Citigroup sinks to 10-year low, Goldman urges short sale
By Neha Singh 26 June 2008
Citigroup Inc (C.N) shares fell to their lowest level in nearly a decade after a Goldman Sachs & Co analyst said investors should sell the largest U.S. bank’s stock short as losses mount from troubled debt.
In morning trading, the shares were down $1.03, or 5.5 percent, at $17.82 on the New York Stock Exchange. The shares were among the biggest drags on the Dow Jones industrial average (.DJI) and Standard & Poor’s 500 (.SPX), which both fell more than 1 percent.
They also touched their lowest level since October 1998, the month that Sanford “Sandy” Weill merged his Travelers Group with Citicorp to create Citigroup.
William Tanona, the Goldman analyst, added Citigroup to Goldman’s “Americas conviction sell” list and cut his price target on the stock to $16 from $20.
He recommended a “paired” trade in which investors sell Citigroup shares short, betting on a decline, and buy Morgan Stanley (MS.N) shares.
The analyst said Citigroup might take $8.9 billion of write-downs for the April-to-June period, leading to its third straight quarterly loss. He also said the bank might need to cut its quarterly dividend for a second time this year, after lowering it 41 percent to 32 cents per share in January.
Tanona’s forecast suggests deeper problems for Citigroup Chief Executive Vikram Pandit, who is trying to turn the bank around after nearly $15 billion of losses in the last two quarters, and more than $46 billion of credit losses and write-downs since the middle of 2007.
“We see multiple headwinds for Citigroup including additional write-downs, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales,” the analyst wrote.
Pandit became chief executive in December, replacing Charles Prince, who resigned under pressure the previous month. Weill had hand-picked Prince as his replacement when he gave up the top job in 2003.
Last week, Chief Financial Officer Gary Crittenden said on a Deutsche Bank conference call that Citigroup could take substantial write-downs this quarter.
DIVIDEND CUT MAY BE NEEDED
Tanona said Citigroup might write off $7.1 billion related to collateralized debt obligations and associated hedges related to monoline insurers, $1.2 billion for other asset classes and $600 million for structured note liabilities.
He now expects Citigroup to lose 75 cents a share this quarter, compared with his earlier forecast of a profit of 25 cents. He also expects a full-year loss of $1.20 a share, compared with his prior view for a profit of 30 cents.
As of May, Citigroup had raised some $42 billion since last fall, including injections from sovereign wealth funds, data compiled by Reuters News show. Tanona said the bank may now need to issue common stock or sell assets to raise capital, because regulators may forbid it from issuing more preferred or convertible securities. He also said halving the dividend could preserve $3.5 billion a year.
“Given the firm’s current level of earnings power, we do not believe the dividend is safe,” Tanona wrote.
A Citigroup spokeswoman declined to comment.
On June 24, Merrill Lynch analyst Guy Moszkowski projected $8 billion of write-downs for Citigroup.
Tanona also downgraded the U.S. brokerage sector to “neutral” from “attractive,” saying deteriorating fundamentals will likely prolong any recovery from the credit crunch.
He projected a $4.2 billion second-quarter write-down for Merrill Lynch & Co (MER.N), leading to a quarterly loss for the largest U.S. brokerage.
“We expect write-downs for Citigroup and Merrill to outpace what we saw from Morgan Stanley (MS.N) and Lehman Brothers Holdings (LEH.N) recently, due to Citigroup’s and Merrill’s large exposures to ABS CDOs (asset-backed security CDOs) and associated hedges with the monolines,” Tanona wrote.
Brad Hintz, a Sanford C. Bernstein & Co analyst, on Thursday projected a $3.5 billion second-quarter write-down for Merrill. Banc of America Securities analyst Michael Hecht made the same forecast earlier this month.
On June 17, Goldman analysts led by Richard Ramsden said U.S. banks may need $65 billion more capital to cope with a global credit crisis that will not peak until 2009.
Where in the world can you safely put your money? Not in equities, two top investors warn. They're not perpetual bears -- just investment analysts with enviable records.
Growing numbers of market veterans in recent weeks have stuck out their necks and declared the 2002-07 bull market over, done and dead.
At considerable risk to their reputations, considering the market is down a mere 8% from its high, they're asserting that a one-two-three punch of earnings recession, credit constriction and inflation have created bear-market conditions that could push the average stock down at least 20% over the next year.
Although the news media and amateur analysts sometimes throw the term "bear market" around carelessly, like a schoolyard curse, it is not a concept that institutional analysts and fund managers take lightly. Yet they're making the case now in an effort to help clients avoid what they believe will be the agony of watching profits that took years to amass disappear in a few months.
Among the most prominent market skeptics today are Jim Rogers, a former partner of George Soros in the famed Quantum Fund, and Paul Desmond, the head honcho of the venerable demand-analysis firm Lowry's Reports, based in Florida. Neither is a "permabear" -- they just call 'em as they see 'em, combining intuition and experience with proprietary measures of supply and demand.
Bundle up
Let's start with Desmond, who observes that bear markets have occurred over the past two centuries every 52 months or so, roughly every four and a half years. Although they seem like rare events, they're actually as regular a part of the market cycle as winter is part of the seasonal cycle. Past market lows in just the past half-century include 1957, 1962, 1970, 1974, 1978, 1982, 1987, 1990, 1994, 1998 and 2002. Surely you recall at least a couple of those.
Desmond notes that just as winter corrects the excesses of a summertime abundance of plants and animals to ensure a sustainable natural balance come spring, bear markets and recessions clear out excesses in business inventories, consumer accumulations and human emotions to make way for the next bull market.
The first 12 to 15 months of the market life cycle are the equivalent of springtime: a time for planting (or buying fresh stocks). The next 12 to 15 months are a time for watering, weeding and nurturing. The third phase, which can last around 30 months, is the time, like autumn, for harvesting. And the fourth phase, which is where we are headed now, is a time for protecting seeds to make sure you can replant the next spring.
Desmond says one sign indicating stocks have peaked was a gauge showing the supply of stocks for sale surpassed demand in midsummer. Because such behavior took 10 months longer than usual to emerge, he says, it will likely lead to a longer-than-normal bear phase. If precedence is meaningful, then he believes we can look for a decline that persists at least through 2008.
Desmond generally recommends moving portfolios to cash and selected shorts at the start of a bear phase, since virtually all groups of stocks tend to move down together at first, and waiting to see which groups of stocks emerge as countertrend heroes. In the early 1970s, the heroes were energy stocks, while in 2000-02 they were value and small-cap financial stocks. He guesses that energy, health care and utilities may buck the trend this time, but it's too early to say with certainty.
'Cheap' is a relative term One thing he says he is certain of, however, is that although the market appears soft now, we ain't seen nothing yet. So far, he says, the market has drifted down primarily due to a lack of buying. It will really collapse later on, Desmond says, when investors lose hope and begin to engage in high-volume selling.
"You need to put the idea that the Fed or some other force will ride in like a white knight out of your head," he warns. "Don't buy in to lower values too early. Cheap becomes a very relative term in a bear market, as people don't respond to value -- they respond to a sense that they need to just stop the pain, as they'll dump fast-growing, seemingly valuable stocks with abandon." How nice.
Rogers, who is equally negative on stocks, was one of the earliest proponents of investing in China and in metals, long before their surge of the past few years. He achieved notoriety three years ago by warning that shares of Fannie Mae would get crushed once the market realized that it was "unbelievably over-leveraged" and would sink under the weight of its out-of-control derivatives positions. At the time, the government-sponsored mortgage-lending titan was on top of its game, and his warning drew derision. But no one's mocking him now that Fannie shares have lost 60% of their value.
'Outright fraud'
"There was clearly outright fraud, as they were reporting earnings for years when they really had no idea whether they were making money -- they were just making stuff up," he says. "People are still in denial about Fannie Mae's value. They took every phony mortgage loan ever made by banks, losing billions, and now the government wants them to take on even more bad loans to bail people out? They should just let it go bankrupt!"
Rogers, who is short Fannie Mae shares, is also short Citigroup and highly negative on its prospects, too.
"Technically, it's bankrupt, with gigantic off-balance-sheet derivatives positions whose value it cannot possibly know," he says. Though he believes some large banks can and will go under in the next year or two under the weight of billions of dollars worth of bad loans and blown-up derivatives positions, he doubts the government will allow Citi or Fannie to fail. "They'll nationalize them in some way. It's wrong, but they can't let the two largest lenders in the nation go down."
The fund manager, who has traveled extensively in emerging markets and lives part of the year in Asia, says sovereign wealth funds in Abu Dhabi and Singapore that recently made large investments in Citigroup and UBS AG are likely to lose a lot of money on their ploys. "They're making a big mistake; these banks have many more problems still ahead. They should wait until these companies are really on the ropes a few years from now . . . and trading at $5 a share."
But aren't they supposed to be the smart money? Maybe not. "I know these people, and they have never given me the impression that they're smarter than anyone else," Rogers says. "They have gigantic amounts of money, but they've made a bad judgment in these cases."
US economic problems contagious As for the rest of the market, well, Rogers doesn't see equities to buy right now, as he forecasts that a U.S. recession -- already in progress, in his view -- will choke off earnings growth at companies worldwide. He calls the emerging markets "overexploited" and likes only a few commodities, such as farm goods and energy.
"The number of acres devoted to wheat farming is at a 30-year low while inventories of food worldwide are at their lowest since 1972," Rogers says. "With so much corn going into our tanks as ethanol, a growing middle class worldwide eating more corn-fed meat and wearing more cotton than ever, agriculture has a great future, if you ask me, and that's why I'm buying."
Though many top economists still say the U.S. will avoid a recession, Rogers scoffs at that. He contends housing and auto manufacturing are in a depression, says financial companies are in a funk that's at least worse than a recession and notes that freight-car loadings are down.
"If all these sectors are in recession or depression, then some other part of the economy must be extremely strong as an offset," he says. "I'd like someone to tell me what it is because I'd like to invest in it."
In summary, Rogers says: "We are in a bear market, and only a few big stocks that are holding up the big indexes make it look like we're not. Stocks are done, and many favorites will go down 80% after people figure out how long they've been reporting phony earnings."
So what's worth owning? U.S. and Chinese farming, pollution control, power-generation utilities and electrical-plant construction.
Desmond and Rogers could be wrong, of course, but with all the nonstop bullishness that rules investment marketing these days, it's a good idea to at least pause a moment to consider their views.
Fine print
To learn more about Desmond's work, visit the Lowry on Demand Web site. . . . Rogers has a new book out, "A Bull in China." It's a great read. His book "Hot Commodities," recently issued in paperback, is also good. To make investing in agriculture easier, Rogers has created a set of securities similar to exchange-traded funds. One called Agricultural Elements (.pdf file) tracks his Rogers International Commodity Index (RJA).
· New shares issued equal to 20% of capitalisation
· Stock surges on relief at end to funding anxiety
The Qatari ruling family and other institutions based in the Gulf state could end up with a stake of 10% in Barclays as result of efforts by Britain's third-biggest bank to raise £4.5bn of fresh funds from existing and overseas investors.
Becoming the last of the major banks to address regulators' demands to boost their capital positions, Barclays is also turning to the Japanese bank Sumitomo Mitsui Banking Corp, Temasek in Singapore and the China Development Bank as it issues new shares worth almost 20% of its current capitalisation.
Confirmation of the fundraising ended months of uncertainty and helped Barclays shares rise 6.5% to 331p.
Unlike Royal Bank of Scotland, HBOS and Bradford & Bingley, Barclays has avoided conducting a rights issue and is instead issuing new shares to the four investors. It is also trying to placate existing investors who had been concerned that the new investors would dilate their influence by allowing current shareholders to participate.
Unlike the banks that have chosen the rights issue route, Barclays is also planning to pay its dividend in cash rather than shares, albeit at the same level as 2007. The fundraising will lift Barclays' core equity tier-one capital ratio - a key factor used by regulators to assess the strength of banks - from about 5% to 6.3%, well above its 5.25% target. Its current rating is one of the lowest in Europe.
Asked why the bank was not making fresh credit crunch write-downs, Bob Diamond, Barclays' president, said the bank had turned down investment opportunities such as the buyout last year of the music group EMI and of the media company Clear Channel.
Diamond said :"There's a lot of noise out there but we've been consistent from the beginning, we know our exposures."
John Varley, chief executive, insisted that the bank had not avoided a rights issue to side-step any disclosures that would have been required by a prospectus that would accompany a rights issue.
He denied the suggestion and said a prospectus would be published overnight.
The structure of the fundraising was also welcomed by some shareholders who had been worried about their "pre-emption rights", which allow them to participate in a fundraising before new investors are called in. Barclays is conducting a "claw-back" that allows existing shareholders to buy back shares already placed with new investors.
Peter Montagnon, director of investment affairs at the Association of British Insurers, said this route might be used by others. Of the Barclays share issue, he said: "The issue, with claw-back, is in keeping with the pre-emption principle and allows the bank to raise substantial capital over a relatively short time. This could be a useful pointer for others in the future." There are two stages to the fundraising.
The Japanese bank Sumitomo Mitsui will pay £500m to buy 169m shares at 269p - a discount of 4.7% to the closing share price on Monday. It is paying a higher price - to placate existing shareholders - than the other investors, who are in effect underwriting a £4bn share-placing at 282p a share - a 9.3% discount - that existing Barclays shareholders can participate in.
They will receive a fee of £60m for the guarantee. Qatar Investment Authority, the sovereign wealth fund, and Challenger, a vehicle headed by the chairman of Qatar Holding, Sheikh Hamad bin Jassim bin Jabr al-Thani, are investing up to £1.76bn and £533m respectively.
Existing investors CDB and Temasek are investing enough to maintain their stakes of 3% and 2%. In addition, leading institutional shareholders and other investors have pledged to invest up to £1.33bn.
James Eden, an analyst at Exane BNP Paribas, believes the Qatari's could be left with a small investment in Barclays if the share price remains above 282p as existing shareholders will want to participate.
Eastern billions heading westward
Qatar Investment Authority The investment arm of the state of Qatar is estimated to control more than £30bn, putting it in the top-10 most powerful sovereign wealth funds. Investments include a 25% stake in J Sainsbury following last year's failed attempt to take the supermarket over. It holds a large stake in the London Stock Exchange, and is leading a £1bn consortium to redevelop London's Chelsea Barracks. Like all sovereign wealth funds, QIA shuns the spotlight.
Challenger Universal Limited was created this month to hold shares in Barclays. It represents the financial interests of Sheikh Hamad bin Jassim bin Jabr al-Thani (right) and his family. Sheikh Hamad is prime minister and foreign minister of Qatar, and is said to enjoy a good relationship with the White House.
Temasek Holdings, the investment arm of the government of Singapore, was founded in 1975 and now manages more than £50bn. Temasek already held a 2.1% stake in Barclays, having invested last July and incurring significant paper losses since. It also invested billions in Merrill Lynch. In 2006, there were riots in Thailand after Temasek bought Shin Corporation, a conglomerate owned by the family of the then Thai prime minister Thaksin Shinawatra.
China Development Bank reports to the Chinese government, with a remit to drive infrastructure development across China. Thanks to the booming economy, it has the muscle to buy stakes in some of the west's largest companies. In February it bankrolled Chinalco, the state-owned aluminium group, when it snapped up a 12% stake in Rio Tinto. Like Temasek, it has been an investor since last summer when it bought 3% of Barclays.
Sumitomo Mitsui Banking Corporation, Japan's third-largest bank, is looking to build stakes abroad to make up for lacklustre prospects at home. Based in Tokyo, it employs almost 18,000 people around the world. Like other Asian banks, it has been less affected by the credit crisis than those in the US and Europe.
Singapore launched a spectacular PR offensive to sell treated sewage as drinking water to voters, writes Sunanda Creagh.
Recycled water is a PR disaster. How can governments convince voters they want to drink water made from urine? The former NSW Liberal leader Peter Debnam downed cup after cup of the stuff for the cameras before last year's state election, but the Premier, Morris Iemma, declared the people of NSW are "not ready" for water made from effluent.
Perhaps he could look to Singapore for lessons.
More than 5000 delegates from 60 countries have gathered here for the inaugural Singapore International Water Week conference and the World Cities Summit. Many are here to learn about the marketing and technology behind NEWater, Singapore's recycled water scheme since 2002.
"The NEWater campaign was very, very carefully done. The Government knew there would be a lot of psychological resistance," said Professor Kishore Mahbubani, the dean of the Lee Kuan Yew School of Public Policy. "It shows that you can gradually, over time, change people's comfort levels."
Singapore imports most of its water from Malaysia, runs desalination plants and collects rainfall through stormwater harvesting.
Recycled water is Singapore's fourth water source. It is made by drawing moisture from the nation's sewage and forcing it through filters and superfine membranes at very high pressures to remove impurities such as the cryptosporidium bacteria. The final water, which is also disinfected with ultraviolet light, is so clean the manufacturers add impurities so it tastes "normal".
But simply telling people that NEWater - as the recycled water has been named - is safe
was never going to be enough. The Government needed to pitch the message.
Yap Kheng Guan, from the national water authority, known as PUB, said the PR strategy was under way before many people noticed it. "Behind the scenes, even before we launched the project, we were bringing the media in to show them what is involved," Yap said. It wasn't long before stories spruiking water recycling appeared in newspapers, in magazines and on airwaves.
Coming up with a name like NEWater was another stroke of genius and words such as sewage, waste, wee or poo were eliminated from the government message or effectively banned.
"We chose the phrase 'used water'. This is important to us because then there's a connotation that used water is not made from waste," Yap said.
A cute mascot - a smiley blue raindrop called Water Wally - promoted NEWater to school children and featured on a government television show all about water. Celebrities were spotted drinking NEWater while the product even began turning up in music videos. Soon, squeamishness seemed old-fashioned and quaint.
"The idea of soft selling is a very important part of the program," Yap said. "It's all very deliberate to reach out to the youngest people and make people listen to what we have to say."
When the NEWater plants began operating, the Government handed out thousands of brightly decorated bottles of free, recycled water and launched a slick visitors centre to explain the process. Models, cute children and happy couples are the stars of the promotional videos and interactive games at the centre.
The marketing reached an ecstatic peak on Singapore's national day in 2002. More than 70,000 people at a national parade each received a bottle of NEWater. They watched while the then prime minister, Goh Chok Tong, skulled his. And they loved it.
"The prime minister said, 'Let's drink to the nation', and everyone held their bottles up and drank. It was a great photo op," Yap said.
Singapore's Minister for National Development, Mah Bow Tan, was among the politicians under orders to down bottles of NEWater at every public appearance. Did he privately baulk at the thought? "Frankly, yes, I had some qualms at first." he said. "But after we drank it, it was fine … The reality is that some of the other water we drink is probably dirtier than NEWater."
Australian experts applaud the Singaporean Government for successfully selling such a difficult product to voters. But would it work in NSW?
"I think Australian society expects more than a marketing campaign. They expect a genuine conversation," said the chief executive of the Australian Water Association, Tom Mollenkopf. "I think Singaporean people tend to be more accepting of government policy and perhaps a little less questioning." Despite that, he said, governments here should still try.
Investors lose billions of dollars annually. For the most part, they make the same mistakes over and over again. Law enforcement has no interest in helping you recover your stolen money. In fact, law enforcement only acts on about 10% of the complaints that are filed by defrauded investors. Here are seven simply ways that investors lose money every month.
1. You should never invest in a company based solely upon an oral presentation. What you hear is never what you get. In fact, if you hear something and check upon it and discover it's false, the presenter denies ever having made the statement. The oral sales pitch is the favorite tool of swindlers.
2. You must investigate a written business plan. Over 80% of the business plans you review will have at least one major misstatement of material fact in them. Often business plans are a tissue of lies whose sole purpose is to separate you from your money. If you find one or more lies, don't invest.
3. Investing in startup or early stage companies is betting against the odds. Your odds of your company surviving five years are about 1-in-100. If it survives and makes money, your average return on investment is about tenfold. Bet on enough of these startup and early stage companies and you can retire to the poorhouse.
4. Companies with a great deal of long term debt are losers. Recently, I looked at a company that had spent $44,000,000 of investors' money during the past eight years and in 2005, its gross revenues were $39,000. Sadly, most of the investors don't realize that there is no way they can recover their risk capital. Putting more money into this company is throwing money away.
5. Betting that engineering management will make a business profitable is rarely a good bet. Engineers focus on improving the product's technology and not on selling the product. From an engineering viewpoint, the product is never good enough for the market. Consider Bill Gates, he purchased DOS from its software developers and SOLD it to IBM as their PC operational software. It wasn't the best available software at the time. He then hired engineers to constantly upgrade DOS and develop all the other software programs that have become Microsoft. Contrary to what you learned as a child, if you build a better mousetrap, people will not beat a path to your door. Produces and services must be sold and Mr. Gates was a good salesperson.
6. Never take stock in a private company for your cash. Insist upon an equity position. If the company is a startup or early stage company, you want at least half of the company for your money. If the company has income, your money should convert into an equity position based upon the business value of the company against the funds you are risking upon its expansion. Remember that you don't need the company. The company needs your money. Make your investment based upon this reality.
7. Don't throw good money after bad money. If your gamble failed, don't send the company more money in the hopes of turning your bad investment into a good investment. It's like trying to turn a cow's ear into a silk purse. Only a miracle will make your monetary effort a success. And, miracles rarely happen in business.
There are forty or fifty common investment errors. The above seven mistakes occur almost weekly in my review of investment deals for investors. These mistakes are not limited to a few unsophisticated people with more money than good sense. I know money mangers, professional investors and bankers who have made all of these bad investments.
I think the best training for investors is to learn to play Poker. The card game teaches you how to read people and how to evaluate the odds. Any time that you regularly bet against the odds, you must lose your money over time. If you can't spot the swindlers, you will be spending a lot of time and money doing Due Diligence to learn that swindlers are making about 80% of the business investment offers.
A government licensed anything doesn't make the offer any better than an offer from some guy with a vision. I like to cite the enterprising swindler, who after being sentenced to Lompoc Prison got the SEC to license him as an investment advisor. He used this fact to fleece the public of another $2.5 million as he returned to his cell each evening.
Before you write a check, play Devil's Advocate. Find out what is wrong with the deal and you will save yourself a lot of grief. An ounce of prevention is worth several pounds of cure.
About the Author
He is the Managing Director of Beowulf Investments. He's the Executive Director of the Global Village Investment Club. He's a Venture Capital & Equity Finance Consultant.
A reader sent me a Forbes magazine article titled "Citi's Bad Bet", which told a rather unsettling story about a US$4.5 billion hedge fund gone down the tubes. One name in that story caught my eye -- Vikram Pandit, the founder of that hedge fund. Where had I seen that name before, I wondered? I had never heard of that hedge fund, so it couldn't have been in connection with it.
It didn't take long to find an old press release by Citigroup dated the day that our sovereign wealth fund, the Government of Singapore Corp (GIC) bought 4 percent of Citigroup for US$6.9 billion. It referenced some remarks by none other than the same Vikram Pandit, by then the Chief Executive Officer of Citigroup.
This got me quite interested. The story, dated 14 May 2008, goes like this:
In late 2005, Vikram Pandit went around asking people to invest in his new hedge fund called Old Lane. Among his first investors that he managed to persuade was Morgan Stanley, which agreed to put US$100 million in it. After Morgan Stanley's vote of confidence, other investors came knocking on its doors, including GIC. The Forbes story however, did not say how much GIC invested in the fund, but it noted that by April 2006 when it opened for business, it had a total of US$1.5 billion in assets.
From the start, Old Lane struggled to meet expectations. It lost 3.38% in value in May 2006. Over the course of 2006, when other multi-strategy hedge funds turned in a 9% appreciation, Old Lane only managed a 4% growth for the April-December period. Still it managed to attract more investors, ending the year managing US$3.5 billion of assets.
Forbes noted that Pandit himself had no direct experience putting money to work for investors even though he, at his previous job at Morgan Stanley, ran the investment bank's sales, trading and investment banking businesses.
2007 would be an even more difficult year for Old Lane with the subprime mortgage crisis coming on. In August 2007 alone, the fund lost 6%. Earlier in the year, a US$20 million investment in Amp'd Mobile, a mobile media-content provider, had to be written off when it went bankrupt.
By then, however, Vikram Pandit had sold 100% of Old Lane to Citigroup, which paid US$800 million for it (April 2007). Pandit himself pocketed about US$165 million pretax.
A few months later, Pandit took over as CEO of Citigroup in December 2007 and it was he who presided over the moment when GIC helped in the recapitalisation of the bank on 15 January 2008.
Now Forbes reports that Old Lane, after being 5% down year-to-date April 2008, recently told investors that they could redeem their investments if they wished. Almost all of them, including Morgan Stanley took up the offer, and on 31 July 2008, some US$3 billion or so will flow out of the fund. Citigroup however cannot redeem its investment until 2011.
* * * * *
Admittedly, it is very hard to grow assets in a market as unsettled as the present. Lee Kuan Yew, in a 29 April 2008 interview with Bloomberg, said the GIC thinks very long term. "We have to think in terms of the next 10, 20, 30 years," he said. "We are buying into something which we intend to keep for the next two, three decades and grow with them."
In the short term, it can't look too good, of course. Bloomberg reported that
Citigroup, the largest U.S. bank by assets, fell 2 percent since saying Jan. 15 it was getting $14.5 billion from investors including GIC. The Singapore dollar has gained 5.5 percent since the start of the year. -- Bloomberg.com, 30 April 2008, Singapore's GIC May Seek More Bank Assets, Lee Says (Update2).
Lee expressed confidence that the banks that GIC had invested in had "very good franchises, brand names, good managements," Vikram Pandit notwithstanding, it seems. While they won't get back to pre-crisis prices immediately, Lee said, perhaps "Five years, seven years, 10 years ... We will know in five to 10 years."
On the one hand, his argument is not without merit. GIC has the advantage of being able to be a long term investor and therefore can take the kinds of bets that others cannot. However, it is also hard to imagine that anyone can know how any bet is likely to turn out so far in the future. GIC has the staying power, but does it have the foresight that others don't?
If one doesn't have the special foresight for such a long term, should one be investing with such a horizon?
* * * * *
I reminded myself to take a look at Shin Corp, albeit only two and a half years after Temasek Holdings bought it from former Thai prime minister Thaksin Shinawatra. In January 2006, Temasek paid 49.25 baht a share. Looking at the Shincorp's website today at the time of writing (19 May 2008), I see a stock quote of 27.00 baht a share. One cannot help but suck in a deep breath.
Is there anything in its latest financial report that can give us a clue why it appears to be so low?
Glancing through the Management's Discussion and Analysis of the Financial Results for the first quarter 2008, I see that Shincorp had a consolidated net profit of 1.804 billion baht for Q1:2008, compared to a consolidated net loss of 1.719 billion baht in Q1:2007.
However, last year's Q1 figure had a charge of 1.973 billion baht, for "impairment loss on concession assets". This was the write-down for the loss of the ITV television station after the court levied a huge fine on it that it couldn't pay. The government then withdrew the broadcasting licence.
There was an additional "impairment loss on goodwill, investment and provision liability" last year of 447 million baht, related to another subsidiary, Capital OK. This was a finance company whose business suffered when the government imposed more stringent regulations relating to the maximum amount of interest and fees that finance companies can charge their customers. "This limited our consumer finance business opportunities," the report said, and Shincorp's interest in Capital OK was eventually sold off in December 2007, recording a further 60 million baht impairment loss with that disposal.
Another major divestment was the sale of Shincorp's 49% interest in Thai Air Asia. Shincorp was under regulatory pressure to sell off Thai Air Asia to a local party otherwise the airline would lose its Thai nationality. Completed in June 2007, for 472 million baht, I can't see from the quarterly accounts whether there has been any write-off of goodwill -- in other words, whether they got a good price for it or not. The full year 2007 accounts should show this, but they couldn't be accessed from Shincorp's website.
With these divestments, Shincorp's main operating business is even more that of mobile telephony, particularly through AIS.
AIS's own results appear quite good, although I didn't delve into its figures much. It reported revenue in Q1:2008 that was 9.9% higher than the first quarter of 2007. Its net profit in Q1:2008 was 28.6% above the same period 2007.
AIS' cash flow remained strong, supporting 2.1 billion baht worth of capital investment, while repaying 4.256 billion baht of debt.
Overall, Shincorp does give a picture of refocussing on the telecommunication business which continues to look solid.
Why its share price is only 27 baht however, is hard to say. As the website's link to the full 2007 results was inoperative, I couldn't even calculate the Price/Earnings ratio. In any case, there is very little free float of Shincorp's stock, so it's not easy to say if any figure is meaningful. Nonetheless, I wonder whether the lingering political uncertainty in Thailand, with the associated sensitivity of Singapore's Temasek controlling it, continues to depress Shincorp's perceived value.
With things still in flux -- and the legal case charging Surin Upatkoon of Kularb Kaew for acting as Temasek's nominee is still pending -- two and a half years after the controversial purchase, we might want to ask, when will we know whether it was a good investment or not?
The days are okay I watch the TV in the afternoon If I get lonely The sound of other voices Other rooms are near to me I'm not afraid The operator She tells the time It's good for a laugh There's always radio And for a dime I can talk to God Dial-a-prayer Are you there? Do you care? Are you there? And in the winter extra blankets for the cold Fix the heater, getting old I am wiser now, I know, but still as big a fool Concerning you I met your friend She's very nice what can I say? It was an accident I never dreamed we'd meet again this way You're looking well I'm not afraid You have a lovely home Just like a picture No, I live alone I found it easier You must remember how I never liked The party life Up all night Lovely wife You have a lovely wife And in the winter extra blankets for the cold Fix the heater, getting old You are with her now, I know I'll live alone forever Not together now
Gao Xiqing, the president of China Investment Corpora- tion, China's sovereign wealth fund, spoke last week of his frustration that CIC's attempts at investing outside China sometimes run into political opposition. He went on to add, in words that should act as a chilling wake-up call to many politicians and bankers: "Fortunately there are more than 200 countries in the world. And fortunately there are many countries who are happy with us."
I have known CIC since it bought a 9.4 per cent non-voting interest in Blackstone when we went public last year. The fact that its president publicly suggests that CIC may invest only where it feels welcome - a view I know many other SWFs share - has serious implications for the economic wellbeing of the US and other western countries where political opposition to SWF investments has mounted.
From the point of view of a rational economist, this is frightening. It is difficult to think of how much worse off we would be in the current financial crisis without SWFs. Many of our commercial and investment banks have taken large hits to their balance sheets because of bad investments. The capital infusions from SWFs have enabled them to strengthen their balance sheets. Since the fourth quarter of last year, SWFs have poured about $55bn (€35bn, £28bn) into US and European financial institutions to the great benefit of their shareholders. That is a very good thing. Using SWFs to recycle the holdings of countries with large surpluses in the west, which needs the capital, rather than keeping that money at home, is a huge benefit to us.
CIC is not alone in its frustration with political grandstanding on SWF investments in the west. When I talk to some of the SWFs (and I have been dealing with them for more than 20 years), they are both amazed and annoyed that their actions, which are such a positive for the US economy, have been met with such hostility and anger in some quarters. They have not done anything wrong; they are acting the same as any domestic pension plan or university endowment in a search for an acceptable return on investment.
This hostility is dangerous because we are reaching a stage in the global economy where, as CIC says, SWFs have other options. They could sell US equities or bonds, for example, and buy from other nations. This is not a threat but simply the SWFs following their own self-interest in search of the most hospitable investment environment.
The US is the world's largest debtor nation and we are now in an uneasy relationship with our creditors. We cannot afford to get this wrong. The current account deficit is 7 per cent of gross domestic product - double that of the Reagan years. This makes a significant number of countries big holders of dollar reserves. They invest those reserves in part through financing a significant portion of the federal debt. Because foreigners are willing to buy Treasury debt in quantity, the Federal Reserve is able to keep interest rates low. If we were forced to rely mostly on domestic borrowing, we would have to pay very high interest rates. The consequences would be increased inflation, a dollar falling even faster and very slow (or negative) economic growth. If the investment climate for SWFs is poor in the US, the countries with large dollar reserves (which are the owners of most of the SWFs) could also look for alternatives. The euro already is proving increasingly attractive as a reserve currency instead of the dollar and that alone should be of deep concern.
To alienate the managers of these SWFs could have severe consequences if they and their owners seek friendlier alternatives outside the US. Even the current talk of disclosure requirements is seen by some SWFs as problematical since it often fails to take into account the political realities in some of the countries managing SWFs, where their ties to the west are best left unstated lest they arouse domestic political opposition.
When capital withdraws, it does so without notice or fanfare. Imagine a private meeting in a room far from the US; a decision is quietly made and billions of dollars that were invested here find a new and more hospitable home. Or billions of dollars that could have been invested here are reallocated to other more benign markets. Sixty years ago, we conducted a painful, expensive and accidental experiment called the Great Depression, with the Smoot Hawley tariffs to teach us the value of free trade. Let us not subject ourselves to another painful lesson in the value of direct investment and the free flow of capital by driving SWFs away.
The writer is chairman and chief executive of Blackstone
12 comments:
Citigroup sinks to 10-year low, Goldman urges short sale
By Neha Singh
26 June 2008
Citigroup Inc (C.N) shares fell to their lowest level in nearly a decade after a Goldman Sachs & Co analyst said investors should sell the largest U.S. bank’s stock short as losses mount from troubled debt.
In morning trading, the shares were down $1.03, or 5.5 percent, at $17.82 on the New York Stock Exchange. The shares were among the biggest drags on the Dow Jones industrial average (.DJI) and Standard & Poor’s 500 (.SPX), which both fell more than 1 percent.
They also touched their lowest level since October 1998, the month that Sanford “Sandy” Weill merged his Travelers Group with Citicorp to create Citigroup.
William Tanona, the Goldman analyst, added Citigroup to Goldman’s “Americas conviction sell” list and cut his price target on the stock to $16 from $20.
He recommended a “paired” trade in which investors sell Citigroup shares short, betting on a decline, and buy Morgan Stanley (MS.N) shares.
The analyst said Citigroup might take $8.9 billion of write-downs for the April-to-June period, leading to its third straight quarterly loss. He also said the bank might need to cut its quarterly dividend for a second time this year, after lowering it 41 percent to 32 cents per share in January.
Tanona’s forecast suggests deeper problems for Citigroup Chief Executive Vikram Pandit, who is trying to turn the bank around after nearly $15 billion of losses in the last two quarters, and more than $46 billion of credit losses and write-downs since the middle of 2007.
“We see multiple headwinds for Citigroup including additional write-downs, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales,” the analyst wrote.
Pandit became chief executive in December, replacing Charles Prince, who resigned under pressure the previous month. Weill had hand-picked Prince as his replacement when he gave up the top job in 2003.
Last week, Chief Financial Officer Gary Crittenden said on a Deutsche Bank conference call that Citigroup could take substantial write-downs this quarter.
DIVIDEND CUT MAY BE NEEDED
Tanona said Citigroup might write off $7.1 billion related to collateralized debt obligations and associated hedges related to monoline insurers, $1.2 billion for other asset classes and $600 million for structured note liabilities.
He now expects Citigroup to lose 75 cents a share this quarter, compared with his earlier forecast of a profit of 25 cents. He also expects a full-year loss of $1.20 a share, compared with his prior view for a profit of 30 cents.
As of May, Citigroup had raised some $42 billion since last fall, including injections from sovereign wealth funds, data compiled by Reuters News show.
Tanona said the bank may now need to issue common stock or sell assets to raise capital, because regulators may forbid it from issuing more preferred or convertible securities. He also said halving the dividend could preserve $3.5 billion a year.
“Given the firm’s current level of earnings power, we do not believe the dividend is safe,” Tanona wrote.
A Citigroup spokeswoman declined to comment.
On June 24, Merrill Lynch analyst Guy Moszkowski projected $8 billion of write-downs for Citigroup.
Tanona also downgraded the U.S. brokerage sector to “neutral” from “attractive,” saying deteriorating fundamentals will likely prolong any recovery from the credit crunch.
He projected a $4.2 billion second-quarter write-down for Merrill Lynch & Co (MER.N), leading to a quarterly loss for the largest U.S. brokerage.
“We expect write-downs for Citigroup and Merrill to outpace what we saw from Morgan Stanley (MS.N) and Lehman Brothers Holdings (LEH.N) recently, due to Citigroup’s and Merrill’s large exposures to ABS CDOs (asset-backed security CDOs) and associated hedges with the monolines,” Tanona wrote.
Brad Hintz, a Sanford C. Bernstein & Co analyst, on Thursday projected a $3.5 billion second-quarter write-down for Merrill. Banc of America Securities analyst Michael Hecht made the same forecast earlier this month.
On June 17, Goldman analysts led by Richard Ramsden said U.S. banks may need $65 billion more capital to cope with a global credit crisis that will not peak until 2009.
大陆股民心声
严重警告: 近期不要进入股市! 否则:
宝马进去，自行车出来；
西服进去，三点式出来；
老板进去，打工仔出来；
姚明进去，潘长江出来；
鳄鱼进去，壁虎出来；
小伙子进去，老头子出来；
富翁进去，叫化子出来；
别墅进去，草棚出来；
人才进去，饭桶出来；
坐火箭进，坐潜艇出来；
欢欢喜喜进去，哭哭啼啼出来；
博士进去，白痴出来；
貂禅进去，母猪出来；
牵著狗进去，被狗牵著出来；
王石进去，王八出来；
站著进去，躺著出来；
巴西足球队进去，中国足球队出来；
冠希进去，照片出来；
刘翔进去，范跑跑出来；
总之，就是地球进去，也是乒乓球出来。
沪市，沪市，我是深市，我方损失惨重，收到请回答，收到请回答.....
深市，深市，我是沪市，我方已全部阵亡，这是自动留言，无需回答.....
沪市沪市.....深市深市......我是菜市我是菜市，我们这里涨个不停!
鸣金收乒待风雨，唯望东风盖日月。东边日出西边雨，道是无晴还有晴。Relax and listen to ♪♫♪♫ now...
GuanYu,
Jim Rogers said: "Citigroup is a buy at $5." ^_^
Stock market 'winter' is moving in
By Jon Markman
12/20/2007 12:01 AM ET
Where in the world can you safely put your money? Not in equities, two top investors warn. They're not perpetual bears -- just investment analysts with enviable records.
Growing numbers of market veterans in recent weeks have stuck out their necks and declared the 2002-07 bull market over, done and dead.
At considerable risk to their reputations, considering the market is down a mere 8% from its high, they're asserting that a one-two-three punch of earnings recession, credit constriction and inflation have created bear-market conditions that could push the average stock down at least 20% over the next year.
Although the news media and amateur analysts sometimes throw the term "bear market" around carelessly, like a schoolyard curse, it is not a concept that institutional analysts and fund managers take lightly. Yet they're making the case now in an effort to help clients avoid what they believe will be the agony of watching profits that took years to amass disappear in a few months.
Among the most prominent market skeptics today are Jim Rogers, a former partner of George Soros in the famed Quantum Fund, and Paul Desmond, the head honcho of the venerable demand-analysis firm Lowry's Reports, based in Florida. Neither is a "permabear" -- they just call 'em as they see 'em, combining intuition and experience with proprietary measures of supply and demand.
Bundle up
Let's start with Desmond, who observes that bear markets have occurred over the past two centuries every 52 months or so, roughly every four and a half years. Although they seem like rare events, they're actually as regular a part of the market cycle as winter is part of the seasonal cycle. Past market lows in just the past half-century include 1957, 1962, 1970, 1974, 1978, 1982, 1987, 1990, 1994, 1998 and 2002. Surely you recall at least a couple of those.
Desmond notes that just as winter corrects the excesses of a summertime abundance of plants and animals to ensure a sustainable natural balance come spring, bear markets and recessions clear out excesses in business inventories, consumer accumulations and human emotions to make way for the next bull market.
The first 12 to 15 months of the market life cycle are the equivalent of springtime: a time for planting (or buying fresh stocks). The next 12 to 15 months are a time for watering, weeding and nurturing. The third phase, which can last around 30 months, is the time, like autumn, for harvesting. And the fourth phase, which is where we are headed now, is a time for protecting seeds to make sure you can replant the next spring.
Desmond says one sign indicating stocks have peaked was a gauge showing the supply of stocks for sale surpassed demand in midsummer. Because such behavior took 10 months longer than usual to emerge, he says, it will likely lead to a longer-than-normal bear phase. If precedence is meaningful, then he believes we can look for a decline that persists at least through 2008.
Desmond generally recommends moving portfolios to cash and selected shorts at the start of a bear phase, since virtually all groups of stocks tend to move down together at first, and waiting to see which groups of stocks emerge as countertrend heroes. In the early 1970s, the heroes were energy stocks, while in 2000-02 they were value and small-cap financial stocks. He guesses that energy, health care and utilities may buck the trend this time, but it's too early to say with certainty.
'Cheap' is a relative term
One thing he says he is certain of, however, is that although the market appears soft now, we ain't seen nothing yet. So far, he says, the market has drifted down primarily due to a lack of buying. It will really collapse later on, Desmond says, when investors lose hope and begin to engage in high-volume selling.
"You need to put the idea that the Fed or some other force will ride in like a white knight out of your head," he warns. "Don't buy in to lower values too early. Cheap becomes a very relative term in a bear market, as people don't respond to value -- they respond to a sense that they need to just stop the pain, as they'll dump fast-growing, seemingly valuable stocks with abandon." How nice.
Rogers, who is equally negative on stocks, was one of the earliest proponents of investing in China and in metals, long before their surge of the past few years. He achieved notoriety three years ago by warning that shares of Fannie Mae would get crushed once the market realized that it was "unbelievably over-leveraged" and would sink under the weight of its out-of-control derivatives positions. At the time, the government-sponsored mortgage-lending titan was on top of its game, and his warning drew derision. But no one's mocking him now that Fannie shares have lost 60% of their value.
'Outright fraud'
"There was clearly outright fraud, as they were reporting earnings for years when they really had no idea whether they were making money -- they were just making stuff up," he says. "People are still in denial about Fannie Mae's value. They took every phony mortgage loan ever made by banks, losing billions, and now the government wants them to take on even more bad loans to bail people out? They should just let it go bankrupt!"
Rogers, who is short Fannie Mae shares, is also short Citigroup and highly negative on its prospects, too.
"Technically, it's bankrupt, with gigantic off-balance-sheet derivatives positions whose value it cannot possibly know," he says. Though he believes some large banks can and will go under in the next year or two under the weight of billions of dollars worth of bad loans and blown-up derivatives positions, he doubts the government will allow Citi or Fannie to fail. "They'll nationalize them in some way. It's wrong, but they can't let the two largest lenders in the nation go down."
The fund manager, who has traveled extensively in emerging markets and lives part of the year in Asia, says sovereign wealth funds in Abu Dhabi and Singapore that recently made large investments in Citigroup and UBS AG are likely to lose a lot of money on their ploys. "They're making a big mistake; these banks have many more problems still ahead. They should wait until these companies are really on the ropes a few years from now . . . and trading at $5 a share."
But aren't they supposed to be the smart money? Maybe not. "I know these people, and they have never given me the impression that they're smarter than anyone else," Rogers says. "They have gigantic amounts of money, but they've made a bad judgment in these cases."
US economic problems contagious
As for the rest of the market, well, Rogers doesn't see equities to buy right now, as he forecasts that a U.S. recession -- already in progress, in his view -- will choke off earnings growth at companies worldwide. He calls the emerging markets "overexploited" and likes only a few commodities, such as farm goods and energy.
"The number of acres devoted to wheat farming is at a 30-year low while inventories of food worldwide are at their lowest since 1972," Rogers says. "With so much corn going into our tanks as ethanol, a growing middle class worldwide eating more corn-fed meat and wearing more cotton than ever, agriculture has a great future, if you ask me, and that's why I'm buying."
Though many top economists still say the U.S. will avoid a recession, Rogers scoffs at that. He contends housing and auto manufacturing are in a depression, says financial companies are in a funk that's at least worse than a recession and notes that freight-car loadings are down.
"If all these sectors are in recession or depression, then some other part of the economy must be extremely strong as an offset," he says. "I'd like someone to tell me what it is because I'd like to invest in it."
In summary, Rogers says: "We are in a bear market, and only a few big stocks that are holding up the big indexes make it look like we're not. Stocks are done, and many favorites will go down 80% after people figure out how long they've been reporting phony earnings."
So what's worth owning? U.S. and Chinese farming, pollution control, power-generation utilities and electrical-plant construction.
Desmond and Rogers could be wrong, of course, but with all the nonstop bullishness that rules investment marketing these days, it's a good idea to at least pause a moment to consider their views.
Fine print
To learn more about Desmond's work, visit the Lowry on Demand Web site. . . . Rogers has a new book out, "A Bull in China." It's a great read. His book "Hot Commodities," recently issued in paperback, is also good. To make investing in agriculture easier, Rogers has created a set of securities similar to exchange-traded funds. One called Agricultural Elements (.pdf file) tracks his Rogers International Commodity Index (RJA).
Barclays unveils £4.5bn wealth fund backing
Jill Treanor
June 26, 2008
· New shares issued equal to 20% of capitalisation
· Stock surges on relief at end to funding anxiety
The Qatari ruling family and other institutions based in the Gulf state could end up with a stake of 10% in Barclays as result of efforts by Britain's third-biggest bank to raise £4.5bn of fresh funds from existing and overseas investors.
Becoming the last of the major banks to address regulators' demands to boost their capital positions, Barclays is also turning to the Japanese bank Sumitomo Mitsui Banking Corp, Temasek in Singapore and the China Development Bank as it issues new shares worth almost 20% of its current capitalisation.
Confirmation of the fundraising ended months of uncertainty and helped Barclays shares rise 6.5% to 331p.
Unlike Royal Bank of Scotland, HBOS and Bradford & Bingley, Barclays has avoided conducting a rights issue and is instead issuing new shares to the four investors. It is also trying to placate existing investors who had been concerned that the new investors would dilate their influence by allowing current shareholders to participate.
Unlike the banks that have chosen the rights issue route, Barclays is also planning to pay its dividend in cash rather than shares, albeit at the same level as 2007. The fundraising will lift Barclays' core equity tier-one capital ratio - a key factor used by regulators to assess the strength of banks - from about 5% to 6.3%, well above its 5.25% target. Its current rating is one of the lowest in Europe.
Asked why the bank was not making fresh credit crunch write-downs, Bob Diamond, Barclays' president, said the bank had turned down investment opportunities such as the buyout last year of the music group EMI and of the media company Clear Channel.
Diamond said :"There's a lot of noise out there but we've been consistent from the beginning, we know our exposures."
John Varley, chief executive, insisted that the bank had not avoided a rights issue to side-step any disclosures that would have been required by a prospectus that would accompany a rights issue.
He denied the suggestion and said a prospectus would be published overnight.
The structure of the fundraising was also welcomed by some shareholders who had been worried about their "pre-emption rights", which allow them to participate in a fundraising before new investors are called in. Barclays is conducting a "claw-back" that allows existing shareholders to buy back shares already placed with new investors.
Peter Montagnon, director of investment affairs at the Association of British Insurers, said this route might be used by others. Of the Barclays share issue, he said: "The issue, with claw-back, is in keeping with the pre-emption principle and allows the bank to raise substantial capital over a relatively short time. This could be a useful pointer for others in the future." There are two stages to the fundraising.
The Japanese bank Sumitomo Mitsui will pay £500m to buy 169m shares at 269p - a discount of 4.7% to the closing share price on Monday. It is paying a higher price - to placate existing shareholders - than the other investors, who are in effect underwriting a £4bn share-placing at 282p a share - a 9.3% discount - that existing Barclays shareholders can participate in.
They will receive a fee of £60m for the guarantee. Qatar Investment Authority, the sovereign wealth fund, and Challenger, a vehicle headed by the chairman of Qatar Holding, Sheikh Hamad bin Jassim bin Jabr al-Thani, are investing up to £1.76bn and £533m respectively.
Existing investors CDB and Temasek are investing enough to maintain their stakes of 3% and 2%. In addition, leading institutional shareholders and other investors have pledged to invest up to £1.33bn.
James Eden, an analyst at Exane BNP Paribas, believes the Qatari's could be left with a small investment in Barclays if the share price remains above 282p as existing shareholders will want to participate.
Eastern billions heading westward
Qatar Investment Authority The investment arm of the state of Qatar is estimated to control more than £30bn, putting it in the top-10 most powerful sovereign wealth funds. Investments include a 25% stake in J Sainsbury following last year's failed attempt to take the supermarket over. It holds a large stake in the London Stock Exchange, and is leading a £1bn consortium to redevelop London's Chelsea Barracks. Like all sovereign wealth funds, QIA shuns the spotlight.
Challenger Universal Limited was created this month to hold shares in Barclays. It represents the financial interests of Sheikh Hamad bin Jassim bin Jabr al-Thani (right) and his family. Sheikh Hamad is prime minister and foreign minister of Qatar, and is said to enjoy a good relationship with the White House.
Temasek Holdings, the investment arm of the government of Singapore, was founded in 1975 and now manages more than £50bn. Temasek already held a 2.1% stake in Barclays, having invested last July and incurring significant paper losses since. It also invested billions in Merrill Lynch. In 2006, there were riots in Thailand after Temasek bought Shin Corporation, a conglomerate owned by the family of the then Thai prime minister Thaksin Shinawatra.
China Development Bank reports to the Chinese government, with a remit to drive infrastructure development across China. Thanks to the booming economy, it has the muscle to buy stakes in some of the west's largest companies. In February it bankrolled Chinalco, the state-owned aluminium group, when it snapped up a 12% stake in Rio Tinto. Like Temasek, it has been an investor since last summer when it bought 3% of Barclays.
Sumitomo Mitsui Banking Corporation, Japan's third-largest bank, is looking to build stakes abroad to make up for lacklustre prospects at home. Based in Tokyo, it employs almost 18,000 people around the world. Like other Asian banks, it has been less affected by the credit crisis than those in the US and Europe.
王冠一 ： 模 稜 兩 可 進 退 兩 難
2008年06月27日（星期五）
美 國 聯 儲 局 議 息 後 維 持 利 率 於 2 厘 不 變 ， 與 市 場 預 期 脗 合 。 會 後 聲 明 雖 然 指 通 脹 預 期 升 級 （ elevated ） ， 但 對 加 息 的 取 態 卻 是 模 稜 兩 可 ， 看 遍 整 篇 聲 明 內 容 ， 完 全 沒 有 提 及 「 加 息 」 的 字 眼 ， 毋 怪 乎 利 率 期 貨 即 時 反 映 ， 市 場 對 聯 儲 局 8 月 5 日 下 次 議 息 的 加 息 機 會 下 降 ， 由 48% 急 跌 至 33% 。
市 場 對 加 息 期 望 減
冠 一 早 說 過 美 國 經 濟 未 具 加 息 條 件 ， 尤 其 支 持 美 國 經 濟 的 兩 條 腿 ， 其 中 一 條 （ 樓 市 ） 已 是 半 身 不 遂 有 排 醫 ， 另 一 條 腿 （ 股 市 ） 近 一 個 月 亦 發 軟 蹄 ， 若 連 這 條 腿 亦 跛 埋 ， 美 國 經 濟 更 加 神 仙 難 救 。 自 從 聯 儲 局 主 席 伯 南 克 於 6 月 9 日 稱 經 濟 增 長 風 險 下 降 ， 其 後 又 表 示 要 嚴 打 通 脹 預 期 升 溫 以 來 ， 美 股 道 指 走 勢 每 下 愈 況 ， 連 12000 點 關 口 亦 告 失 守 ， 最 低 跌 至 11668 點 ， 伯 南 克 又 豈 敢 在 此 關 鍵 時 刻 輕 言 或 暗 示 加 息 ？
聯 儲 局 雖 然 在 聲 明 中 淡 化 經 濟 衰 退 風 險 ， 稱 風 險 已 有 所 減 弱 ， 整 體 經 濟 仍 在 擴 張 ， 卻 同 時 指 信 貸 緊 絀 、 樓 市 急 跌 和 能 源 價 格 飆 升 ， 將 在 未 來 數 季 拖 累 美 國 經 濟 增 長 ， 意 味 並 未 為 減 息 關 上 大 門 ， 若 經 濟 進 一 步 轉 壞 ， 減 息 機 會 仍 未 可 排 除 。
聲 明 內 有 關 通 脹 的 措 詞 亦 較 預 期 溫 和 ， 雖 然 表 示 通 脹 風 險 上 升 ， 但 又 同 時 指 隨 著 經 濟 放 緩 ， 通 脹 在 今 年 稍 後 或 明 年 有 望 趨 於 緩 和 ， 反 映 聯 儲 局 現 時 的 心 態 是 觀 望 經 濟 未 來 數 月 的 發 展 ， 並 不 急 於 加 息 。
料 只 出 口 術 壓 通 脹
與 眾 多 央 行 一 樣 ， 聯 儲 局 現 正 處 十 字 街 頭 ， 面 對 經 濟 放 緩 而 通 脹 持 續 攀 升 的 兩 難 困 局 ， 故 最 佳 做 法 是 觀 察 多 一 些 數 據 才 為 息 口 去 向 下 決 定 。 筆 者 認 為 ， 除 非 樓 市 、 信 貸 市 場 和 勞 工 市 場 的 陰 霾 散 去 ， 否 則 ， 聯 儲 局 今 年 內 不 會 有 實 際 的 加 息 行 動 ， 最 多 透 過 出 口 術 遏 止 通 脹 預 期 升 溫 。
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曾淵滄 ： 熊 市 最 壞 情 況 未 出 現
2008年06月27日（星期五）
美 國 聯 邦 儲 備 局 經 過 一 連 兩 天 的 會 議 ， 終 於 決 定 維 持 利 率 不 變 ， 看 來 ， 華 爾 街 已 成 功 地 告 訴 伯 南 克 ， 如 果 加 息 的 話 ， 美 股 將 會 進 一 步 狂 跌 。
前 兩 天 ， 美 國 消 費 者 信 心 也 創 16 年 新 低 ， 過 去 十 多 年 ， 美 國 出 現 過 數 次 經 濟 衰 退 ， 但 消 費 者 信 心 都 沒 有 目 前 那 麼 差 ， 為 甚 麼 ？ 原 因 是 房 屋 價 格 下 跌 。 過 去 數 十 年 ， 美 國 人 沒 見 過 樓 價 如 此 急 跌 ， 美 國 也 沒 有 那 麼 多 人 買 房 屋 。 前 幾 年 ， 聯 邦 基 金 利 率 跌 至 1 厘 ， 引 發 美 國 人 的 買 房 屋 潮 ， 現 在 眼 見 投 資 貶 值 ， 只 好 節 衣 縮 食 ， 消 費 信 心 創 新 低 。
美 國 沒 有 加 息 ， 市 場 反 應 良 好 ， 上 星 期 急 跌 的 美 股 在 本 星 期 喘 定 ， 暫 時 找 到 支 持 。 美 國 暫 失 方 向 ， 接 下 來 是 在 七 月 份 估 計 八 月 加 息 的 機 會 ， 估 計 石 油 價 格 會 不 會 再 上 升 。 過 去 幾 個 星 期 ， 西 方 財 經 傳 媒 幾 乎 天 天 都 在 談 油 價 。
油 價 高 企 也 不 是 完 全 沒 有 好 處 ， 高 油 價 創 造 了 一 批 新 的 石 油 富 豪 ， 中 東 油 錢 、 俄 羅 斯 油 錢 在 全 世 界 市 場 尋 找 投 資 對 象 ， 前 日 歐 洲 拍 賣 行 就 成 功 以 6 億 元 的 天 價 賣 掉 一 幅 法 國 印 象 派 畫 家 莫 奈 的 油 畫 睡 蓮 池 ， 1 萬 元 2 萬 元 的 名 貴 手 袋 、 皮 鞋 ， 生 意 比 過 去 任 何 時 候 都 好 ， 奢 侈 品 市 場 活 力 十 足 ， 頂 級 精 品 、 遊 艇 、 私 人 飛 機 、 藝 術 品 、 名 酒 ， 還 有 山 頂 天 價 的 房 地 產 ， 如 果 你 投 資 房 地 產 ， 盡 可 能 買 豪 宅 。
跟 大 股 東 上 車 要 夠 快
前 幾 天 ， 大 摩 才 公 開 唱 淡 港 交 所 （ 388 ） ， 馬 上 ， 政 府 宣 佈 有 人 投 資 組 織 商 品 交 易 所 ， 與 港 交 所 分 庭 抗 禮 ， 這 無 疑 是 雪 上 加 霜 。
我 認 為 熊 市 真 正 最 壞 的 情 況 還 沒 有 到 ， 真 正 最 壞 的 情 況 是 美 國 加 息 。 美 國 遲 早 要 加 息 ， 今 年 不 加 ， 明 年 也 會 加 。
不 過 ， 個 別 股 的 股 價 相 信 也 跌 到 大 股 東 也 認 為 很 便 宜 了 。 不 久 前 ， 長 實 （ 001 ） 主 席 李 嘉 誠 就 多 次 增 持 長 實 股 票 ， 投 入 數 以 億 計 的 錢 。 嘉 國 （ 173 ） 主 席 呂 志 和 也 一 樣 不 斷 地 買 嘉 國 。 昨 日 ， 中 信 泰 富 （ 267 ） 也 出 現 大 股 東 大 手 買 自 己 的 股 的 現 象 。
在 熊 市 二 期 ， 大 股 東 增 持 很 容 易 創 造 短 期 需 求 ， 炒 高 股 價 ， 跟 得 快 ， 跟 得 緊 ， 不 貪 心 ， 能 見 好 就 收 的 話 ， 可 以 賺 到 一 些 錢 。 同 時 千 萬 不 好 被 恐 慌 氣 氛 所 影 響 ， 《 信 報 》 名 筆 曹 仁 超 多 次 告 訴 讀 者 ， 他 在 1973 年 至 1974 年 的 大 股 災 期 間 ， 當 恒 指 從 1700 點 往 下 跌 至 600 點 時 ， 他 奮 身 而 入 ， 但 最 後 恒 指 由 600 點 再 往 下 跌 至 150 點 。 可 惜 ， 曹 先 生 沒 有 告 訴 我 們 ， 當 恒 指 跌 至 150 點 時 他 幹 了 甚 麼 ？ 如 果 他 置 之 不 理 ， 持 有 至 今 ， 回 報 也 很 不 錯 。
Treated sewage as water? They'll drink to that
June 27, 2008
Singapore launched a spectacular PR offensive to sell treated sewage as drinking water to voters, writes Sunanda Creagh.
Recycled water is a PR disaster. How can governments convince voters they want to drink water made from urine? The former NSW Liberal leader Peter Debnam downed cup after cup of the stuff for the cameras before last year's state election, but the Premier, Morris Iemma, declared the people of NSW are "not ready" for water made from effluent.
Perhaps he could look to Singapore for lessons.
More than 5000 delegates from 60 countries have gathered here for the inaugural Singapore International Water Week conference and the World Cities Summit. Many are here to learn about the marketing and technology behind NEWater, Singapore's recycled water scheme since 2002.
"The NEWater campaign was very, very carefully done. The Government knew there would be a lot of psychological resistance," said Professor Kishore Mahbubani, the dean of the Lee Kuan Yew School of Public Policy. "It shows that you can gradually, over time, change people's comfort levels."
Singapore imports most of its water from Malaysia, runs desalination plants and collects rainfall through stormwater harvesting.
Recycled water is Singapore's fourth water source. It is made by drawing moisture from the nation's sewage and forcing it through filters and superfine membranes at very high pressures to remove impurities such as the cryptosporidium bacteria. The final water, which is also disinfected with ultraviolet light, is so clean the manufacturers add impurities so it tastes "normal".
But simply telling people that NEWater - as the recycled water has been named - is safe
was never going to be enough. The Government needed to pitch the message.
Yap Kheng Guan, from the national water authority, known as PUB, said the PR strategy was under way before many people noticed it. "Behind the scenes, even before we launched the project, we were bringing the media in to show them what is involved," Yap said. It wasn't long before stories spruiking water recycling appeared in newspapers, in magazines and on airwaves.
Coming up with a name like NEWater was another stroke of genius and words such as sewage, waste, wee or poo were eliminated from the government message or effectively banned.
"We chose the phrase 'used water'. This is important to us because then there's a connotation that used water is not made from waste," Yap said.
A cute mascot - a smiley blue raindrop called Water Wally - promoted NEWater to school children and featured on a government television show all about water. Celebrities were spotted drinking NEWater while the product even began turning up in music videos. Soon, squeamishness seemed old-fashioned and quaint.
"The idea of soft selling is a very important part of the program," Yap said. "It's all very deliberate to reach out to the youngest people and make people listen to what we have to say."
When the NEWater plants began operating, the Government handed out thousands of brightly decorated bottles of free, recycled water and launched a slick visitors centre to explain the process. Models, cute children and happy couples are the stars of the promotional videos and interactive games at the centre.
The marketing reached an ecstatic peak on Singapore's national day in 2002. More than 70,000 people at a national parade each received a bottle of NEWater. They watched while the then prime minister, Goh Chok Tong, skulled his. And they loved it.
"The prime minister said, 'Let's drink to the nation', and everyone held their bottles up and drank. It was a great photo op," Yap said.
Singapore's Minister for National Development, Mah Bow Tan, was among the politicians under orders to down bottles of NEWater at every public appearance. Did he privately baulk at the thought? "Frankly, yes, I had some qualms at first." he said. "But after we drank it, it was fine … The reality is that some of the other water we drink is probably dirtier than NEWater."
Australian experts applaud the Singaporean Government for successfully selling such a difficult product to voters. But would it work in NSW?
"I think Australian society expects more than a marketing campaign. They expect a genuine conversation," said the chief executive of the Australian Water Association, Tom Mollenkopf. "I think Singaporean people tend to be more accepting of government policy and perhaps a little less questioning." Despite that, he said, governments here should still try.
风雨豪情 - 孙楠
经历过风风雨雨
风雨中苦苦的追寻
数不清有多少磨难
磨难尽头也许有一片光明
走过了漫漫人世
人世间浮浮又沉沉
到如今有几多恩怨
恩怨里头也许有你我的缘分
人生在世能有几回搏
身为男儿胸中万丈豪情
告别昨天
让往事随风而逝
不为别的
只为因有美酒壮情
走过了漫漫人世
人世间浮浮又沉沉
到如今有几多恩怨
恩怨里头也许有你我的缘分
人生在世能有几回搏
身为男儿胸中万丈豪情
告别昨天
让往事随风而逝
不为别的
只为因有美酒壮情
人生在世能有几回搏
身为男儿心中似水柔情
告别昨天
让往事随风而逝
不为别的
只为今生刻骨铭心
Seven Bad Investments
by William Cate
Investors lose billions of dollars annually. For the most part, they make the same mistakes over and over again. Law enforcement has no interest in helping you recover your stolen money. In fact, law enforcement only acts on about 10% of the complaints that are filed by defrauded investors. Here are seven simply ways that investors lose money every month.
1. You should never invest in a company based solely upon an oral presentation. What you hear is never what you get. In fact, if you hear something and check upon it and discover it's false, the presenter denies ever having made the statement. The oral sales pitch is the favorite tool of swindlers.
2. You must investigate a written business plan. Over 80% of the business plans you review will have at least one major misstatement of material fact in them. Often business plans are a tissue of lies whose sole purpose is to separate you from your money. If you find one or more lies, don't invest.
3. Investing in startup or early stage companies is betting against the odds. Your odds of your company surviving five years are about 1-in-100. If it survives and makes money, your average return on investment is about tenfold. Bet on enough of these startup and early stage companies and you can retire to the poorhouse.
4. Companies with a great deal of long term debt are losers. Recently, I looked at a company that had spent $44,000,000 of investors' money during the past eight years and in 2005, its gross revenues were $39,000. Sadly, most of the investors don't realize that there is no way they can recover their risk capital. Putting more money into this company is throwing money away.
5. Betting that engineering management will make a business profitable is rarely a good bet. Engineers focus on improving the product's technology and not on selling the product. From an engineering viewpoint, the product is never good enough for the market. Consider Bill Gates, he purchased DOS from its software developers and SOLD it to IBM as their PC operational software. It wasn't the best available software at the time. He then hired engineers to constantly upgrade DOS and develop all the other software programs that have become Microsoft. Contrary to what you learned as a child, if you build a better mousetrap, people will not beat a path to your door. Produces and services must be sold and Mr. Gates was a good salesperson.
6. Never take stock in a private company for your cash. Insist upon an equity position. If the company is a startup or early stage company, you want at least half of the company for your money. If the company has income, your money should convert into an equity position based upon the business value of the company against the funds you are risking upon its expansion. Remember that you don't need the company. The company needs your money. Make your investment based upon this reality.
7. Don't throw good money after bad money. If your gamble failed, don't send the company more money in the hopes of turning your bad investment into a good investment. It's like trying to turn a cow's ear into a silk purse. Only a miracle will make your monetary effort a success. And, miracles rarely happen in business.
There are forty or fifty common investment errors. The above seven mistakes occur almost weekly in my review of investment deals for investors. These mistakes are not limited to a few unsophisticated people with more money than good sense. I know money mangers, professional investors and bankers who have made all of these bad investments.
I think the best training for investors is to learn to play Poker. The card game teaches you how to read people and how to evaluate the odds. Any time that you regularly bet against the odds, you must lose your money over time. If you can't spot the swindlers, you will be spending a lot of time and money doing Due Diligence to learn that swindlers are making about 80% of the business investment offers.
A government licensed anything doesn't make the offer any better than an offer from some guy with a vision. I like to cite the enterprising swindler, who after being sentenced to Lompoc Prison got the SEC to license him as an investment advisor. He used this fact to fleece the public of another $2.5 million as he returned to his cell each evening.
Before you write a check, play Devil's Advocate. Find out what is wrong with the deal and you will save yourself a lot of grief. An ounce of prevention is worth several pounds of cure.
About the Author
He is the Managing Director of Beowulf Investments. He's the Executive Director of the Global Village Investment Club. He's a Venture Capital & Equity Finance Consultant.
Long term investments or long shots?
20 May 2008
A reader sent me a Forbes magazine article titled "Citi's Bad Bet", which told a rather unsettling story about a US$4.5 billion hedge fund gone down the tubes. One name in that story caught my eye -- Vikram Pandit, the founder of that hedge fund. Where had I seen that name before, I wondered? I had never heard of that hedge fund, so it couldn't have been in connection with it.
It didn't take long to find an old press release by Citigroup dated the day that our sovereign wealth fund, the Government of Singapore Corp (GIC) bought 4 percent of Citigroup for US$6.9 billion. It referenced some remarks by none other than the same Vikram Pandit, by then the Chief Executive Officer of Citigroup.
This got me quite interested. The story, dated 14 May 2008, goes like this:
In late 2005, Vikram Pandit went around asking people to invest in his new hedge fund called Old Lane. Among his first investors that he managed to persuade was Morgan Stanley, which agreed to put US$100 million in it. After Morgan Stanley's vote of confidence, other investors came knocking on its doors, including GIC. The Forbes story however, did not say how much GIC invested in the fund, but it noted that by April 2006 when it opened for business, it had a total of US$1.5 billion in assets.
From the start, Old Lane struggled to meet expectations. It lost 3.38% in value in May 2006. Over the course of 2006, when other multi-strategy hedge funds turned in a 9% appreciation, Old Lane only managed a 4% growth for the April-December period. Still it managed to attract more investors, ending the year managing US$3.5 billion of assets.
Forbes noted that Pandit himself had no direct experience putting money to work for investors even though he, at his previous job at Morgan Stanley, ran the investment bank's sales, trading and investment banking businesses.
2007 would be an even more difficult year for Old Lane with the subprime mortgage crisis coming on. In August 2007 alone, the fund lost 6%. Earlier in the year, a US$20 million investment in Amp'd Mobile, a mobile media-content provider, had to be written off when it went bankrupt.
By then, however, Vikram Pandit had sold 100% of Old Lane to Citigroup, which paid US$800 million for it (April 2007). Pandit himself pocketed about US$165 million pretax.
A few months later, Pandit took over as CEO of Citigroup in December 2007 and it was he who presided over the moment when GIC helped in the recapitalisation of the bank on 15 January 2008.
Now Forbes reports that Old Lane, after being 5% down year-to-date April 2008, recently told investors that they could redeem their investments if they wished. Almost all of them, including Morgan Stanley took up the offer, and on 31 July 2008, some US$3 billion or so will flow out of the fund. Citigroup however cannot redeem its investment until 2011.
* * * * *
Admittedly, it is very hard to grow assets in a market as unsettled as the present. Lee Kuan Yew, in a 29 April 2008 interview with Bloomberg, said the GIC thinks very long term. "We have to think in terms of the next 10, 20, 30 years," he said. "We are buying into something which we intend to keep for the next two, three decades and grow with them."
In the short term, it can't look too good, of course. Bloomberg reported that
Citigroup, the largest U.S. bank by assets, fell 2 percent since saying Jan. 15 it was getting $14.5 billion from investors including GIC. The Singapore dollar has gained 5.5 percent since the start of the year.
-- Bloomberg.com, 30 April 2008, Singapore's GIC May Seek More Bank Assets, Lee Says (Update2).
Lee expressed confidence that the banks that GIC had invested in had "very good franchises, brand names, good managements," Vikram Pandit notwithstanding, it seems. While they won't get back to pre-crisis prices immediately, Lee said, perhaps "Five years, seven years, 10 years ... We will know in five to 10 years."
On the one hand, his argument is not without merit. GIC has the advantage of being able to be a long term investor and therefore can take the kinds of bets that others cannot. However, it is also hard to imagine that anyone can know how any bet is likely to turn out so far in the future. GIC has the staying power, but does it have the foresight that others don't?
If one doesn't have the special foresight for such a long term, should one be investing with such a horizon?
* * * * *
I reminded myself to take a look at Shin Corp, albeit only two and a half years after Temasek Holdings bought it from former Thai prime minister Thaksin Shinawatra. In January 2006, Temasek paid 49.25 baht a share. Looking at the Shincorp's website today at the time of writing (19 May 2008), I see a stock quote of 27.00 baht a share. One cannot help but suck in a deep breath.
Is there anything in its latest financial report that can give us a clue why it appears to be so low?
Glancing through the Management's Discussion and Analysis of the Financial Results for the first quarter 2008, I see that Shincorp had a consolidated net profit of 1.804 billion baht for Q1:2008, compared to a consolidated net loss of 1.719 billion baht in Q1:2007.
However, last year's Q1 figure had a charge of 1.973 billion baht, for "impairment loss on concession assets". This was the write-down for the loss of the ITV television station after the court levied a huge fine on it that it couldn't pay. The government then withdrew the broadcasting licence.
There was an additional "impairment loss on goodwill, investment and provision liability" last year of 447 million baht, related to another subsidiary, Capital OK. This was a finance company whose business suffered when the government imposed more stringent regulations relating to the maximum amount of interest and fees that finance companies can charge their customers. "This limited our consumer finance business opportunities," the report said, and Shincorp's interest in Capital OK was eventually sold off in December 2007, recording a further 60 million baht impairment loss with that disposal.
Another major divestment was the sale of Shincorp's 49% interest in Thai Air Asia. Shincorp was under regulatory pressure to sell off Thai Air Asia to a local party otherwise the airline would lose its Thai nationality. Completed in June 2007, for 472 million baht, I can't see from the quarterly accounts whether there has been any write-off of goodwill -- in other words, whether they got a good price for it or not. The full year 2007 accounts should show this, but they couldn't be accessed from Shincorp's website.
With these divestments, Shincorp's main operating business is even more that of mobile telephony, particularly through AIS.
AIS's own results appear quite good, although I didn't delve into its figures much. It reported revenue in Q1:2008 that was 9.9% higher than the first quarter of 2007. Its net profit in Q1:2008 was 28.6% above the same period 2007.
AIS' cash flow remained strong, supporting 2.1 billion baht worth of capital investment, while repaying 4.256 billion baht of debt.
Overall, Shincorp does give a picture of refocussing on the telecommunication business which continues to look solid.
Why its share price is only 27 baht however, is hard to say. As the website's link to the full 2007 results was inoperative, I couldn't even calculate the Price/Earnings ratio. In any case, there is very little free float of Shincorp's stock, so it's not easy to say if any figure is meaningful. Nonetheless, I wonder whether the lingering political uncertainty in Thailand, with the associated sensitivity of Singapore's Temasek controlling it, continues to depress Shincorp's perceived value.
With things still in flux -- and the legal case charging Surin Upatkoon of Kularb Kaew for acting as Temasek's nominee is still pending -- two and a half years after the controversial purchase, we might want to ask, when will we know whether it was a good investment or not?
© Yawning Bread
In The Winter - Janis Ian
The days are okay
I watch the TV in the afternoon
If I get lonely
The sound of other voices
Other rooms are near to me
I'm not afraid
The operator
She tells the time
It's good for a laugh
There's always radio
And for a dime I can talk to God
Dial-a-prayer
Are you there?
Do you care?
Are you there?
And in the winter extra blankets for the cold
Fix the heater, getting old
I am wiser now, I know, but still as big a fool
Concerning you
I met your friend
She's very nice what can I say?
It was an accident
I never dreamed we'd meet again this way
You're looking well
I'm not afraid
You have a lovely home
Just like a picture
No, I live alone
I found it easier
You must remember how I never liked
The party life
Up all night
Lovely wife
You have a lovely wife
And in the winter extra blankets for the cold
Fix the heater, getting old
You are with her now, I know
I'll live alone forever
Not together now
Reject sovereign wealth funds at your peril
By Stephen Schwarzman
June 20 2008
Gao Xiqing, the president of China Investment Corpora- tion, China's sovereign wealth fund, spoke last week of his frustration that CIC's attempts at investing outside China sometimes run into political opposition. He went on to add, in words that should act as a chilling wake-up call to many politicians and bankers: "Fortunately there are more than 200 countries in the world. And fortunately there are many countries who are happy with us."
I have known CIC since it bought a 9.4 per cent non-voting interest in Blackstone when we went public last year. The fact that its president publicly suggests that CIC may invest only where it feels welcome - a view I know many other SWFs share - has serious implications for the economic wellbeing of the US and other western countries where political opposition to SWF investments has mounted.
From the point of view of a rational economist, this is frightening. It is difficult to think of how much worse off we would be in the current financial crisis without SWFs. Many of our commercial and investment banks have taken large hits to their balance sheets because of bad investments. The capital infusions from SWFs have enabled them to strengthen their balance sheets. Since the fourth quarter of last year, SWFs have poured about $55bn (€35bn, £28bn) into US and European financial institutions to the great benefit of their shareholders. That is a very good thing. Using SWFs to recycle the holdings of countries with large surpluses in the west, which needs the capital, rather than keeping that money at home, is a huge benefit to us.
CIC is not alone in its frustration with political grandstanding on SWF investments in the west. When I talk to some of the SWFs (and I have been dealing with them for more than 20 years), they are both amazed and annoyed that their actions, which are such a positive for the US economy, have been met with such hostility and anger in some quarters. They have not done anything wrong; they are acting the same as any domestic pension plan or university endowment in a search for an acceptable return on investment.
This hostility is dangerous because we are reaching a stage in the global economy where, as CIC says, SWFs have other options. They could sell US equities or bonds, for example, and buy from other nations. This is not a threat but simply the SWFs following their own self-interest in search of the most hospitable investment environment.
The US is the world's largest debtor nation and we are now in an uneasy relationship with our creditors. We cannot afford to get this wrong. The current account deficit is 7 per cent of gross domestic product - double that of the Reagan years. This makes a significant number of countries big holders of dollar reserves. They invest those reserves in part through financing a significant portion of the federal debt. Because foreigners are willing to buy Treasury debt in quantity, the Federal Reserve is able to keep interest rates low. If we were forced to rely mostly on domestic borrowing, we would have to pay very high interest rates. The consequences would be increased inflation, a dollar falling even faster and very slow (or negative) economic growth. If the investment climate for SWFs is poor in the US, the countries with large dollar reserves (which are the owners of most of the SWFs) could also look for alternatives. The euro already is proving increasingly attractive as a reserve currency instead of the dollar and that alone should be of deep concern.
To alienate the managers of these SWFs could have severe consequences if they and their owners seek friendlier alternatives outside the US. Even the current talk of disclosure requirements is seen by some SWFs as problematical since it often fails to take into account the political realities in some of the countries managing SWFs, where their ties to the west are best left unstated lest they arouse domestic political opposition.
When capital withdraws, it does so without notice or fanfare. Imagine a private meeting in a room far from the US; a decision is quietly made and billions of dollars that were invested here find a new and more hospitable home. Or billions of dollars that could have been invested here are reallocated to other more benign markets. Sixty years ago, we conducted a painful, expensive and accidental experiment called the Great Depression, with the Smoot Hawley tariffs to teach us the value of free trade. Let us not subject ourselves to another painful lesson in the value of direct investment and the free flow of capital by driving SWFs away.
The writer is chairman and chief executive of Blackstone
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