OPEC nations had their most profitable half-a-year ever. According to the FT, "Members of the Saudi ­Arabia-led oil exporters' cartel took home $645bn (£335bn, €430bn) between January and June." That number could get even better in the second half.

OPEC may be doing exceedingly well and it may be building huge sovereign funds to invest in crippled financial companies in the US and EU, but it is taking on a substantial risk.

OPEC has kept is production fairly flat. The organization has done very little to abate the run-up in oil prices. That run-up has been the one of the two or three largest contributors to a slowdown of economies in the West.

A full-blown and deep economic recession is likely to spread from the West to China and India. If the US consumer cannot afford much beyond his mortgage, gas, and food, imports will suffer, perhaps substantially. Falling demand for imports in the US could spread to the energy-hungry countries of the developing world. In other words, demand for crude could collapse as demand for exports falters.

A sharp drop in oil demand could do terrific harm to the pace at which OPEC takes in cash. Record income may seem good for now, but it could drive very unpleasant and unintended consequences.

Douglas A. McIntyre is an editor at 247wallst.com.

OPEC profits rocket as it poisons its own well originally appeared on BloggingStocks on Mon, 11 Aug 2008 10:40:00 EST. Please see our terms for use of feeds.

Barclays (NYSE:BCS) become the most recent bank to raise billions of dollars, bring in $8.8 billion from investors including the sovereign funds in Qatar and Singapore.

"Through our capital raising ... we strengthen our capital base and give ourselves additional resources to pursue our strategy of growth through earnings diversification," Barclays Chief Executive John Varley said, according to The Wall Street Journal.

That is a nice way to say the bank was running out of money.

The news says more about the future than it does the past. A bank as large as Barclays would not raise such a large sum if it believed the credit crisis was largely over. The firm clearly expects more fall-out from mortgage-related paper and LBO loans. Why else dilute the shareholders?

At least the fact that large funds will still put money into banks is good news.

If the tea leaves from the bank's actions are correct, the opinion among many Wall Street analysts that the financial crisis will extend into next year is right.

Douglas A. McIntyre is an editor at 247wallst.com.

As Barclays (BCS) raises nearly $9 billion, where does it end originally appeared on BloggingStocks on Wed, 25 Jun 2008 04:14:00 EST. Please see our terms for use of feeds.

The Treasury and some members of Congress are concerned that sovereign funds from the Middle East and Asia may use their investments in US banks and corporations to push their global political goals. Treasury Undersecretary for International Affairs David McCormick said the government-controlled funds may raise "legitimate national security concerns," and may distort markets if not managed properly, according to MarketWatch.

If the large funds walk away from investing in the US, especially when banks and brokerages may need more money to weather the credit crisis, finding large pools of capital may be difficult.

But, one sovereign fund, Singapore state investor Temasek, appears to be willing to agree to make official its intention to put money into US companies for only "financial" reasons. According to Reuters, "A Temasek Holdings executive told a U.S. House of Representatives subcommittee that it supports the aim of U.S. lawmakers to maintain the right balance between national security and investment flows."

Continue reading Temasek, one sovereign fund, backs down

Temasek, one sovereign fund, backs down originally appeared on BloggingStocks on Thu, 06 Mar 2008 10:20:00 EST. Please see our terms for use of feeds.

Citigroup (NYSE: C) may need more cash. The head of Dubai International Capital told Reuters that it would take "a lot more money" to rescue Citigroup following investments from Abu Dhabi, Kuwait and Saudi Arabia's Prince Alwaleed.

The statement has the benefit of probably being true. Citi is almost certainly faced with more subprime losses and its derivative holdings of credit cards and munis plus LBO paper could lead the bank to have to write-off billions more in losses from these.

The question is where will the big bank go. Sovereign funds may not have an appetite for putting up more capital. US private equity firms may find the deal too risky. Things may get bad enough that the Fed will have to step in and give Citi a huge loan to keep its balance sheet solid enough for the bank to remain solvent.

The "a lot more money" may come from taxpayers.

Douglas A. McIntyre is an editor at 247wallst.com

Citigroup (C) may need more money originally appeared on BloggingStocks on Tue, 04 Mar 2008 08:13:00 EST. Please see our terms for use of feeds.

It seems that people don't like the idea of sovereign funds owning big pieces of US banks. According to the FT, "over half of the 1,000 people polled by the market research group Strategy One said they 'trusted Citigroup (NYSE: C) less' after its recent decision to tap Middle Eastern and Asian sovereign funds to ease its financial constraints." The number for Merrill Lynch (NYSE:MER) was nearly as high.

The reaction is not against the banks taking the money, but that it came from overseas. That means that while these sovereign investments may have saved the institutions, they could affect that way that customers deal with them. That is, of course, almost impossible to put a number on.

U.S. consumers and businesses will have to get used to a lot more money coming from outside the US to help firms here, especially those in the financial industry. At the end of the day, Merrill and Citigroup probably don't care if their images are dinged if they can keep doing business.

Of course, Merrill could just move its headquarters to Beijing and Citigroup can head to Abu Dhabi.

Douglas A. McIntyre is an editor at 247wallst.com.

Sovereign investments hurt Merrill Lynch and Citigroup's image originally appeared on BloggingStocks on Tue, 22 Jan 2008 10:40:00 EST. Please see our terms for use of feeds.

This morning Asian markets were tumbling -- according to The Associated Press, Hong Kong's market closed down 5.4% and Japan's fell 3.4%. Meanwhile, according to the New York Times, a professor at New York University who studies the Great Depression said that banks have not been in such bad shape since the 1930s.

Richard Sylla, a professor of financial history, said, "It looks like the financial sector as a whole will see a big decline in profits, and the only time this happened in the last 100 years - financial firms' going from making good profits to negative profits - was the Depression in the 1930s." But he's optimistic noting, "I don't think it will be as bad this time; the Federal Reserve is fighting the problem as hard as it can."

Maybe Sylla's right, but I don't think the Fed can help the problem facing the banks. That's because they need to write-down a big chunk of the $413 billion in Level 3 assets (as of Q3 2007) they have and then come up with enough capital to offset that write-down. The banks are scrambling to accomplish this by pleading with the world's Sovereign Wealth Funds (SWFs) for capital. I still don't know why the U.S.-based $2 trillion hedge fund industry won't help. In addition, banks are cutting their dividends and slashing their costs through layoffs.

Continue reading Global markets tumble: Is this the beginning of the Greatest Depression?

Global markets tumble: Is this the beginning of the Greatest Depression? originally appeared on BloggingStocks on Wed, 16 Jan 2008 09:35:00 EST. Please see our terms for use of feeds.

Both Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C) plan to raise a great deal more money to shore up their battered balance sheets, mostly from foreign governments.

According to The Wall Street Journal, "Merrill is expected to get $3 billion to $4 billion, much of it from a Middle Eastern government investment fund. Citi could get as much as $10 billion, likely all from foreign governments."

While the investments may raise questions in Washington about overseas capital controlling large interests in US financial companies, it also begs a more interesting question. Why aren't large pools of US capital investing in US companies? Certainly Warren Buffett or Calpers have the funds to take large pieces of companies like Citigroup.

The answer may be that sovereign funds have a much longer time horizon to get their money back. That would make sense since they only answer to their governments.

The only other explanation is that US institutions don't have much faith in the American economy and financial structure.

Douglas A. McIntyre is an editor at 247wallst.com.

Merrill, Citigroup go off-shore for money originally appeared on BloggingStocks on Thu, 10 Jan 2008 08:53:00 EST. Please see our terms for use of feeds.

George W. Bush has weakened America's economic and political standing while strengthening the hand of our enemies. As Iowans caucus today, it remains to be seen whether a leader will emerge this year who can reverse the forces Bush set in motion before America loses its leadership position in the world.

What forces did Bush set in motion? Bush created an enormous federal budget deficit through his $1.6 trillion tax cut. He increased government borrowing to a record $9.1 trillion. His wars in Afghanistan and Iraq have contributed to global instability which has helped drive the price of oil up four-fold from $24 a barrel to nearly $100. The dollar has lost 60% of its value -- for example, the Euro has climbed from 92 cents to to $1.47. And his drive to increase home ownership -- supported by subprime mortgage lenders like Ameriquest -- has contributed to tens of billions of write-downs by banks that bought securities backed by those liar loans.

This is not the first time global leadership has changed hands in world history. According to Niall Ferguson, in the 1870s, the Ottoman empire lost its lead in the world as its over-extended empire sought to cope with an external debt crisis by selling off revenue streams to foreign investors. Then, the Ottoman empire sold off its shares of the Suez Canal as well as its tax revenues to pay off the debts it incurred to finance the Crimean War, railway and canal construction and conspicuous consumption. Back then the beneficiaries of those cheap asset sales were western Europeans.

Continue reading Can Iowa caucuses help reverse the Bush legacy?

Can Iowa caucuses help reverse the Bush legacy? originally appeared on BloggingStocks on Thu, 03 Jan 2008 14:22:00 EST. Please see our terms for use of feeds.

The US government has been looking into a deal which would allow Chinese interests to buy US telecom equipment company 3Com (NYSE: COMS). That investigation is now being extended, a sign the the transaction could be killed.

According to the FT, The Committee on Foreign Investment in the United States "is studying possible national security implications of the 3Com takeover." Huawei Technologies, a Chinese telecom equipment maker, could end up with intrusion prevention technology used by the US Defense Department..

The investigation pits the needs of investors against concerns of the government. 3Com lost money in the last quarter. The only reason the stock trades at $4.52 is the buyout offer. The stock could easily drop to it recent low of $3.22 if the deal is killed.

Aside from the investor pain that the government could cause, the news opens the door wider to issues of which companies are strategic to US interests and which are not. As sovereign funds from other nations put money into US banks and technology companies the problems are likely to become more complex.

The American government is getting into the business of deciding whether shareholders can get money from some corporate buyouts.

Douglas A. McIntyre is an editor at 247wallst.com.

US government could kill 3Com deal originally appeared on BloggingStocks on Wed, 02 Jan 2008 08:45:00 EST. Please see our terms for use of feeds.

The Associated Press reports that Merrill Lynch & Co. (NYSE: MER) is in talks to accept a $5 billion investment from Singapore's Temasek Holdings. This is the latest in a string of investments from Asian and Middle Eastern government funds -- called Sovereign Wealth Funds (SWFs) -- which oversee between $2 trillion and $15 trillion.

Of the countries that are buying up big chunks of our financial system, Singapore is among the least threatening. I have visited there several times and find it a beautiful country. However, it has some puritanical social policies -- such as prohibiting people from chewing gum -- a ban it relaxed in 2002. I doubt its investment in Merrill will lead Singapore to impose its gum chewing ban on the U.S..

Merrill is soon to announce additional write-downs of assets thanks to the ratings downgrade of bond insurer ACA Financial Guarantee Holdings. One estimate suggested Merrill would write down $3 billion because ACA's lack of capital transfers the cost of bad Collateralized Debt Obligation (CDO) investments from ACA to Merrill.

But who knows? There's no reason to think we've reached the bottom -- of either the asset write-downs or the SWF buy-up of our banking system.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Merrill Lynch securities.

Temasek's $5 billion stake in Merrill would be SWFs' latest advance originally appeared on BloggingStocks on Fri, 21 Dec 2007 10:00:00 EST. Please see our terms for use of feeds.

New York Times op-editorialist Paul Krugman got one right today. And its Floyd Norris points out why the solution to the problem Krugman highlights could be SWFs (Sovereign Wealth Funds). Krugman does not know how much the financial industry's problems will cost and Norris suggests that SWFs -- government investment funds -- are worth between $2 trillion and $15 trillion.

Krugman's right that the Fed's four attempts to reboot the financial system have not worked because they dance around the most fundamental problem -- nobody knows the depth of the financial hole. If I was in charge, I would find out where all the toxic waste is buried and estimate the amount of capital needed to offset the cost of writing it down. In my view, it makes sense to mark the toxic waste to market and to raise capital at the same time.

Norris points out that SWFs could be part of the capital raising solution -- as they have been in the cases of Citigroup Inc. (NYSE: C) and UBS AG (NYSE: UBS). He also suggests two pitfalls of SWFs as a source of capital. First, they are government controlled which could allow the SWFs to use the resulting power over our financial institutions to further their political ends. Second, whenever a new acronym such as SWF emerges in the financial world -- and there have been plenty including Collateralized Debt Obligation (CDO) and Structured Investment Vehicle (SIV) -- Wall Street will find a way to profit from it in the short-term while sticking the long-term costs on someone else.

Continue reading Krugman gets one right and why SWF does not mean Single White Female

Krugman gets one right and why SWF does not mean Single White Female originally appeared on BloggingStocks on Fri, 14 Dec 2007 10:00:00 EST. Please see our terms for use of feeds.