through an investment in Barclays, together with China Development Bank.
But Temasek’s growing reach, buttressed by a portfolio of more than $100 billion, with a primary focus on Asia, is running into resistance amid rising fears in the United States and Europe about similar funds created recently in China and the Persian Gulf states that are extending their influence in the relatively free Western markets. ..."

{Billy T coment: more truthfully and clearly stated: Afraid of this rapidly growing alternative to buying Treasury bonds.}

FROM:
http://www.forbes.com/2007/09/10/temasek-sovereign-funds-markets-equity-cx_jc_0910markets01.html?partner=globalnews_newsle tter

Where could I get a list of the assets that the countries are accumulating? I'd like to see if there is a pattern there.

There are no general lists, unless the country involved wants to make it available. The most you can do is scan the financial press to see what deals they are doing, like say China's deal to buy a stake in Blackstone Group (http://www.economist.com/printedition/displayStory.cfm?story_id=9230598&fsrc=RSS) (and even then you only know the details not being kept confidential).

There's less transparency for sovereign investment funds than there is for hedge funds (or private equity firms like Blackstone).

Whats so great about ADRs? And what about people living in Europe? ADRs are ownership shares in compaines based in courties other than US, which you can easily buy with dollars. As many companies are global the distinction is not clear between ordinary stocks and ADRs. In fact, the average of stocks listed in the DOW now has more than half of their income from outside of the US so even buying GE etc is more than 50% investing outside of the US. There are, however, ADRs that are 100% investment outside of the US. For example, my biggest ADR holding is the water company of Sao Paulo (symbol SBS) I bought in dollars at just below $5 / ADR about 5 years ago and it now trades around $45/sh (I do not intend to sell so do not actually know what it is now - It still pays good dividends!)

SUMMARY it is not entirely accurate to say simply say "buy ADRs" but the idea is - you want profitable companies earning their income in parts of the world with rapid growth*, not the US.

This holds true for people living in Europe also, but as the infrastructure in Europe is better designed for high oil cost ($100/barrel will be here soon) than the "surburban infrastructure" of the US (poor public transport, SUVs, low density "1/2 acre developments" big show-place individual houses, etc.) the US will suffer more than Europe. The Euro zone's "twin deficits" is only 0.6% of their GDP but the US is 7.0% of its GDP - data from current issue of the Economist Thus the interest burden on the US is more than 10 times harder to carry already and growing. Some good ADRs are in fact in the Eastern part of Europe (former USSR countries) and several German exporting companies should be considered. (Germany is world's leading exporter.)
Because GWB has transferred wealth from Joe American to the already rich, the German luxury cars are selling very well (>15% increases YoY in some cases) while Ford and Chevy sales are dropping.

Hope that helps. PS I do not know, but bet EDRs exist (European Depository Reciepts you buy with Euros. If they do, I bet they trade both in Franfurt and Paris. - goolgle and let me know.)
------------------
* I own nothing in China or Russa as do not trust them not to simply confiscate some day - Russia already is in the energy field but states that it is just enforcing the enviromental laws.

Global Depositary Receipts exist.

So which countries are you invested in?Mainly the other two BRICs Brazil and India. I like to be able to read the annual reports, local papers etc in English. (except I read the financial papers in Brazil while having my breakfast - well before the NYSE market opens.) New Zeeland (not just now) and Australia also. Countries that the British sense of fair play exists in.

Are GDRs sold in Euros? Where do they trade? If they are priced in Euros, that is an easy way for the little American guy to bet on the Euro and against the dollar.

"...Exchanges are also in the spotlight today, as Qatar and Dubai both
struggled to gain dominance with major purchases. The Qatar Investment
Authority reported that it obtained a 20% stake in the London Stock
Exchange (LSE), on the heels of a report that the Borse Dubai will buy 28%
of the LSE from Nasdaq Stock Market (NDAQ: sentiment, chart, options), and
take a nearly 20% stake in the Nasdaq itself. In exchange, Nasdaq will
acquire pan-Nordic stock-exchange operator OMX from the Borse Dubai . . .
though Qatar urged OMX shareholders not to take action on the deal. ..."

FROM:
part of Schaefer's morning news letter for today but can not give good link as was an Email to me.


" ...Mubadala Development Co., an investment company owned by the government of Abu Dhabi, will also commit $500 million to a Carlyle investment fund. Mubadala will buy the non-voting stake at a 10 percent discount, Carlyle said in a statement today. The deal values Washington-based Carlyle at $20 billion. ..."

Later by edit as I failed to copy the main part ($1.35 billion):
"Carlyle Group, the second-biggest buyout firm, plans to sell a stake to the government of Abu Dhabi for $1.35 billion as it considers an initial public offering. "

FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=amPTX9HhjPyQ&refer=home

SO TOTAL IS NEARLY 2 BILLION ! (almost as big as China's 3 billion private purchase of 3/4 of the Blackstone IPO. More and more companies are doing the sale to sovern funds*, instead of or as part of an IPOs to convert there values into cash. More bad news for the US Treasury trying to finance the debt.**
--------------------
*As this direct to sovern fund sale saves the fee that the investment bank would normally get, there is usually a discount on the price the sovern fund must pay. (I seem to recal the discount China got on the blackstone buy was 5% off the average price of the IPO. Dhabi will get 10% discount! There is, of course, no big buyer's discount on new Treasury bonds.)

** As some wag noted many years ago: "A billion here and a billion there and soon, you are talking about real money" (no longer going into US Treasury bonds).

" ... Sovereign wealth funds have invested an estimated $35bn in the shares of banks, securities houses and asset managers since the beginning of 2006 ... cover companies such as Barclays, Blackstone, Carlyle, Deutsche Bank, London Stock Exchange, Nasdaq and HSBC ... The most recent flurry of activity accounts for less than 1 per cent of the $2,800bn in assets that sovereign wealth funds are estimated to control. {Other wise called 2.8 TRILLION, and rapidly growing as governments get out of US treasuries} ... But the flow of cash from state-backed agencies, especially those based in Asia or the Middle East, is prompting concern among politicians in Europe and the US, who worry it may give foreign governments influence over the financial sector. ... sovereign wealth funds have favoured institutions with exposure to emerging markets, the securities business or the private equity and hedge fund industries. ... Though much of the recent investment has come from funds in Asia and the Middle East, other countries are also becoming active. The Norwegian government’s pension fund recently decided to increase the share of equities in its $328bn portfolio to 60 per cent from 40 per cent. ..."

FROM:
http://www.ft.com/cms/s/0/54ccecb2-6b91-11dc-863b-0000779fd2ac.html

I could not up-load the link's "exhibt 2" showing a bar graph of the top 20 sovern funds's estimated wealth in financial firms. (No one really knows and that is scary*, IMHO.)
Visit link and see it. (Up load it if you can.)
------------------------------
*For example, Norway has just decided to tranfer 66 billion from bonds into equities via its sovern funds. (From data in next to last paragraph of the article, but not quite so clearly stated.)

Part of reason why it is hard to know how much the sovern funds hold is illustrated by the following (in this case obviously known, but other "private placements" made directly, instead of via a bank that must report to shareholders, etc. are not):

"The ICICI Bank {India's 1st or 2nd largest private one} has said its one year old private banking unit in Dubai has seen $300m worth of Gulf investment being channelled into India, reported Bloomberg. The Indian lender said the investments were made in the form of ten private equity deals and privately placed share sales in the infrastructure, property and corporate sectors. ..."

Dubai & Quatar are both developing stock markets and in fierce struggle to determine which will be the banking center of the mid East oil money. One owns 20% of the US's Nasdaq already and both are trying to buy the Nordic exchange. (Bidding againsts each other.) Neither wants to continue using NYC (or perhaps even London, although phasing out their use of London will be harder) to server their financial needs.

" China Investment Corp., the nation's $200 billion sovereign wealth fund, starts operations today {29/9/07}*as the government seeks to boost returns on the world's biggest foreign-exchange reserves.

The investment agency will come under the direct supervision of the nation's cabinet, the State Council. Lou Jiwei, former vice finance minister, will act as director and Gao Xiqing, former deputy chairman at the National Council for Social Security Fund, will be general manager, according to information disclosed at an opening ceremony in Beijing.

China set up Asia's biggest state-owned investment company after surging trade surpluses helped push the nation's currency reserves to a record $1.33 trillion. The agency's creation has spurred speculation of a flood of Chinese investments into overseas companies and resources such as oil and metals. ..."

"... the agency, to be funded by a total of 1.55 trillion yuan ($205 billion) special government bond sale that will be used to buy foreign-exchange reserves from the central bank. By Sept. 28, 700 billion yuan has been raised by 10-year and 15-year bonds issues. The finance ministry will sell more long-term bonds by the year-end to meet the budget. ..."**

FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGy8fzTT25.w&refer=home
--------------------
*I guess the 3 billion put into Blackstone IPO privately (3/4 of total with a discount) was just to get "feet wet" before official start.

**Unless I missunderstand this text, it means that China's central bank assets (largely US Treasury bonds) will be sold (converted into dollars and used to buy real assets) this will put downward pressure on the price of US Treasury bonds, but I think probably not enough to cause others to immediately start the run on the dollar. - I.e. I will stick with my prediciton that the run will not begin before Halloween 2008. (Full prediction has it happen before Halloween 2014 as I think the central banks will get world economy thru the current problem. I.e. they have already started the next "6L cycle" i.e. the add Liquitity phase, but the second phase, make easy Loans, clearly has not yet started. The "6L cycles usually take approximately 6 years - that is how 2014 was selected to end the dollar run collapse "window." I.e. the 6L cycle just now starting is the last - it ends in deep depression.)

17Oct07: "... A newly established Libyan sovereign wealth fund is starting to deploy its $40bn (£19bn, €28bn) capital on international markets as the oil-rich state showcases its rehabilitation in the global community. Following in the footsteps of the Gulf countries, the regime of Colonel Muammar Gaddafi earlier this year allocated tens of billions of dollars that had been managed by the central bank to a new entity, the Libyan Investment Authority (LIA), which will now also receive a portion of the surplus oil revenues each year. ..."
FROM:
http://www.ft.com/cms/s/0/c4bd32be-7cd2-11dc-aee2-0000779fd2ac.html?nclick_check=1

You know, a billion, here, few billion there no longer buying US Treasury bonds, could get to be a problem. :rolleyes: :eek: :shrug:

Hope you have bought your ADRs before the US mint's printing presses run 24/7 to pay off the Treasury bonds that can not be "rolled." (at any interest rate, which is not even more damaging than the inflation part of "stagFlation" this will cause.)

Billy T,
You know, a billion, here, few billion there no longer buying US Treasury bonds, could get to be a problem.
The comment "no longer buying US Treasury bonds" is misplaced. Libya was never a buyer of US Treasury bonds. It has had an isolationist-type economy ever since the sanctions imposed because of the Lockerbie Aircraft bombings. Libya has decided to join the global economy by investing in foreign enterprises and opening itself up to foreign investments as well, mostly in its oil sector.
“Because of sanctions our policy used to be to protect our assets and keep our funds in short-term deposits,” said Mohamed Layas, the LIA’s executive director, in an interview with the Financial Times. “After the embargo was lifted, it was a new era, a new opening, and we had a tremendous increase in oil revenues over the last five years.”

Mr Layas said the fund, which will have offices in London and Tripoli, would concentrate at first on portfolio investments managed through western banks and institutions. But it also intends to buy real estate worldwide and, when it is more established, look at private equity transactions.

“If we buy shares in a construction company abroad, for example, the other benefit is that we will generate business for them in Libya, where we have a huge development plan,” he said.

Billy T,

The comment "no longer buying US Treasury bonds" is misplaced. Libya was never a buyer of US Treasury bonds. ...I admit that I did not have evidence that Libya owned US treasury bonds. - I just assumed that at least some of their natural gas (and to some extent oil) profits for two or three decades were so used. Almost, if not all other oil and gas exporters did invest in Treasuries. How do you know Libya did not? If not where did they invest?

Do you have any evidence for your (what seems to me very unlikely) POV (The claim I made bold in your post above.)? I bet they were usually paid in dollars.* What did they do with them, if not buy at least a few Treasury bonds? At least thru some London banks.

If Kadafee is good a Moslem, he can not earn interest, so he would let the bank do that and "not know" exactly why his account is growing. As he has set up a new sovern fund, he must have some interest in what is happening to the dollar - why would he bother to get protection from the fall of the Treasury bonds if he had none (not even indirectly owned) to protect?

Summary: Your unsupported POV seems very unlikely, to say the least. If you have support for it please tell.
----------------------------
*It is US policy to make war on those who do not sell for dollars - ask Saddam - Oh that right's, can do than now.

The US has had sanctions against doing any kind of financial dealings with Libya since 1986, when the US accused Libya of state-sponsored terriorist activities. After the 1988 Lockerbie bombing, The United Nations barred any member nation from doing business with Libya, and froze their international assets. I don't know about earlier investments, but Gaddafi has always been anti-Western since he gained control of Libya in 1969. So, for over 20 years at least, Libya did not have the privilage (:)) of buying US Treasury bonds. From what I have read, a great deal of Libya's oil money has been kept in their state-owned banking system as cash (I doubt US dollars, though). They have also evaded the US State department and invested in banks, etc. according to this report from 2001:
U.S. State Department

The State Department holds the Libyan government responsible for sponsoring several attacks that killed hundreds of people during the 1980s, including the Pan Am bombing, in which 271 people were killed over Lockerbie, Scotland, in 1988.

Like Osama bin Laden, the Saudi exile suspected by the U.S. of masterminding the terrorism of Sept. 11, Qaddafi has managed to thwart U.S. sanctions that aim to cut Libya off from the world's financial markets.

Mohamed Ali El Huwej, Qaddafi's money manager, tells Bloomberg News he has developed a system for making global investments -- using minority stakes, shell companies and interlocking share holdings -- that won't attract the attention of U.S. authorities. He calls it ``financial engineering.''

In a series of interviews in Tripoli in September, Huwej explained Libya's investment strategy.

Libya's $8 Billion

The country has a total portfolio of $8 billion, Huwej says, including 5 percent of Banca di Roma SpA, Italy's fourth-largest bank; $1 billion in U.K. real estate; and stakes in 72 companies in more than 45 countries, many of which do business in the U.S.

Libya also has stakes in more than 100 banks with offices from New York to Hong Kong, to Ouagadougou, Burkina Faso. The web of share holdings Qaddafi has created over the past 15 years or so shows how easily terrorists can evade embargoes and sanctions and move their money around the globe.

The U.S. imposed sanctions on Libya in 1986 -- and those strictures remain in effect. Americans who do business with the regime face up to 10 years in prison and fines of up to $250,000.
http://www.globalpolicy.org/security/sanction/libya/2001/1025thwart.htm
Since about 2003, relations have improved with Libya somewhat. Libya settled with families of the Lockerbie bombing, admitted to their WMDs (mostly chemical) and now allow international inspections. They claim to be converting their state-owned banks into Western-managed banks with global trade connections. I doubt that Gaddafi would yet be fond of US Treasuries, though. ;)

The US has had sanctions against doing any kind of financial dealings with Libya since 1986, when the US accused Libya of state-sponsored terriorist activities. ... So, for over 20 years at least, Libya did not have the privilage of buying US Treasury bonds.* True but that does not support your claim that Libya did not buy and hold US Treasury bonds. I agree that Libya could not bid on new bonds being auctioned directly by the Treasury, but that is a very small fraction of the bonds traded every day. (Most days the Treasury sells none.) Further more even the text you quoted (so I assume you read it) states:

"...Qaddafi's money manager, tells Bloomberg News he has developed a system for making GLOBAL investments -- using minority stakes, shell companies and interlocking share holdings -- that won't attract the attention of U.S. authorities. He calls it ``financial engineering.'' ..."

Later in your own reference:

"... Banca di Roma {a bank Libya bought in 1997 for 400 million dollars} didn't violate economic sanctions, because the stake was sold through Libyan companies rather than the Libyan government, he said. Though they were spottily enforced, the sanctions did limit Libya's room for maneuver in some countries. ..."
and also:

"... Lafico {Libya's investment agency} works to avoid detection when it makes investments*, Huwej says. In everything it does, Lafico is aware the U.S. is watching.

Huwej sometimes avoids doing business under Lafico's name. A farming company in Egypt owned by Lafico is registered there as simply Agriculture Investment Co., he says. ..." {i.e. Libya also set up companiens to hid its investments, and only a few get "black listed" and are then watched. See next quote fro your link.}

"... Only 28 of the 103 companies make the blacklist. For instance, UBAE Arab Italian Bank SpA, based in Rome, isn't on the U.S. blacklist. It's 44 percent owned by Libyan Arab Foreign Bank, yet counting the 12 percent held by Banca di Roma, 56 percent is linked to Libya. ..."

There is lots more to indicate that your claim is baseless, in your own reference, but to "cut to the chase"; Thus, both Libya and the US Treasury claim that what libya holds is not publicly known and what the Treasury may know is not disclosed by the US treasury in the following:

"... Huwej also refuses to list Lafico's investments, saying the U.S. Treasury doesn't need to know the details. A Treasury spokeswoman, Tasia Scolinos, says the department won't divulge U.S. knowledge of Libya's investments. The Treasury doesn't want Libya to know how much it knows, she says.

Among the investments Huwej is willing to name are 45 percent of Oilinvest Group, whose main asset is Italy's Tamoil Italia SpA; 6 percent of Groupe ONA SA, Morocco's largest company; 16 percent of Olcese SpA, a century-old Italian cotton company; and 48 percent of Malta's Corinthia Palace Hotel Co. ..."

SUMMARY: I am more sure now than ever (Is >100% possible?) that libya previously held (thru it owned banks and many of it 103 front companies), owned and held US Treasury Bonds, just like all the other oil and gas producers. Also just like them, the news now is that Libya, like them, is decreasing their holdings.

(Treasury probably has some ideas as to how much of their bonds Libys owns, but it is like the Army's policy on homosexuals -Don't ask, Don'tr tell.)

On the secondary market (by far the majority of bonds trade there) any broker will hold Treasury bond "in the street name" for you. Libya would not need to buy banks and set up cpompanies to do so, but Libya probably feels more secure with some ageny it owns and controls holding the bonds, instead of trusting a broker.
----------------------
*If Libya were not investing illegally in US assets (usually US treasury bonds) there would be no need to set up shell companies, buy banks, etc. to avoid the US law. Essentially he is admitting he is buying illegally. Your ENTIRE arguement is: "He can't buy Treasury bonds because that would be illegal." - At best a naive POV, certainly not proof of your claim.

Billy T,
True but that does not support your claim that Libya did not buy and hold US Treasury bonds. I agree that Libya could not bid on new bonds being auctioned directly by the Treasury, but that is a very small fraction of the bonds traded every day. (Most days the Treasury sells none.)
Yes, the part in bold was my claim. It was in response to this quote by you:
You know, a billion, here, few billion there no longer buying US Treasury bonds, could get to be a problem.
Your initial claim was that Libya's state owned bank had been buying billions of dollars of US treasury bonds and that libya was now diverting those dollars to the new global investment bank to buy, presumably, "sovern" funds instead, since those are the focus of your thread. You, yourself, have now admitted that claim was false.
Your ENTIRE arguement is: "He can't buy Treasury bonds because that would be illegal." - At best a naive POV, certainly not proof of your claim.
Do not put YOUR strawman quote in parenthesis and attribute it to me Billy T. That is a dishonest attempt to support your naive and baseless claim.

Industry and Comerce Bank (one of China's largest bank, if not the largest) is buying 20% of south african bank (Standard Bank I think the largest,) for 5.5 billion dollars. - nice way to celebrate the Chinese space craft now on the way to the moon for planned year long orbiting mission taking photographs and look of evidence of He3 (by what means, I do not know) a very promissing nuclear fusion fuel as all the energy comes out in charged particles, I think. (Possible to go directly to electric power without the Carnot limits of themal energy.)

Want to post TV news while stil fresh in memory - next post will be reply to 2inquaitive.

... Your initial claim was that Libya's state owned bank had been buying billions of dollars of US treasury bonds and that libya was now diverting those dollars to the new global investment bank to buy, presumably, "sovern" funds instead, since those are the focus of your thread. You, yourself, have now admitted that claim was false. ...No, I do not admit that. I still claim Libya was buying US Treasury bonds, as indicated by your own post - Libya admitting that they were hidding their illegal investment activities from the US Treasury etc. (More details in post 25.)

You now seem to accept that I was correct on the basic issue of our disagreement and now seem to want me to be wrong because it is being done by front companies and owed banks - was not done by units strictly designated as "sovern funds."

While it is true the thread's title makes reference to "sovern funds" I never said Libya was using sovern fund to buy them. In fact, in recent post I noted last week thatn Brazil had joined 6 other South American countries to set up the "Bank of the South" and noted that this was acting as a form of sovern fund (despite being a bank). Not every thing I post about here is called acts of a "sovern fund" - more like the standard for posting here is "if it looks like a Duck, acts like a Duck ..." I.e. if it acts like a "sovern fund" than my posting here is not a claim that it is.

Since I never clamed Libya had a sovern fund, I can not be wrong to now admit that, to the best of my current knowledge, Libiya does not have any agency called a "sovern fund" (No need for it with 103 front companies and at least half a dozen banks under it control to act as one.)

Of course ~20 years ago when libya got banded from bidding on US Treasury bonds etc. libya did notset up an agenct called a "sovern fund" That term is only a few years old, at least never before in the popular press as it is to day. Norway set up the first I think about 10 years ago, but they became a "hot subject" when China set up it less than a year ago.

I do not regard it a an admission of any mistake of mine to post here about countries using a bank they control to perform the functions of a "Sovern fund" - Just a few minutes ago, I again posted news of a Bank doing so for China to the tune of 5.5Billion - China's largest single investment in Africa.

Post 19 also dicusses Indian bank ICICI acting as a sovern fund.

Please tell me just what you think I admitted as an error. I am not aware of many any such admission.

Billy T,
No, I do not admit that. I still claim Libya was buying US Treasury bonds, as indicated by your own post - Libya admitting thatr they were hidding their illegal investment activities fro the US treasury etc.
You could claim Libya was buying invisible pink dragons too, but you could not support that claim either. You want me to prove they weren't doing something in order to divert the lack of evidence in your claim that they were.
I can certainly support my position, however, unlike you. You seem to be very uninformed regarding Gadafi's government, presuming it operates similar to a western-style capitalist government. Here is a little cut & paste illustrating some differences:
His Revolutionary Command Council issued a "Law for the Protection of the Revolution," making it a criminal offense to proselytize against the state, to arouse class hatred, to spread falsehood, or to participate in strikes and demonstrations.[6] Within weeks, the Revolutionary Command Council assumed total public control over Libya. Qadhafi assumed formal control as both prime minister and defense minister. He curbed any significant delegation of authority beyond family and his closest associates.

In subsequent years, Qadhafi instituted an Islamization and Arabization campaign to cleanse Libyan society of Western influence. He removed Latin street signs, banned the sale and consumption of alcoholic beverages, closed the U.S. and British bases, and expelled both foreigners and much of the Libyan Jewish communities.[7] He converted Tripoli's cathedral to a mosque and Benghazi's cathedral to a headquarters for the Arab Socialist Union. Prior to their expulsion, Qadhafi forced the Italian community to exhume the remains of their dead to take back to Italy, an event he televised live.....
On April 15, 1973, Qadhafi moved to cement power, unfettered by commitments to Cairo. He launched a systematic assault on the Libyan bureaucracy and intelligentsia. Speaking in Zuwarah, he delivered what became known as his "Five-Point Address," in which he declared:

suspension of all existing laws and implementation of Shari'a (Islamic law)
purging the country of the politically sick
creation of a people's militia to protect the revolution
administrative revolution; and
cultural revolution[9]
...
Such religious egoism has not dissipated with time or with Libya's recent rapprochement with the West. In April 2005, Revolutionary Guard commander Hasan al-Kabir al-Qadhafi reiterated the same theme when he said there existed a special relationship between the leader and God and called Qadhafi a murabit (a living saint).[31] During a July 2005 meeting, the General Union for Producers, in effect, a state-controlled trade union, told Qadhafi, "We value and are proud of your imamship for millions of Muslims from East to West, so that the banner of Islam can be raised so high to fulfill the will of Allah."[32]
http://www.meforum.org/article/878
Billy T, you should know that Shari'a law does not allow interest to be charged, or for interest to be collected. US Treasury bonds are interest bearing securities, banned from ownership by Shari'a law, as well as the US banning Libya from owning them. Yet you fantasize that Libya has been buying billions of dollars worth of US Treasury bonds. Again, do you have anything to substianuate your claims?

...You could claim Libya was buying invisible pink dragons too, but you could not support that claim either. You want me to prove they weren't doing something in order to divert the lack of evidence in your claim that they were. In the very link you provided they admit to be hidding their investments from the US treasury - why would Libya need to hid their investments if they were not braking the law by buying US Treasury bonds in the secondary market?

Of course I would not claim they were buying pink dragons not only impossible but not one did 20 years ago; However, every government (libya included) with hugh dollar influx from gas and oil sales did buy the best yeilding and most safe investment possible at that time. (US Treasury bonds)

...Billy T, you should know that Shari'a law does not allow interest to be charged, or for interest to be collected. US Treasury bonds are interest bearing securities, banned from ownership by Shari'a law, as well as the US banning Libya from owning them. Yet you fantasize that Libya has been buying billions of dollars worth of US Treasury bonds. Again, do you have anything to substianuate your claims?Yes I do, unlike you, have evidence. Some cited above from your own link. Some by facts that everyone with large dollar influxes was buy the best/ safest bonds available. No reason for Kadafee to be the only exception.

On Shari's law, again you are being naive. Thinking that something against the rules can not be done.

I of course knew that. There is even a name for the type of "arab bond", that gets around it, but I forget it just now. All rich moslems effectively earn interest on their wealth. Kadafee is no exception. In fact, I said so and told how that problem was avoided in post 23. I said there:

"... If Kadafee is good a Moslem, he can not earn interest, so he would let the bank do that and "not know" exactly why his account is growing. As he has set up a new sovern fund, he must have some interest in what is happening to the dollar - why would he bother to get protection from the fall of the Treasury bonds if he had none (not even indirectly owned) to protect? ..."

PS I also now note that there is little evidence that Kadafee is a "good moslem" when it comes to earning income from investments. Quite the contrary. Don't be naive about Kadafee's moral restraints. Killing innocent people on air planes over Lockabee, England is also against the law for a good moslem, I think. :D

Billy T,
In the very link you provided they admit to be hidding their investments from the US treasury - why would Libya need to hid their investments if they were not braking the law by buying US Treasury bonds in the secondary market?
Hewej admits to his methods of getting around US and UN sanctions. The US knows about much of the Libyan investments, but won't release information of exactly how much they know. Billy T, until recently, Libyian assets in many US-friendly foreign banks was frozen and no country friendly with the US was allowed to do business with Libya. The link you refer to goes into great detail about how and where Libya's investments have gone. Mostly buying interests in banks, real estate, and companies. These banks are listed by name, an estimated percentage of the bank Libya owns, which companies Libya has invested in, and where the real estate has been purchased. Libya had purchased much of the European real estate before the US put Libya on a list of terrorist countries in 1979. No, I don't believe Libya has been buying billions of dollars worth of US Treasury bonds in the past, and has recently stopped buying the US bonds, causing a problem for the US in financing its debt. There is absolutely no evidence, or any reason, why Gadhafi would want US securities considering his relationship with the US.

...There is absolutely no evidence, or any reason, why Gadhafi would want US securities considering his relationship with the US.We will just need to agree to disagree. I can see not reason why Gadhafi should be the only exception among the seller of oil and gas to not hold US treasury bonds 20 or so years ago. Certainly, there are others who did and liked the US even less. One does not need to like the US to invest in Treasury bonds, if they are the best, safe investment (and they were 20 years ago.) For example, I am almost sure the USSR held many at the time of the cuban missle chrisis. (Seem to recall reading some letter to editor, telling every one it would "blow over" as the USSR had its funds in US Treasure bonds!)

For example, many who think smoking is bad for people own stock oin tobaco companies. In general, most people, perhaps all government central banks, investest where they think the reward/ rish is greatest without any regard to their like or dis like of the originator of the investment opportunity. I.e. Libya's central bank was not "considering his {Libya's} relationship with the US." Thus this arguement is not any more valid than the several others you have offered in your prior posts.

Billy T,
We will just need to agree to disagree. I can see not reason why Gadhafi should be the only exception among the seller of oil and gas to not hold US treasury bonds 20 or so years ago.
Billy T, I don't dispute that Libya may have purchased US Treasury bonds 20 years ago. In the last few years since some of the restrictions have been lifted, Libya is again a buyer of US securities. It was this conclusion by you that I questioned:
A newly established Libyan sovereign wealth fund is starting to deploy its $40bn (£19bn, €28bn) capital on international markets as the oil-rich state showcases its rehabilitation in the global community. Following in the footsteps of the Gulf countries, the regime of Colonel Muammar Gaddafi earlier this year allocated tens of billions of dollars that had been managed by the central bank to a new entity, the Libyan Investment Authority (LIA), which will now also receive a portion of the surplus oil revenues each year. ..."
FROM:
http://www.ft.com/cms/s/0/c4bd32be-7...nclick_check=1

You know, a billion, here, few billion there no longer buying US Treasury bonds, could get to be a problem.
Your implication, as I understood it, was that Libya had been buying billions of dollars worth of US treasuries and that they were now using those billions of dollars to buy sovereign funds instead of bonds, hurting the ability of the US to finance its debt. I looked up some stastics to see how the US Treasuries were distributed by country. I could find no individual stastics on Libya's holdings, but I did find stastics on African oil exporting countries as a whole, which includes Libya. First a cut & paste plus link to earlier years (2001) before restrictions on Libya were eased:
Oil-exporting countries
28 Middle East (4) 2,442 2,217 784
29 Africa (5) 0 0 0
(5.) Comprises Algeria, Gabon, Libya, and Nigeria.
Advertisement
http://findarticles.com/p/articles/mi_m4126/is_5_88/ai_86128852/pg_88
Now some of the latest stastics available:
Area or country----- 2005- 2006 (by month) 2007
---------------------------------Jan - July Jan Feb Mar Apr May Juner Julyp
32 African oil exporters3 2,027 2,400 (4,063 501 109 84 836 1,197 994 342)
The figures are in millions of dollars. Through July at least, the African oil exporting countries have been net buyers of Treasuries, but in relatively small amounts compared to other countries. You might find this chart interesting:
http://www.federalreserve.gov/pubs/supplement/2007/09/table3_25.htm

Billy T,

Billy T, I don't dispute that Libya may have purchased US Treasury bonds 20 years ago. In the last few years since some of the restrictions have been lifted, Libya is again a buyer of US securities. It was this conclusion by you that I questioned:

Your implication, as I understood it, was that Libya had been buying billions of dollars worth of US treasuries and that they were now using those billions of dollars to buy sovereign funds instead of bonds, hurting the ability of the US to finance its debt....The we can agree to agree. I initially posted libya is STARTING to deploy some of it 40Billion to show that lesser countries (in terms of selling US treasury bonds) are joining the major ones in turning to sovern fund type investment. I concluded that a billion here and another there can add up (to be or exceed what China alone is doing) to more problems.

I too may have understood you - but your following posting caused that:

"Billy T, you should know that Shari'a law does not allow interest to be charged, or for interest to be collected. US Treasury bonds are interest bearing securities, banned from ownership by Shari'a law, as well as the US banning Libya from owning them. ..."

"From what I have read, a great deal of Libya's oil money has been kept in their state-owned banking system as cash ..."

"No, I don't believe Libya has been buying billions of dollars worth of US Treasury bonds in the past, and has recently stopped buying the US bonds, causing a problem for the US in financing its debt. There is absolutely no evidence, or any reason, why Gadhafi would want US securities considering his relationship with the US. ..."

I now think you were just responding to your own mis understanding. I.e. your thought that I was claiming libya was a significant buyer of Treasury bonds. I was only illustrating (as I have in several other posts) that the avoidance of Treasury bonds, by purchase of real assets, instead of paper promisses, is spreading to many countries. In some way Libya was a leader in this movement from treasuries in that US selectively made it hard for Libya to openly buy Treasury bonds.

FINALLY !!!!

Brazil will create a sovern fund!

Backward as it is in good government, even Brazil now knows it is losing money by buying US treasury bonds.

Because of the enormous influx of investment dollars into Brazil and the high price of the commodities and food stocks it exports*, Brazil's currency (the Real) has been in great demand (to make these investments and pay for these exports). Thus there are many wanting to buy Real and few wanting to buy dollars. This imbalance in supply and demand has greatly elevated the value of the Real. (About 4 years ago a dollar would buy 4 R$, but yesterday a dollar could only buy 1.73R$.)

Thus, when an exporter of shoes sold to US {Brazil sold many there 4 years ago, in part because Brazil has been the world's leading exporter of beef and both leather and labor were cheap in Brazil.} it was very profitable. For example, if a pair sold for $40 that gave maker 160 R$ and the cost of the workers, materials, equipment amortization, shipping, and taxes perhaps totaled only 100R$. Now that $40 converts to only 69 R$ for a loss of 31 R$ on each pair sold, so the factories are closed and the workers are out of a job.

These workers (not only those making shoes) vote and are not happy with this process of "de-industrialization." So the government has become the buyer of last resort for the un wanted surplus dollars. In approximately the last 4 years, the dollar reserves went from less than 40 billion to the current 160 billion dollars (mainly invested in US Treasury bonds). Although the government has been earning roughly 6% interest on those bonds, they now are worth much less when it comes to paying the government's expenses (in Real, of course).

Now the 120 billion dollar increase in reserves was not all purchased with the same exchange ratio. Initially it cost 4 and now less than 2 Real to buy those dollars. Let’s use 3 as and average. With this estimate, the government paid 480 billion R$ for the 120 billion dollar increase in reserves, but now that 120 billion will only buy 208 billion Real. Thus, the Brazilian government has lost 272 billion Real trying to keep the dollar from falling more only due to the exchange rate changes.

However, that 57% loss is only part of the losses. To get the Real (with which to pay the local sellers of the dollars the government is buying) the central bank issues bonds locally. Brazil's current interest rate is about 11% but 4 years ago it was 29% for an average of 20%, but it was getting 6% from the US Treasury so the net interest cost of supporting the dollar is approximately 14% per year. The 120 billion dollars increase in reserves was acquired over 4 years so on average the duration of this interest loss was only 2 years. Thus, the net interest paid is (120x0.14) x0.14 = 22 billion dollars. This makes the total loss 292 billion on a 480 billion dollar investment, or 61%.

As bad and corrupt as Brazil is there were probably many other losses associated with "kick backs" from the favored agents used to make these transactions etc. but we will ignore that, even though it is probably part of why Brazil continued to behave so stupidly. But as I said at the start, FINALLY, Brazil will at least decrease the buy of US Treasury bonds, like most every well managed central bank is now doing. I.e. Brazil is now in the process of creating a "sovern fund" to invest its reserves more profitable, or at least not lose 61% in 4 year (a 15% negative return annually by holding Treasury bonds.)

The FED is "between a rock and a hard place." -If it cuts rates or even keeps than at 4.5% for long, essentially only the mint's printing presses can pay off the maturing Treasury bonds. (Very few will "roll them over" into new bonds to continue losing value.) If it raises rates to make Treasury bonds attractive to foreigners, then the already "wobbly" domestic economy (Houses no longer functioning as ATMs to give consumers cash to spend, etc .)** the US will definitely slip into recession, perhaps changing to depression. Thus, as I have been warning for several years, "stagflation" in the US is guaranteed now. That the US can survive, but as it appears impossible with the main tax payer (the peak earning "baby boomers") retiring to collect their Social Security and interest on the accumulated debt growing larger every year, it seems very likely to me that the current drop of the dollar will accelerate into a "run to get out" with a severe depression as a result. I wish it were not so, but see no way out of this fate now.
-----------------------
*It is hard to believe, but Brazil's favorable trade balance is greater than all of the Euro zone! See latest 12 month data published by the Economist at:
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=10026687
Think what Brazil could be if it had honest politicians, fair tax laws, well educated people, etc.

**Possibly the day of reconing can be post poned a couple of years more. The US consumer is still spending money he does not have. In some cases by borrowing against other assets, or more often by dipping into his already inadequate saving for retirment (even 401K plans etc). This decrease in savings is of course by itself a reduction in the funds available for modernazation of factories, research, even education - all the more reason why the US future looks very bleak.

Billy T,
Thus, when an exporter of shoes sold to US {Brazil sold many there 4 years ago, in part because Brazil has been the world's leading exporter of beef and both leather and labor were cheap in Brazil.} it was very profitable. For example, if a pair sold for $40 that gave maker 160 R$ and the cost of the workers, materials, equipment amortization, shipping, and taxes perhaps totaled only 100R$. Now that $40 converts to only 69 R$ for a loss of 31 R$ on each pair sold, so the factories are closed and the workers are out of a job.
Of course, Billy, that is what has happened to many factories in the US when the dollar was too strong. It made many of our manufactured goods too expensive on the world market. You do realize that those same $40 shoes would need to sell for $80 in the US for the Brazilian factory to make a good profit. That is due entirely to the changing dollar/Real exchange rate. That is the downside of a strong currency, it makes your exports too expensive. The US has lost many factories because of the strong dollar in the past. It is cheaper for the manufacturers to build new plants in countries that have a weak currency vs. the dollar, such as China. You also realize that the price of Brazil's alcohol exports must either increase in the US, or the Brazilian producers will face losses just as the shoemakers did. A lower valued dollar is good for our exporters, but bad for things we need to import like alcohol and oil. Thus the current US emphasis on developing alternative fuels, fuels that we can produce in the USA.

...A lower valued dollar is good for our exporters, but bad for things we need to import like alcohol and oil. Thus the current US emphasis on developing alternative fuels, fuels that we can produce in the USA.Yes, all you state is true, but not the entire reason the US is losing high pay jobs and Joe American is having a hard time paying his bills. Perhaps more important is the high life style even Joe is trying to support. His gas guzzler, his long commute to work, often as the only pasenger in his car (instead of by bike or bus as in China), etc.

The scary thing is that even with the obvious troubles Joe is not "tighten his belt" - facing the new economic reality of needing to make his expenditures less than his income, save for his old age etc. The latest data shows Joe (or at least his wife) is out buying like crazy still in the shopping malls etc.

Joe can not tap his home any more as if it were an ATM as he did last few years now that home values are dropping. Instead he seems to invading his meager savings more (even his 401Ks) rather than fact reality. In essence most of the US is in a state of psychological denial, hoping for an easy fix, like the lower value dollar will correct things etc. - Perhaps that is not accurate - Joe is just ignorant of the extent of the problem facing him as I will now explain:

Yes some exports will increase, but many now will not "buy American" even if cheaper and better. Also, things like corn that could be exported are being diverted to very unprofitable (without subsidies) uses and this hurts Joe American even more as he pays the associated tax burden. (And in the food store also.) There is the War cost to consider, but the real problem is that US's most profitable export is not going to increase - in fact is already dropping.

You make not immediately guess what it so here is a hint:
It gave the US government more than 100 fold mark up on the production cost, often even a 10,000 times greater income than the production cost!

Yes, I am speaking of those green pieces of paper called one and hundred dollar bills. They were in great demand until recently, but many countries are now being flooded with them, to such an extent that the foreign government must act as the buyer of last resort. (Discussed more in detail for Brazil's case in my last post.) The even more profitable paper called US Treasury bonds, typically at least $10,000 also cost less than a dime to make. They are now begining to be redemed more that new ones can be sold.

The slight increase in export of "physical goods" the dropping dollar will cause will not compensate for the return of these "financial goods," which the US could until recently very profitably export. (No merchant profits when he must take back goods previously sold. - Think about that.)

Stating this in other terms: The balance of trade in physical goods will surely improve as the dollar drops WRT other currencies, but the very drop in the dollar will also cause (in fact already is) a "reverse flow" or "import" of a US product that was once very profitable to export.

Now that redemptions (caused by fear of continuing loss of their value) of Treasury bonds is exceeding sales the US most find a way to pay not only for the current deficits, but also "pay the piper" for the "dance" it had when foreigners were willing to accept Treasury's paper promisses for real goods and services.

Guess who, in the end, will pick up this growing tab? - That's right, poor over burdened Joe American as the well off have, to a large extent, already gotten their wealth out of the US, some by buying ADRs. :D

GWB has screwed Joe and poor dumb Joe does not even know it yet.
If he thinks about it at all, it is to deny it or think that if there is any problem, then the natural increase in exports with the dropping dollar will "fix it."

Also, wrt your point on producing alcohol from Iowa corn: As Adam Smith proved about 300 years ago, it is never to your net advantage to make domestically what you can import more economically.

Billy T,
The scary thing is that even with the obvious troubles Joe is not "tighten his belt" - facing the new economic reality of needing to make his expenditures less than his income, save for his old age etc. The latest data shows Joe (or at least his wife) is out buying like crazy still in the shopping malls etc.
Yes, I mentioned in an earlier post that the spendthrifts will have to 'tighten their belt', stop buying all those items on impulse that they don't even need. Is that a bad thing? Most were imported from China, bought only because they seemed like such a 'bargin'. Imports will be down naturally due to rising prices to take care of this reckless spending.
Yes some exports will increase, but many now will not "buy American" even if cheaper and better.
So Gadafi didn't sneak around to buy US treasury notes and securities because they were 'better' after all???
Yes, I am speaking of those green pieces of paper called one and hundred dollar bills. They were in great demand until recently, but many countries are now being flooded with them, to such an extent that the foreign government must act as the buyer of last resort.
Any country that is flooded with them is obviously selling 'stuff' to the US. That 'stuff' is called exports in the selling country and imports in the US.
The even more profitable paper called US Treasury bonds, typically at least $10,000 also cost less than a dime to make. They are now begining to be redemed more that new ones can be sold.
Yes, those were sold to finance the US debt and war(s). What happens if they crash and drop to 1/4 their present value? The US only has 1/4 the debt it now has, when directly compared with foreign currencies via currency exchange rates. Foreign investors do not want the Treasury notes to drop in value because it represents a decrease in value of their holdings. An inflating dollar compared to their currency also means a drop in the value of their dollar holdings. If foreign nations stop buying treasury bonds the US sells to finance the war, that will pressure the US government to end the war. Is that a bad thing?
The slight increase in export of "physical goods" the dropping dollar will cause will not compensate for the return of these "financial goods," which the US could until recently very profitably export. (No merchant profits when he must take back goods previously sold. - Think about that.)
Some merchants have a policy of 'no returns, no refunds'. Maybe the US government will just say 'you bought'em, they're yours' if things go too badly. ;) Happened with me with 10,000 shares of a shaky stock I held when a company declaired bankruptsy. The buildings, etc. were still there, I just didn't own any part of them any longer. (:shh: get out of those alcohol stocks you own, Billy)

...So Gadafi didn't sneak around to buy US treasury notes and securities because they were 'better' after all??? The great hate of American is a very recent thing - post iraq invasion. Today on the news I learned that the US's most faithful ally, Japan, will not let its navy ships refuel those of other nations participating in Bush's "war on terror." Those tankers are now on their way back to Japan. The Japanese government wanted to continue indirectly supporting the war without violating their constitution, but the people are so mad at their support of the US policy in Iraq that it would have fallen if it ignored the wishes of the people. (Just as the Spanish government did fall in the last election for the same reason.) I mention before that my wife will not drink coke even when it is free (at parties). If you live in the US only- it is hard to imagine how much damage GWB has done to the US.

...Any country that is flooded with them is obviously selling 'stuff' to the US. That 'stuff' is called exports in the selling country and imports in the US. No not completely true even if the indirect route is recognized. (China earned the dollars by sales to US and now is forcing Brazil to take them in payment for iron ore shipped to China as the contracts were written with dollars specified. I think Brazil will demand Yaun next time they sign a contract.) much of the flood of Dollars into Brazil and India is FDI. Just couple of days ago India spelled out the details of the new rules on "participatory investments" - when vaguely announced last week the Indian stock market took a big hit, but they are more about more openess as to who the actually buyers of Indian companies are instead of strong restricitons on the flood of FDI into India.

I do not have the numbers directly available but the number of IPOs in Brazil is about double last year's and even the main stock market itself just went public a couple of days ago. That is, more than half of the flood has nothing to do with US buying Brazil's exports, but US dollars coming to Brazil as investments in Brazil (anything is better than holding dollars it seems). I do recall that 60 some percent of the shairs of Brazilian stocks are now in the hands of foreigners.

Also it is not just Brazil and India and a few rich investors. The companies that make up the DOW on average LOST money in the US but were still quite profitable as their non US businesses are doing very well. (More tha half of all their income was from non-US sources in 2006 for first time in history.)
...Foreign investors do not want the Treasury notes to drop in value because it represents a decrease in value of their holdings. An inflating dollar compared to their currency also means a drop in the value of their dollar holdings. If foreign nations stop buying treasury bonds the US sells to finance the war, that will pressure the US government to end the war. Is that a bad thing? of course not (with possible exception of China some day when the economic gain by causing depression in US and EU will lower oil etc demand / prices will more than compensate). The only thing they want less is to be the last one holding the bag of worthless Treasury paper. I.e. when the run on the dollar starts it will all be over in a day or two, except for the crying. Did you see the lines at Norther Rock, even after the BoE assured all that there would be paid 100% with the interest due. A currency panic is a terrible thing - hard for most to even imagine.

...Some merchants have a policy of 'no returns, no refunds'. Maybe the US government will just say 'you bought'em, they're yours' if things go too badly. ;) Happened with me with 10,000 shares of a shaky stock I held when a company declaired bankruptsy. The buildings, etc. were still there, I just didn't own any part of them any longer. (:shh: get out of those alcohol stocks you own, Billy)I am a long term investor Alcohol is not going to go under, like you bankrupt company. Not showing any profit yet but San Martino is gaining on the others as is highly mechanized in the harvest, very well managed, etc. Perhaps may pick up a few smaller competitors while their prices are depressed.

Not even a hint of US default can escape the lips of a low level Treasury office boy without serious damage to the US. Rest assured The US will run the presses to make new dollars before any one thinks of defaulting on the Treasuy bonds. What you get paid at maturity may not buy a good lunch but every dollar of every $10,000 bound will be paid when due.

Billy T,
I.e. when the run on the dollar starts it will all be over in a day or two, except for the crying. Did you see the lines at Norther Rock, even after the BoE assured all that there would be paid 100% with the interest due. A currency panic is a terrible thing - hard for most to even imagine.
I keep seeing you predicting a 'run on the dollar' Billy, but I have yet to understand your reasoning behind the prediction. When a bank or financial institution experiences a currency panic, it is because their assets, in the form of cash or cash they can borrow, has fallen below the value of investor deposits. The bank patrons that have cash in the bank become worried they will lose their savings, then panic to withdraw their money. The patrons are turning in their pieces of paper (deposit slips) in for cash, or dollars if in the US. I suppose your assumption is that foreign holders of the dollar will panic and want to convert their dollars into a different currency, such as your Reals, driving the exchange rate of the dollar quickly down verses other world currencies. The value of the dollar would fall in the world market relative to other currencies if the foreign investors were ignorant enough for everyone to begin to convert their dollars at the same time. The bank run you referred to was by unsophisticated 'average Joes' that were ignorant of what they were doing. They had no reason to panic, their deposits were insured. Why do you believe sophisticated international investors, mostly central bankers, would be so ignorant as to start a panic 'dollar conversion' to begin with? Why do you believe those bankers would be so ignorant as to overlook the fact that such panic activity would lower the value of their holdings?

...The bank patrons that have cash in the bank become worried they will lose their savings, then panic to withdraw their money. .... I suppose your assumption is that foreign holders of the dollar will panic and want to convert their dollars into a different currency, such as your Reals, driving the exchange rate of the dollar quickly down verses other world currencies. ... Why do you believe sophisticated international investors, mostly central bankers, would be so ignorant as to start a panic 'dollar conversion' to begin with? Why do you believe those bankers would be so ignorant as to overlook the fact that such panic activity would lower the value of their holdings?Yes you have the picture correct for all institutions that are not sovern states (don't have the ability to print money). Banks are inherently unstable inventions in that they lend money out "long term" (eg mortgages) and borrow money short term (demand deposits). They often failed* before governments, which do have the ability to print money, realized that the resulting economic damage of a run on the bank could be prevented by providing what ever amount of money might be required to stop the run. - Such as the BoE just did with Northen Rock to keep all of England's financial system from crashing. (125 billion dollars worth in that case was required, as I recall.) Central banks do not do this for "FREE," but charge interest. In this case the cost of the short term loan appears to have destroyed most of NR's net worth. (The branch buildings etc are about all that is left - even the once valuable name is worthless now.)

A run on a sovern state is an entirely different thing. Then the central bank printing more money just makes the run accelerate instead of stops the run. (In the sovern state case the panic fear is that the currency will lose it value, not that there will be too little in the vault to honor all the promisses made.) It is casued by the sovern state spending (relative to its GDP) too much borrowed money. When this is about to happen is difficult to call. I think that it rarely happens if GDP is expanding, at least in the modern world. If GDP is stagnate low, or falling rapidly and debt are growing with no indication of any willingness to take the painful "belt tightening" steps needed to reverse these trends then it is very rational to try not to be the last to spend you paper money buying some goods of real value or some other currency that is without these problems.

As I said in first post of my thread about the "6L cycle" I think that the central banks of the major powers, acting together, will avoid a run on the dollar occuring in this "6L cycle" which has just ended. This new 41 billion and the 125 billion the BoE printed and the 0.5 + 0.25% rate cuts of the FED have the start of the next, and I think final, "6L cycle" at least half finished. (that "L" is the add LIQUIDITY). The second "L" is also clearly started, (Make easy LOANS), but still only to the "big guys" like Citi and Merial Lynch, not yet so Joe American can "drive now and pay later," but that is coming again soon as Detroit is despirate to boost sales. (The banks, flush with newly printed dollars, will eagerly finance these dealers - that will start the third "L" of the 6L cycle - the LINKAGE of the financial expansion into the general economy.)

There have been several of these "6L cyclcs" in the last hundred years (the first had its "add LIQUDITY" phase done by J.P. Morgan, not the government, to stop the collapse of the stock market at the end of the 1800s (I think it was him and am not sure of the date- but it is all well known) The earlier cycles were longer duration than those coming now. The one just now ending started with Greenspan's FED containing the spread of the "dot.com" bubble bursting. the one just now begining has the "subprime/ inflated house price" bubble bursting (not over yet) as its starting point.

I do not known what will trigger the start of the final 6L cycle. I bet it is some problem with an "oil price bubble" or erupting global tension, like a civil war in Turkey, which I predicted years ago would be the main result of GWB's Iraq misadventure or perhaps a main-land Taiwan war, but that is unlikely now as The main-land China is slowing winning that struggle via its powerful economy. (eg. Taiwan, once the maker of most of the world's computers, now makes none - all have moved to the mainland etc. - no one can resist the profit temptations presented by 1.3 billion people who are not in debt, are big savers and are just now learning what credit cards are!) I.e. I have only logic, some facts, and a slight understanding of economics, but not a crystal ball to tell exactly how it will all happen, but the US and EU are headed for the worst depression ever, thanks mainly to the recent changes in US policy. (From Clinton's peace and balanced budgets to GWB's wars and historically greatest ever deficits).

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*There is a wonderful, if exagerated scene, in that first movie to mix live actors with animation (Not sure of the title, perhaps Chitty bang bang? the one with a "chimeny sweep" as the central character and the "superfargilisticaspialodocious" word etc.). The banker's son is in the bank with a coin in his hand and his father (with the board of directors standing behind him and assisting) is trying to get the boy to invest the coin, eventually physically trying to take it from him. This is observed by other customers who conclude the bank is way over extended and a run on the bank starts. - they have been stared for less reasons, sometimes even by competitor spreading rumors.

I know you think that this is the beginning of the last "6L" cycle. Do you at least acknowledge the possibility that the Fed and other central banks could navigate further trouble and start the cycle yet again? Basically, do you think its possible, not likely, that this is not the final "6L" cycle. Furthermore, isnt it possible that the cycle could continue indefinitely with brilliant monetary policy decision?

I know you think that this is the beginning of the last "6L" cycle. Do you at least acknowledge the possibility that the Fed and other central banks could navigate further trouble and start the cycle yet again? Basically, do you think its possible, not likely, that this is not the final "6L" cycle. Furthermore, isnt it possible that the cycle could continue indefinitely with brilliant monetary policy decision?Anything in economics, except a truely "free lunch," is possible. Also I could be wrong - I was once back in 1947. :D

Seriously, the dot.com to subprime cycle combined with GWB's very unpopular wars (especially to almost every one not living in the US), have very significantly erroded the good will the US enjoyed imediately after 9/11.

More importantly, this just concluded cycle is the first where most now agree that the many other currencies are better to hold, more stable, more likey to appreciate than then the US dollar. Even many, possible most, Americans think this now. I.e. Dollar is at 26 year low against Canadian dollar, at all time low against the euro, (I forget how many years its drop goes back against the pound) etc. On some recent days the dollar has declined against all 16 major currencies in the most widely used comparision "basket" - that has never happen before 2007.

Even central bankers have habbits of thought patterns, can be stupid, etc. but esentially all now know that dollar has failed as a "store of value", is headed further down. They are setting up sovern funds. Hell, even backward, corrupt, Brazil just announced it is doing so. (Even if the decision makers were getting kick-backs from the dealers for buying dollars, there is just so much pain they can impose on their voters before they get voted out of office, etc.) Treasury redemptions have now exceeded new sales in some weeks -this when the need for net sales to finance the deficits is increasing. The unpromissing future of the dollar is too well known by almost all now.

Psychology and faith are very important in the economics with fiat currency economies. Every one knows that the currency can quickly become just and only what it litterally is: green paper. Foreigners now think differently about America, have experienced very real losses by holding US Treasury bonds - Admittedly not the full 15% annual loss that Brazilians (and Indians also, I think) have for each of the last three years. Everyone with any interest in dollars has learned in the last few years, that the Tripple AAA rating of US bonds only means that there will be no default - not that you can not lose rapidly purchasing power (measured by how much of your local currency a dollar will buy - ultimately to foreigners that is what matters - they spend their local curency in the bars and food stores etc. not dollars.

NEVER in any prior 6L cycle has the general doubt in the long term value of the dollar been so wide spread and serious. Short term, most all think that the dollar will survive - you can still get out orderly etc. - not yet time to panic. That is why in post 1 of the 6L cycle thread I stated my confidence that it would be the next, not this now terminating cycle, that ended in the panic run to spend dollars on something / anything of lasting value. (Even cans of beans to keep in the basement if nothing else is available.)

Many with more foresight than the last minute buyers of cans of beans have already gotten a lot of their wealth out of dollars and into appreciation currencies, especially Brazil and India's, or ownership in companies prospering in those countries with domestic sales or at least not selling much to the US or EU. (Companies that sell mainly to the US and EU will go under when US and EU go into depression, but not the sellers of oil as China will still be buying all it can, and not paying too much for it because of the reduced demand for it from depressed US and EU.) You can see this already, even in the companies that make up the DOW index - more that half of their total sales and most of their profits* do not come from the US now - again this never true before 2007.

At maturity each $10,000 bond will be paid with 10,000 dollars - US will never tell its creditors that they are to only get $4,000 dollars for each (as Argentina did a few years ago - number is probably wrong as form memory - only trying to illustrate a typical "default") If US economy can not sustain interest rates high enough to attract the needed foreign financing of its growing debt and interest payment requirements, then the mint's dollar presses with run to make more fiat money. "stagflation" is a near term certainity - also already started with inflation expectations rising and GDP growth contracting. For example, TIPS (US bonds with inflation protection) are more in demand and appreciating wrt other US bonds. BTW about a year ago, I told those who were not willing to follow my better advise and buy ADRs, to at least buy TIPs. (The mint's presses will soon be cranking out more dollars as more bond holders refuse to roll them at maturity. TIPs will at least partially protect you from the resulting inflation.)
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*Many DOW companies are actually losing money in the US - considering shutting down those lossers (Selling for much less than "book value" / for anything they can get, just to get out.) Some, like Chrysler, are already gone.

Nov. 7 (Bloomberg) -- The dollar fell to a record versus the euro and the weakest since 1981 against the pound after Chinese officials signaled plans to diversify the nation's $1.43 trillion of foreign exchange reserves.
...
The New York Board of Trade's dollar index dropped to 75.077, the lowest since the gauge started in March 1973.

``The dollar is suffering a confidence crisis,'' said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, the world's largest custodian bank with more than $20 trillion in assets under administration. ``The dollar is on the ropes. Comments from China about diversification and surging oil prices pushed the dollar to new lows.''
... The dollar will weaken to $1.54 per euro by the end of June, according to Woolfolk.
...
The dollar is ``losing its status as the world currency,'' Xu Jian, a central bank vice director, told a conference in Beijing. ``We will favor stronger currencies over weaker ones, and will readjust accordingly,'' Cheng Siwei, vice chairman of China's National People's Congress, said at the same meeting. Chinese investors have reduced their holdings of U.S. Treasuries by 5 percent to $400 billion in the five months to August. China Investment Corp., {Their Sovern Fund} which manages the nation's $200 billion sovereign wealth fund, said last month it may get more of the nation's reserves to invest to improve returns.
...
``The big issue on any currency is if its rate of depreciation is so fast that it scares away all capital, and the announcement that we heard from China sort of feeds those fears,'' said Larry Smith, who manages $400 million as chief investment officer at Third Wave Global Investors.

[b]International investors sold a record amount of U.S. securities in August as soaring credit costs sparked an exodus from the stock market. Total holdings of equities, notes and bonds fell a net $69.3 billion after an increase of $19.5 billion in July, the Treasury Department said in Washington on Oct. 16.

The euro's break of the synthetic high set in 1992 cleared a ``strong resistance,'' which could allow the currency to rise at a faster pace unless there are comments from European nations against its advance, said Woolfolk.

``There are no real levels left,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. ``Trying to find one is a fools' game now. I guess psychologically $1.50 is the only major level. But this last wave higher has been so fast that it's hard to have any levels in mind.''
...
The dollar's decline helped drive the price of crude oil to a record $98.62 a barrel and gold to a 27-year high, encouraging investors to buy assets in commodity-producing nations. ...The dollar's 10.1 percent drop against the euro this year boosted the competitiveness of U.S. exports, helping shrink the nation's trade deficit to $57.6 billion in August, the smallest since January.

``Further weakening of the dollar is very likely,'' said Teis Knuthsen, the Copenhagen-based head of foreign-exchange, fixed-income and derivative research at Danske Bank A/S, the Nordic region's second-biggest lender. China may ``diversify out of dollar holdings.''
...
``The world's currency structure has changed,'' Xu said at the conference in Beijing.

From:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLfEwBmQZEyA&refer=home

*Many DOW companies are actually losing money in the US - considering shutting down those lossers (Selling for much less than "book value" / for anything they can get, just to get out.) Some, like Chrysler, are already gone.
What happened to Chrysler?

What happened to Chrysler?

Most of their stock was sold by DaimlerChrysler to Cerberus Capital Management, and they hired some new management and worked out a new labor agreement. Things seem to be looking up for Chrysler, actually. I don't know what Billy T is talking about with his "already gone" comment. Maybe he's confused because the stock is all privately held?

Most of their stock was sold by DaimlerChrysler to Cerberus Capital Management, and they hired some new management and worked out a new labor agreement. Things seem to be looking up for Chrysler, actually. I don't know what Billy T is talking about with his "already gone" comment. Maybe he's confused because the stock is all privately held?I meant that US Chrysler exists no more. (Chrysler is expanding into India and China, in both cases, as I recall, with local partners and smaller cars). I of course do not know Cerberus Capital Management's plans, but given the huge losses* of GM and Ford and fact that Chrysler was already losing market shair, going bankrupt, it seems unlikely the CCM will try to turn that car maker around, or even could afford the design costs, etc. to do so. Most likely they will "sell the pieces," perhaps to one of the electric car start up companies or to a well run standard auto company, like Toyota (10% increase in profits in US last quarter as I recall). That is what a leveraged buyout operations does when it has little hope of rebuilding a profitable enterprise. The old "don't thru good money after bad" story.

If you have any reason for saying: "Things seem to be looking up for Chrysler, actually." I would like to hear it. (19.9% of US Chrysler stock is not yet in CCM's hands. I think it is priced well below liqudation value. The old "Better dead than alive" story.)
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*Ford Motor Co., the second-biggest U.S. automaker, narrowed its third-quarter loss to $380 million after boosting revenue and reducing costs through plant closings and job cuts. ..." FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aA8AOdxzoX_8&refer=home
Yesterday's 360 point drop in the DOW was triggered initially by the huge and unexpected losses at GM - 32 billion, I seem to recall, but can not easily find day old data now. (Oil spiked to $98+ later in the day and accelerated the drop. GM's bad news started it down.)

32 billion??

32 billion??Sorry about the error - I heard news on CNN as it was released. Correct number is 39 BILLION.

Here are more details:

"... General Motors Corp. posted a company record $39 billion loss Wednesday for the third quarter, as a charge involving unused tax credits brought an abrupt end to a string of three profitable quarters for the nation's largest automaker.

The loss was one of the biggest quarterly corporate deficits ever. GM's shares closed more than 6 percent lower. Standard & Poor's downgraded GM shares from hold to sell, and said GM's near-term outlook has worsened significantly in part due to reduced U.S. sales ..."

FROM:
http://www.columbian.com/business/APStories/AP11072007news228265.cfm

I think the last 3 quarters were profitable because of some tax credit deal. Remember slightly more than a year ago, everyone thought US GM would go bankrupt before Ford. Then about half a year ago, Ford pulled ahead in this "race." Hard to tell now, which will be first to bankrupt and which will be the last major US car company, at least for a few months before there are none.

I meant that US Chrysler exists no more.

What are you talking about? Chrysler is still around. You can walk into a car dealership anywhere in America and buy a Chrysler, Dodge or Jeep vehicle.

it seems unlikely the CCM will try to turn that car maker around, or even could afford the design costs, etc. to do so.

Well, they've already announced the creation of a new hybrid engine research division to create new high-efficiency cars.

19.9% of US Chrysler stock is not yet in CCM's hands.

Yeah, that's the stock that Daimler kept. So?

What are you talking about? Chrysler is still around. You can walk into a car dealership anywhere in America and buy a Chrysler, Dodge or Jeep vehicle.
Well, they've already announced the creation of a new hybrid engine research division to create new high-efficiency cars. ...Of course you can. The dealer's stock of unsold cars will not be driven directly to the junk yards! In fact if you don't worry about no one standing behind the warrantee spair parts in the future etc, I bet you can get a good buy now.
I do not know what fraction, if any of the dealerships were not independently owned but all that were must be trying to get some Asian car maker to accept them as dealers now. You are quibling. Chrylers US does not effectively exist now and will not be selling Chrysler cars after this production year supply is gone.

How long do you think it takes to develope and test a new engine? Would you buy one make by people with little experience in doing so? I predict that CCM will sell off the pieces while talking as if they were not going to do so, to help hold up their value.

Are you awware that Ford is trying to dump Jagar and land rover (I think it is), but collectively they have something like a 2 billion dollar obligation to a pension fund and their value may be about the same. I.e. Ford may need to subsidize the "buyer" just to get out of those money lossers.

PS try to see the main point - not the minor errors than may be here. I.e. point is that in very few years, there probably will not be any of the US "big three" car makers making cars in the USA, but all three will be profitable with their operations in China and India.

Chrylers US does not effectively exist now and will not be selling Chrysler cars after this production year supply is gone.

You're in outer space. They just started delivering the new 2008 models to dealers last month.


How long do you think it takes to develope and test a new engine?

A long time, and even longer to recoup the investment. Which is why this fact is evidence that they plan to still exist a long time from now


Would you buy one make by people with little experience in doing so?

Well, at this point, nobody has more than a little experience building hybrid engines. And, anyway, the work is being done in collaboration with GM and BMW.

Are you awware that Ford is trying to dump Jagar and land rover (I think it is),

I don't see what the position of two English luxury car companies has to do with anything here... car companies get bought and sold all the time.


I.e. point is that in very few years, there probably will not be any of the US "big three" car makers making cars in the USA, but all three will be profitable with their operations in China and India.

You're crazy.

Cinapour .........430
CINAPOUR!?!?!?!?! :bugeye:
Where the hell is THAT!?!? LOL!!!!! :D

Do they already accept Canadian dollars in the US? :D

Do they already accept Canadian dollars in the US? :D

More interestingly: have they stopped accepting US dollars in Canada?

Yes... they are kinda worthless.... :D

more facts, just noticed, on post 47 footnote about Ford's problems:

"... Ford, which is in discussions with both industry and private equity companies over a sale, {of Jaguar and Land Rover} is expected to sell the loss-making operations in a deal valuing them at more than $2 billion. But with Ford likely to retain a significant minority stake, the value to the U.S. company of any sale would be more than swallowed up by the pension shortfall, the FT reported. {I.e. no cash gained - just lesser rate of lossing money caused by sale.}...
The U.S. auto maker this week selected Indian vehicle makers Tata Motors Ltd. (TTM) and Mahindra & Mahindra Ltd. (500520.BY), and buyout group One Equity Partners - whose bid is spearheaded by former Ford chief Jac Nasser... "
From:
http://news.morningstar.com/news/ViewNews.asp?article=/DJ/200711071746DOWJONESDJONLINE001071_univ.xml

PS thread is drifting away from "sovern funds" (and I am not helping with this post). Thus I add:

It is very complex to guess how sovern funds now view US assets. On one hand they are getting cheaper to buy as the dollar falls. On the other hand they are getting less valuable to own, and becoming more risky. For more on this see first paragraph of:

http://www.sciforums.com/showpost.php?p=1621429&postcount=102

So US automakers are having problems. But foreign car makers in the US are not necessarily having the same probllem....or are they?

So US automakers are having problems. But foreign car makers in the US are not necessarily having the same probllem....or are they?No - Toyota had 10% increase in US sale profits last quarter as I recall.

Problem is basically what I call the "suburban infrastructure" foolishness of the US (Americans) which values too much the "good life style" with too little thought to its sustainability as the high cost energy era approaches. (Why also that the coming depression will hurt Americans more than Europeans, but it will cause great pain there too.)

In more direct, less general, words: Detroit made what would sell (with US gas at about half the cost of the rest of the world - caused by stupid short-sighted US voters.) - I.e. Hummers and SUV to site the extremes but the average US car weighs much more than those sold in rest of world. Toyota sells more cars now than anyone else (Displaced GM for that honor recently.) and has a stronger focus on quality and fuel economy as well as being very well managed, without the excessive CEO pay scales for poor performance that US industry typically has. ("Golden parachutes" even when they do such poor jobs that they are kicked out - like Citi's and Meril Lynch's just fried CEOs).

Quadraphonics called me crazy for suggesting that in a few years not one of the big three auto makers would have US operations, but I did not reply to that opinion of his - he is entitled to his POV as I am to mine. Good four passenger cars, for example Tata motors's 1 Laka car (100,000 Indian Rupees, current less than $3000) to show to public in a couple of months may cost $5000 when improved to meet US safety standards. If not kept out by tariff walls then Detroit is dead. There is also a much cheaper "three wheeler" being developed for Urban use - with only three wheels, it is exempt from those safety standards. A "three wheeler" for US market may sound crazy now, but it will get you around town when your Detroit monster is up on blocks as you can not afford gas for it. Drastic changes are coming in the US's "suburban infrastructure" and "good life style," like it or not!

So whats stopping US makers from developing better fuel economy (and smaller) cars?

So whats stopping US makers from developing better fuel economy (and smaller) cars?American voters who elect president and congress that serve the lobbies, especially the oil and agri-busness lobbies. More in my thread (created before last US presidential election in failed effort to effect it.) called "How stupid can US voters be?" These short sighted voters also vote with their wallets for the gas guzzelers Detroit then makes.

So whats stopping US makers from developing better fuel economy (and smaller) cars?
All US automakers do make high fuel milage cars. They are just not popular, don't sell very well. Billy T fails to note that the Toyota Camry and the Honda Accord, neither of which are high milage cars, are both US made vehicles. They are not imported from Japan, but manufactured totally in the US. Those are the most popular 'cars', but Billy T also fails to note they are far from the most popular vehicles, which are trucks. The Ford F150 pickup outsells any car, with the Chevrolet Silverado right behind it. Many Americans, those that do not live in large urban centers, need dual use vehicles that can haul more than their own ass.

Billy T is also posting hype about the American automakers going out of business. For instance, the 39 BILLION dollar loss for GM in the third quarter was a combination of things, much of it due to their GMAC finance operations. They make home loans also. They had many sub-prime home loans in the operation, which took huge losses along with other sub-prime lenders. GM's global auto-making operations actually recorded a profit for the third quarter. It was a combination of things that lead to the loss on the books, but not because their vehicles did not sell as Billy T suggests. High fuel prices do temporarily shift the sales to higher milage vehicles, but most of those sales are driven by consumers that drive long distances to work and back. They often buy 'commuter cars' in a