This comes via the FT:

Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange.

The decision by the world’s biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world’s most heavily traded oil futures contract. It is the main contract traded on Nymex.

Before anyone tries to spin this as an anti-dollar move, you should read what else the FT article says:

In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 – a record gap. This dislocation in the market continued well into the summer. 

From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil pricing company.

The Argus Sour Crude Index will track the price in the physical market of a basket of US Gulf Coast crudes, including Mars, Poseidon and Southern Green Canyon.

The point of this move is not to undermine the dollar but to get away from the WTI contract where prices have been artificially inflated due to storage shortages at Cushing.

A friend familiar with this market also indicated that big bank punters active in this market will like this move as well as it helps them evade the position limits and regulation of the CFTC. He says, “In fact, the lack of transparency and regulation on the Dubai Merc was one of the reasons why you had such successful speculation in the oil market during the spring of 2008.”

I see a spike in oil prices as a risk to any sustained recovery. Anyone with more insight into why the Saudis made this move, do comment.

Related posts:

• Peak oil: it’s all about the Saudis
• Blame Bernanke, the dollar and oil
• Evidence that governments are underplaying peak oil
• Abu Dhabi sovereign wealth fund loses $125 billion
• Oil price rise is accelerating

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Ahmadi-Nejad win sparks violent clashes – FT
Iranian Elections – Mark Thoma
Iran Elections – Swampland
The Persian Paradox: Understanding Iran and Iranians (video) – FORA.tv

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This is a translation of an article at E24, a respected Norwegian finance site:

The government in Dubai said Sunday that it had issued a $ 20 billion (almost 140 billion Norwegian kroner) bond.

The central bank in the United Arab Emirates has said that it is going to sign up for $10 billion of the loan, according to Reuters news agency.

Fear in the market

As a result of falling oil prices and the global financial crisis a considerable fear has developed that Dubai, which has led a very expansive building policy in recent years, would have problems servicing its debt.

The bond “will ensure adequate funding so that Dubai will be able to meet its financial obligations and continue its development program,” according to a message from the authorities in Dubai.

They say also that the loan will help to solve the liquidity problems the authorities in Dubai have.

The loan will have terms of five years and has an interest rate of four percent.

Priced like Iceland

The fear that Dubai would breach its debt obligations has been so profound that the cost to insure themselves against default has been at the same level as what it costs to insure against Iceland in default of loans.

The authorities in Dubai have previously stated that they have $80 billion in debt, or nearly 560 billion Norwegian kroner.

Building activity in Dubai has been extremely high in recent years. Emirates built luxury homes and shopping centers on a large scale, and for a time, it was estimated that 25 percent of the world’s cranes were in Dubai.

Extreme luxury

Several of the world’s most luxurious hotels are situated in Dubai, with one of the two 7-star hotel – Buj al Arab – as the great lighthouse.

Among the other attractions in operation or under construction, we find the world’s largest artificial slalom ski slope, the world’s largest collection of artificial islands, the world’s largest amusement park and the world’s tallest skyscraper.

Abu Dhabi is the capital of United Arab Emirates, while Dubai is one of the other Emirates, and investors had expected Abu Dhabi to issue an implicit guarantee that Dubai will not breach its debt.

Earlier this month the government  in the emirate Abu Dhabi decided to put capital into its own banks, but it did not reassure the market since similar capital injections were not made in Dubai’s banks.

Source
Dubai får krisehjelp – E24.com

Related posts:

• Abu Dhabi sovereign wealth fund loses $125 billion
• Will sovereign wealth funds pour yet more money into the West?
• Citi: looking for as much as a 40% stake from the government
• Chinese officials warn banks about reckless lending
• Seattle Home Loan Bank short of capital

Sovereign Wealth Funds (SWFs) are losing money hand over fist, which should leave one wondering whether their appetite for Western assets will continue to bolster those markets. Funds in Asia and the Middle East have been hit by a double-whammy of losses on existing foreign asset portfolios and weak domestic markets due to the fall in oil prices in the Mideast and an absence of de-coupling in Asia.

Originally, it was the SWFs’ investment in western banks during 2008, which helped to forestall a poor outcome in the United States, Britain and elsewhere. However, the Lehman collapse in September ended further widespread investments by SWFs in American and European banks, resulting in an unpleasant outcome which I predicted in June of last year.

Nevertheless, demand for assets in the West has held up strongly.

International demand for long-term U.S. financial assets rose more than economists forecast in December as foreign investors bought the most corporate debt since June.

Total net purchases of long-term equities, notes and bonds increased to $34.8 billion, compared with net selling of a revised $25.6 billion in November, the Treasury Department said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $74 billion, compared with net buying of $61.3 billion the previous month.

Stock prices rose and the dollar declined in the final month of 2008, when the Federal Reserve cut its benchmark lending rate. Investors abroad flocked to debt issued by American companies.

But, will all of that change going forward? My answer is yes for two reasons. First, economic conditions in the home market where the largest SWFs are domiciled are truly awful. Governments cannot be seen allowing domestically-controlled funds to be diverted to foreign assets in such circumstances, the risk being social unrest. Witness Dubai, one of the seven emirates of UAE, which has seen an enormous property bubble implode. Even the ritzy Atlantis Hotel is laying off workers. You should note that Dubai has no oil wealth to speak of.

Investors and home buyers in the United Arab Emirates may default on payments for properties that have yet to be completed, creating a liability for developers of as much as $25 billion over the next two years, UBS AG said.

“We believe delinquencies on payment terms will be a growing concern over the next few years,” Dubai-based UBS real estate and construction analyst Saud Masud said in an interview. “In our view investors are and will continue to default as per individual risk profile.”

Dubai property prices have dropped 25 percent from their September peak as banks reduced lending and speculators left the market because of the global financial crisis, Morgan Stanley said. Dubai opened its property market to foreign investors in 2002, and Abu Dhabi followed three years later, fueling a boom that was boosted by low interest rates.

“Our assessment of leverage in Dubai’s residential property market is based on the cost to developers to finish properties should investors default on the upcoming supply of 140,000 units,” Masud said in a Feb. 15 interview. “We estimate this liability to be roughly $20-$25 billion over the next two years.”

Based on conservative estimates, 30 percent of Dubai’s residential properties may be vacant by the end of next year as the population falls and the risk of oversupply increases, Masud said. The strengthening of the dollar against the pound, euro, ruble and the Indian and Pakistani rupee will make property less attractive to buyers using those currencies, Masud said.

Emaar Loss

Emaar Properties PJSC, the largest real-estate developer in the U.A.E., on Feb. 12 reported an unexpected loss for the fourth quarter because of writedowns at its U.S. unit and falling prices at home. The net loss was 1.77 billion dirhams ($481 million) compared with a profit of 1.74 billion dirhams a year earlier. Emaar’s results missed UBS estimates by 20 percent, Saud said.

Moody’s Investors Service said Feb. 12 it may downgrade banks and government-owned companies in Dubai, the second-largest sheikhdom in the United Arab Emirates, if oil-rich Abu Dhabi limits support to its own institutions. The emirate may have to refinance $15 billion in debt due this year from its total debt obligations of $70 billion, according to Moody’s.

But, more than that, SWFs are still losing a lot of money in the investments they already made. The latest such revelation comes from Singapore.

Government of Singapore Investment Corp., one of two sovereign wealth funds owned by the island, lost as much as S$50 billion ($33 billion) in 2008, the Wall Street Journal said, citing two people familiar with the matter.

The fund doesn’t plan to get rid of its investments including in Citigroup Inc. and UBS AG even as asset values plummet, the newspaper said. GIC expects the two banks to provide substantial long-term returns, according to the report.

Sovereign wealth funds in Asia and the Middle East have pumped money into global financial institutions to help replenish capital eroded by writedowns and losses that have topped $1 trillion globally. GIC, overseeing more than $100 billion of reserves, has invested about $18 billion in UBS and Citigroup since December 2007.

GIC’s losses are similar to those at Temasek Holdings Pte, the city-state’s other sovereign wealth fund, according to the Journal. “GIC does not comment on speculative reports,” Singapore-based spokeswoman Jennifer Lewis said today by phone.

The value of Temasek’s portfolio shrank 31 percent in the eight months to Nov. 30 as the global stock-market slump eroded the value of companies from Barclays Plc to Merrill Lynch & Co., Lim Hwee Hua, senior minister of state at Singapore’s finance ministry, said on Feb. 10.

Temasek’s assets were valued at S$127 billion, down from S$185 billion at the end of March 2008, Lim said then. The MSCI World Index declined 38 percent over the same period in U.S. dollar terms. The benchmark tumbled a record 42 percent in 2008.

GIC, along with Temasek, reduced equity holdings amid the global downturn last year “early in the crisis,” helping the funds to post smaller losses than the MSCI World Index, Finance Minister Tharman Shanmugaratnam said on Jan. 19.

I see the weak domestic market and the heavy losses as a one-two punch for Sovereign Wealth Funds. While these funds may have continued to invest heavily in Europe and North America through 2008, I cannot foresee a similar asset allocation going forward. This lack of demand is a downside for markets n those countries.

Sources
Foreign Demand for U.S. Long-Term Assets Gained in December – Bloomberg.com
U.A.E. Real-Estate Defaults May Cost $25 Billion, UBS Says – Bloomberg.com
Singapore’s GIC Loses $33 Billion as Assets Tumble, WSJ Says – Bloomberg.com
Dubai resort The Atlantis stages most expensive launch party ever – Telegraph
Atlantis The Palm Dubai website
Atlantis lays off 70 staff – National

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• China sovereign wealth fund diversifies into a massive loss
• Dubai bailed out by Abu Dhabi after property bust
• John Paulson: Distressed assets best opportunity in a lifetime
• Foreign investors dump Danske Bank

In my book, losing a gargantuan $125 billion qualifies you as the dumb money.  This appears to be what has happened at Abu Dhabi’s leading Sovereign Wealth Fund.

I had been warning all throughout 2008 that the Sovereign Wealth Funds were making a big mistake in buying stake in western financial services companies. Now, they are paying the price.

Abu Dhabi Investment Authority may have lost $125 billion last year, pushing the sovereign wealth fund to second place behind Saudi Arabia after the global credit crisis cut asset prices, the Council on Foreign Relations said.

Abu Dhabi’s fund was “hard hit by the recent fall in global equities,” economists Brad Setser and Rachel Ziemba wrote in a report released on the New York-based organization’s Web site. “A high allocation to equities, emerging market and private equity” contributed to the drop.

Erik Portanger, a spokesman for the Abu Dhabi Investment Authority, declined to comment. The Associated Press first reported the estimates yesterday. Abu Dhabi is the richest of seven states that make up the United Arab Emirates.

The worst financial crisis since the 1930s Great Depression has led to almost $1 trillion in losses at banks and financial institutions worldwide, helping drag the benchmark S&P 500 U.S. share index down 39 percent in 2008. Gulf sovereign wealth funds have invested billions of dollars in financial institutions. The Kuwait Investment Authority last January paid $3 billion for a stake in Citigroup Inc. and invested $2 billion in Merrill Lynch & Co. Abu Dhabi’s Investment Authority bought a 4.9 percent stake in Citigroup for $7.5 billion in November 2007.

Remember, this is the people’s money here. $125 billion has gone up in smoke. I see this as true mismanagement of a country’s wealth. I wonder if anyone is going to take the fall for this.

Source
Abu Dhabi Wealth Fund Lost $125 Billion, Council Says – Bloomberg.com

Related posts:

• China sovereign wealth fund diversifies into a massive loss
• Sovereign wealth funds cut exposure to U.S.
• Will sovereign wealth funds pour yet more money into the West?
• Chrysler building: is the Middle East the new Japan?
• Barclays taps Sovereign Wealth Funds

With oil prices having plummeted, one should expect Middle Eastern oil exporters’ budgets to implode. What were budget surpluses will quickly turn to deficits, stoking civil unrest amongst the burgeoning masses. Very high population growth rates mean that many oil exporters must use government monies to support the domestic economy. However this becomes harder to do with revenue from oil decreasing.

Kuwait, which is one of the least populated oil exporters should serve as a harbinger of what to expect elsewhere regarding government finances.

Kuwait, which says it sits on 10% of global oil reserves, was pumping about 2.6m barrels per day but recent Opec cuts have reduced its output quota to around 2.2m barrels per day.

Spending in the first eight months was 7.9bn dinars ($28.7bn), less than half of the 18.966bn dinars ($69bn) in budget outlays forecast for the entire year.

That leaves a preliminary budget surplus of 9.8bn dinars ($35.7bn) although the budget projects a massive full year deficit of $23.5bn.

The surplus is expected to shrink considerably when the finance ministry makes the end-year accounting adjustments by including pledged spending which has not been registered so far.

The results, however, put Opec’s fourth largest producer well on track to post a budget surplus for the 10th straight year.

Local economic reports have said the budget surplus will be much smaller than initially forecast, and it is now estimated at around $10bn – down from the expected $40bn.

The reports indicated that the emirate will post its first budget deficit in the next fiscal year if oil prices do not rebound.

In the past fiscal year which ended on March 31, the Gulf emirate achieved a record surplus of 9.33bn dinars ($35bn).

Based on official figures compiled by AFP, Kuwait has chalked up a total budget surplus of 30.35bn dinars ($113bn) over the past nine fiscal years starting with the 1999-2000 year.

The emirate, which has foreign investments worth $264bn, has a native population of just over one million, plus $2.35m foreign residents.

In countries like Saudi Arabia, which suffers much more from population growth problems this turn of events will be more damaging. Expect these countries, therefore, to have less to spend on foreign assets going forward, which I believe is bearish for western asset markets.

As for the domestic economies in the Mideast, this paragraph is a telling statement (my bolding for emphasis):

The oil-rich emirate’s revenues have been declining since peaking at $12.9bn in August as the price of Kuwaiti oil, which makes up 95% of public income, dived to $35 a barrel from around $140 in July.

Kuwait hurt by oil price plunge – Fin24, South Africa

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The U.S. Dollar has been holding up quite nicely during this credit crisis. In fact, it rallied significantly from deeply oversold levels against the Euro and British Pound (remember Dollar-Euro at 1.60 and Dollar-Pound at 2.10?). However, America has a number of structural problems which will inhibit further appreciation. Moreover, former buyers of U.S. Treasuries in the Middle East and Asia are going to have domestic economic worries of their own very shortly and will not be supporting U.S. assets. This means that the Dollar will be a weak currency in the not too distant future.

Let’s address the structural weaknesses of the United States. The first issue is savings. As the Anglo-Saxon countries of Australia, Canada, New Zealand, the U.K. and the U.S. prospered in the 1990s and earlier this decade, their savings rates dropped precipitously. In the U.S., we saw a drop from 7% at the beginning of the 1990s to near zero before the credit crunch hit in earnest.

As a result, the U.S. has run a massive current account deficit, borrowing money from abroad in order to maintain adequate levels of investment at home. In essence, Americans were selling off pieces of the country to finance their spending. This is akin to an addict selling furniture to fuel his habit. In 2005 and 2006, this deficit was as high as 7.5% of GDP.

In the meantime, all of this deficit spending was financed by debt. Debt to GDP levels have reached unprecedented levels: 341% Total U.S. Debt to GDP, 98% Household Debt to GDP, 133% Household Debt to Annual Disposable Personal Income, 115% Financial Sector Debt to GDP — all as of Q2 2008.

While debt levels could continue to rise during good times, the present financial crisis has caused massive credit writedowns at U.S. financial institutions, restricting their capital and ability to lend. Debt levels will contract.

Now, the U.S. could try to shift the burden of borrowing onto the federal government to cushion the downturn this deleveraging will cause. And it will do so in part as Federal Government deficits are expected to reach into the trillions in the coming years. However,the U.S. will be greatly constrained by events in the Middle East and China in particular — major U.S. creditors. Both China and Middle Eastern countries will have large domestic economic concerns with which to contend. I anticipate they will pull back on their purchases of U.S> assets, as a result.

In the Middle East, the economy boomed as oil rose from $10 a barrel to $147. However, oil has recently come crashing down to $50 a barrel. This is happening in the midst of an enormous property crash in places like Dubai (see source articles below). Most oil-exporting Middle Eastern nations have a experienced a population explosion of late and this puts enormous pressure on government to create jobs and economic growth. With oil prices and property prices falling, there will be a hard landing in these countries. They will not spend their money buying U.S. Treasuries or agency paper in such a predicament.

Then, you have China, America’s largest creditor. China is seeing its manufacturing sector implode and a very serious stock market and housing crash. The situation there is much worse than we are led to believe as the Chinese have recently lowered interest rates considerably, have started large domestic stimulus packages and have even tried to depreciate their currency. Again, one should anticipate a much lower appetite for U.S. assets going forward.

Where does that leave the U.S.? To my mind, it leaves the U.S. in a situation where inflation will be the preferred mechanism to reduce the real burden of its mountain-like debt load. This is dollar bearish. Moreover, even if the U.S. cannot or does not inflate, the structural problems I have already run down will inhibit growth over the medium-term in the U.S. This too is dollar bearish.

The U.S. Dollar is riding high right now in part due to weakness abroad. However, as recessionary events start to play out, it will become more evident that the U.S. is structurally weak and that is when the Dollar will lose favor.

Other Charts

Sources
Dubai: Has the bubble burst? – The Economist
Dubai shares hit despite promises – BBC News
Heavily in Debt, Dubai Calls in the Bankers – Deal Book
Could China be depreciating? – FT Alphaville
Economic nationalism and the USD – FT Alphaville
China factory output down sharply – BBC News
China’s $586bn boost for own economy may have done the whole world a favour – Independent Ireland
China tops U.S. govt foreign creditor list – Sydney Morning Herald
China Property Slump Threatens Global Economy as Growth Slows – Bloomberg
Flow of Funds Data – Federal Reserve Board

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The Financial Times Deutschland is reporting that China and Iraq want to revive a Saddam-era oil contract between the two nation that is worth billions of dollars. The contract, an obvious economic coup for China, secures Beijing exploration and development in the south of Baghdad situated Ahdab oil field.

The Iraqi government looks to be doing everything it can to thumb its nose at the Bush government and define its sovereignty outside of the U.S. sphere of influence. If the United States entered the war in Iraq to gain secure access to oil, spending over $1 trillion in the process, it has not been successful.

My translation:

“Iraq and China are working hard to demonstrate their cooperation through the conclusion of a development agreement for the Ahdab oil field,” it was noted in a statement by the Iraqi Oil Ministry. The agreement will have a value of approximately $ 1.2 billion. It was agreed to in 1997 under Saddam Hussein and was to enter into force after the end of the then-UN sanctions against Iraq.

The agreement would be the first oil contract from the Saddam regime, which the new government has upheld. Despite claims by foreign oil companies, Baghdad had so far refused to benefit firms with pre-war arrangements for the allocation of oil contracts. The contract with the state-owned Chinese oil group CNPC was closed, although UN sanctions forbid direct transactions with the Iraqi oil industry. It was worth about $700 million at that time. After its development, the Ahdab oil field development should yield approximately 90,000 barrels of oil per day.

Source
China greift nach irakischem Öl – Financial Times Deutschland

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Sovereign Wealth Funds (SWFs), which played such a vital role in the recapitalization of U.S. financial institutions during the first go around, are looking to cut their U.S. exposure.

Basically, the U.S. is running an extremely inflationary monetary policy with Fed Funds at 2% and inflation at 5%. The Dollar has therefore lost value relative to currencies like the Australian DOllar, the Euro, the Swiss Franc and so on. The Gulf States like Kuwait and Saudi Arabia have their currencies pegged to the U.S. Dollar. So the expansionary U.S. policy is exporting inflation into the Middle East.

They are experiencing inflation of as much as 25-30%, to the point where expats down in the gulf are finding it difficult to get apartments. There is a building boom going on in places like Dubai the likes of which have never been seen. This is clearly out of control. What to do?

Kenneth Shen, head of the strategic and private equity group at Qatar Investment Authority, another Middle Eastern fund looking to do more deals in Europe than the US, aired such concerns publicly at a conference in Hong Kong late last year. “The outlook for the U.S. dollar is a significant issue for investors contemplating US-related investments,” Mr Shen said.

These money managers are very concerned about the value of their investments. However, more draconian policy shifts are in the offing if the U.S. dollar continues to sink.

Behind the scenes, fund officials are questioning the credibility of the Federal Reserve and U.S. Treasury in defending the dollar and maintaining financial stability. Reacting to last year’s collapse of structured investment vehicles, the head of one Middle East fund said: “I thought the problem of off-balance sheet had gone away with Enron.”

Kuwait last year ended its currency link to the dollar, raising questions about whether other oil-rich Gulf states with similar arrangements would follow.

The largest of the sovereign wealth funds, the Abu Dhabi Investment Authority, is still committed to the dollar. ADIA’s subsidiaries make their investments without taking into account currency risks. A separate ADIA division then decides whether to hedge or not.

As long as the United Arab Emirates – which includes Abu Dhabi – pegs its currency to the dollar, a major departure from the current investment policy is unlikely. Moreover, ADIA staff say they worry that the euro may be at a peak against the dollar.

Still, dissatisfaction with the dollar peg is growing at the Abu Dhabi fund. “We are suffering. We are importing inflation for no reason,” says one ADIA staffer.

It is only a matter of time before other Middle Eastern countries see the benefit of switching to a currency basket. The relative appreciation in their currency from re-pegging some of their basket to Euros and Yen would certainly halt the rise in inflation. This would leave money managers free to invest in Euro-denominated assets and protect their returns.

These moves would cause the dollar to lose value and interest rates in the U.S. to rise irrespective of what the Fed does. This is yet another reason the low interest rate policy of the Fed is not in America’s best interest.

Source
Sovereign funds cut exposure to weak dollar, FT, 17 Jul 2008

Related articles
Qatar becomes Barclays’ biggest shareholder, FT, 18 Jul 2008

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• Abu Dhabi sovereign wealth fund loses $125 billion
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• The Dollar

Apparently, the Bush administration isn’t just waterboarding its detainees; it’s doing much, much more. I can’t hope this book will get enough press because the American people are completely apathetic, but this is a travesty. Does it take the British press to raise this issue?

Jane Mayer’s new book, The Dark Side, reveals in greater detail the utter depravity of the Bush administration’s official policy of torture. Mayer’s long investigation makes clear that the tactics employed by the CIA on suspected al-Qaida terrorists do not exist in some grey area protected by the euphemism “enhanced interrogation techniques”. They are unquestionably torture. It is all the more shocking then that John McCain, knowing all that he does about torture past and present, would sacrifice his considerable personal credibility and vote to preserve the CIA’s ability to torture detainees.

Waterboarding has been the focus of attention since confirmation from the agency’s director, Michael Hayden, that it had been used on at least three al-Qaida detainees. The ancient technique that forces water into the lungs of a subject but stops just before he dies had previously been prosecuted by the United States as a war crime but now found its way into the “enhanced interrogation” programme authorised by the justice department and employed by the CIA. Hayden and attorney general Michael Mukasey said waterboarding was not currently being used but categorically did not rule out its use in the future.

That would be troubling enough, but what Mayer’s book makes clear is that waterboarding was only a small part of the CIA’s torture programme. In fact, even detainees that were subjected to waterboarding did not think it was the worst technique they had to endure. That was reserved for stress positions. These were often employed differently but included being shackled to the ceiling of their cells, forcing all the weight of their body onto their shoulders as they were suspended upright for eight hours. One detainee was locked in a box half his size for hours at a time. Most of them were deprived of sleep and bombarded with loud music and noises for 24 hours.

There has always been a troubling level of indifference to these activities, because these are al-Qaida terrorists responsible for the deaths of thousands of Americans. Rage and anger is understandable, but I hope people inclined toward this viewpoint appreciate that one of the principle divisions between us and our enemies is that we hold ourselves to a higher standard, we take our humanity more seriously and we intend to live up to our moral obligations. The United States should not torture prisoners in its captivity, no matter how grave their crimes.
-The Guardian, 15 Jul 2008

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This report comes from Fin24 in South Africa.

Iran on Sunday said it has discovered a new oil field in the hydrocarbon-rich province of Khuzestan with more than one billion barrels of crude in place.

Oil Minister Gholam Hossein Nozari said the oil field held 1.1 billion barrels of sweet crude oil, of which 233 million was recoverable, the oil ministry’s Shana news agency reported.

This is no Ghawar super giant field, but every bit helps. One billion is a big find, a giant oil field. The discovery reinforces Iran’s important role as the number 2 producer in OPEC and number 4 world-wide.

Related posts:

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If you haven’t heard yet, you will soon. The Chrysler Building was snapped up by the Abu Dhabi Investment Council (otherwise known as the government of a foreign country). With the U.S. still sporting a current account deficit over 5% of GDP, foreign countries around the world are piling up dollar bills in their coffers. And they are getting sick of buying treasurys.

The Abu Dhabi Investment Council has bought the landmark New York skyscraper, the Chrysler Building, for 800 million dollars, sources close to the deal said Wednesday.

Media reports had said the Abu Dhabi Investment Council, an investment fund based in the United Arab Emirates, had been holding negotiations with a subsidiary of Prudential Financial Inc. over its 75 percent stake in the renowned Art Deco building.

“We have sold our stake of 75 percent on Tuesday,” Prudential spokeswoman Theresa Miller said.

The 77-story Chrysler Building, one of New York’s best-known skyscrapers, is 25-percent owned by Tishman Speyer Properties, a privately held New York real estate firm.

-Agence France Press, 9 Jul 2008

Although we have friendly relations with the United Arab Emirates, of which Abu Dhabi is a part, one cannot help but see this as a ‘Pebble Beach’ style purchase. The same forces that blocked the purchase of Unocal by the Chinese oil company CNOOC and ended the Dubai Ports World ownership of U.S ports will see this purchase in a jingoistic way, fueling anti-foreigner sentiment.

The purchase may or may not be a good investment for Abu Dhabi, but where else are they to invest their dollars? This is all too reminiscent of the Japanese purchase of Pebble Beach in 1990. The Pebble Beach purchase marked the top of the market for Japanese real estate. The Japanese economy went into a major depression right after and the owners of the golf course ended up selling for a major loss.

Nevertheless, the Pebble Beach acquisition came to symbolize everything that was wrong with foreign investment in the U.S., souring U.S.-Japanese diplomatic relations. Given the climate in the U.S. today, the risks are much the same for this investment.

Related posts:

• Abu Dhabi sovereign wealth fund loses $125 billion
• Dubai bailed out by Abu Dhabi after property bust
• China sovereign wealth fund diversifies into a massive loss
• Sovereign wealth funds cut exposure to U.S.
• Will sovereign wealth funds pour yet more money into the West?

In a new expose by Seymour Hersh, the New Yorker explains what the Bush administration is up to regarding Iran. Obviously, there is still time to attack Iran before Bush leaves the White House. Are they prepared to do so? Read here.

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Whether you believe that peak oil is here or you believe that it’s fantasy, ultimately your opinion rests on whether the Saudis can pump more oil. For years, Saudi Arabia has been the swing oil producer, able to turn on its oil spigots when more was needed. Back in 1998, one reason oil went down to $12 a barrel was that Saudi Arabia wanted to flood the market and lower the price in order to teach OPEC cartel cheaters a lesson.

Now, with oil above $140 a barrel, the question is: does Saudi Arabia have any spare capacity left and if not, can it build some in quickly. The blog site “The Oil Drum” concentrates on oil and gives an excellent analysis of just that question.

The devil is in the production details of Saudi Arabia

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• Blame Bernanke, the dollar and oil
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• Peak oil: are we there yet?
• Kuwait: A harbinger of Mideast deficits to come

Barclays was successful in raising the money it needed. It was able to avoid a rights issue with the attendant problems that HBOS has faced by going cap in hand to Asia and the Middle East. In the end, it was the Qatar Investment Authority and Sumitomo Mitsui Banking Corporation who bailed out the British Bank.

Earlier in the month, I speculated that rights offerings were going to get more difficult after RBS revealed it didn’t place all its shares in the time allotted.

RBS failed to get all the money it needed for its rights issue with 300 million shares still in the hands of its underwriters, reports the FT. These shares are to be sold today. This massive $24 billion (£ 12 billion) shows the limits of banks’ ability to raise capital and underscores that Barclays made the correct decision in not having a rights issue in a market swamped by new shares.

With HBOS having major headaches as its shares have fallen below the price of its own rights offers. It does seem that Barclays made an excellent decision to go to institutional investors to secure more funding. The Times of London reported that Barclays’ shares rallied on news of its successful capital raising exercise.

Some £4 billion will be raised through a placing and open offer of 1.407 billion new shares at 282p each, a 9.3 per cent discount to Tuesday’s closing price, on the basis of three new shares for every 14 held. The balance of £500 million will be raised through a placing to Sumitomo MitsuiBanking, Japan’s third biggest bank, of 169 million new shares at 296p, a 4.7 per cent discount.

China Development Bank, which already owns 3 per cent of Barclays, will invest £136 million in the placing and open offer and its stake in the bank will remain the same. Temasek, the Singapore investment vehicle, which currently owns 2 per cent of Barclays will see an increase in the size of its stake after agreeing to invest up to £200 million.

The Qatar Investment Authority and Challenger, the company representing the chairman of Qatar Holding, have agreed to invest up to £1.764 billion and £533 million respectively, Barclays said. The participation of other institutional investors will be revealed in the prospectus, published later today.

Barclays said that the issue will enable it to run capital ratios ahead of its long-standing targets of 7.25% tier one and 5.25% equity tier one.

Taking into account the proceeds of the share Issue, Barclays expects to have a tier one ratio of 8.8% and an equity tier one ratio of 6.3% as at 31 December 2007. Tier one capital ratios are a closely watched measure of financial strength and Barclays has been under fire from analysts for letting its deteriorate.

-The Times of London, 25 Jun 2008

However, funding for banks is becoming increasingly difficult as writedowns seem to be neverending. I look at Barclays deal as a real coup. Let’s see how HBOS fares with its rights issue

Update: 1220 EDT – Barclays’ share issue, Financial Times, 25 Jun 2008

Related posts:

• RBS couldn’t raise the money
• B&B gets its money, HBOS and Barclays don’t
• Barclays taps Sovereign Wealth Funds
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Straight from the Senate Intelligence Report (in PDF), we find that Scott McClellan is right. The Bush Administration lies. They used obviously false information to make their case for war. This sounds an awful lot more like grounds for impeachment than the Monica Lewinsky affair.

The New York Times says:

A long-delayed Senate committee report endorsed by Democrats and some Republicans concluded that President Bush and his aides built the public case for war against Iraq by exaggerating available intelligence and by ignoring disagreements among spy agencies about Iraq’s weapons programs and Saddam Hussein’s links to Al Qaeda.

The report was released Thursday after years of partisan squabbling, and it represented the close of five years of investigations by the Senate Select Committee on Intelligence into the use, abuse and faulty assessments of intelligence leading to the invasion of Iraq in March 2003.
-New York Times, 6 June 2008

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• McClellan reminds of Wolfowitz five years ago
• Hillary’s Hawkishness
• I knew those Generals were biased
• I probably can’t vote for McCain
• China to get Iraqi oil

Remember when Paul Wolfowitz admitted in 2003 almost five years ago to the day that there never were any weapons of mass destruction? The Bush Administration had decided to use the WMD rationale ‘for bureaucratic reasons.’ He said, For bureaucratic reasons we settled on one issue, weapons of mass destruction, because it was the one reason everyone could agree on.”

The Scott McClellan tell-all book is reminding us now that the U.S. and its allies were duped into a war of convenience that has costs tens of thousands of Iraqi lives, over 4,000 us lives, hundreds of billions of dollars, and has destroyed an entire nation.

I can think of no singular foreign policy mistake that was costlier than the Bush administration’s decision to invade Iraq.

Do you feel any safer now? How’s your faith in government?

Source
WMD emphasis was ‘bureaucratic’, BBC News, 29 May 2003

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I was just listening to the Podcast of the Diane Rehm Show’s Friday Round-Up (real media file here) and I heard one of the three press ‘pundits’ (Eamon Javers, Eleanor Clift, and Stephen Hayes) defending the shoddy and fearful work of the White House press corps leading up to the war. Scott McClellan wrote a book in which he accuses the White House press corps of being too soft on the White House.

Now, these guys in the press corps are indignant. I heard NBC’s David Gregory defending himself and his colleagues earlier. Eamon Javers of Politico was incredulous. I find his defense laughable. These two men seem to want to defend the press’ honor. Eleanor Clift comes across as reasonable and logical.

These people abandoned their duty as objective, unbiased, principled seekers of the truth. They were co-opted by the White House and the culture of fear that spread in the U.S. after 9-11. They are a shameful group who have no credibility. This is one reason, many of us do not get our reporting from America’s mainstream media. I will stick with the web, British, Spanish, and German media. Thank you, very much.

Related posts:

• I knew those Generals were biased
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• The Bush Administration steps up its secret moves against Iran
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So, you’ve probably heard about Scott McClellan’s book. The word everyone is using is “scathing.” The Bush administration says he is “disgruntled.” Irrespective of what the spin is, the fact is he was a White House insider for seven years and the Chief Spokesperson for the White House. What he says has weight and it will definitely be an important issue against John McCain in the general election.

Barack Obama had better thank his lucky stars this book came out and that it came out when it did.

Watch this Youtube excerpt from ‘The Today Show’ and ‘MSNBC.’ Very interesting development.

(Video Here)

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The Boston Globe had an editorial in today’s paper entitled ‘Hillary Strangelove’ about Hillary Clinton’s dangerous and outlandish saber-rattling. Recently, she said in the Pennsylvania debate that she would use “massive retaliation” against Iran for an attack on Israel. She later qualified this statement on Keith Olbermann’s show to mean in the case of a nuclear attack on Israel. On Good Morning America on the day of the primary, she also said that she would “obliterate” Iran.

These statements, while demonstrating that she would not shrink from confrontation in foreign policy issues, demonstrate a lack of caution. This rhetoric has been picked up and condemned around the world. We don’t need to further our reputation as war-mongering, power hungry nation that is a threat to world peace.

Hillary Clinton desperately wants to build credibility as a candidate who is not soft on national defense. In so doing, she is demonstrating a lack of judgment that undermines her case for the Democratic nomination.

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I was reading a blog that reminded me to post something disturbing about biased coverage in the mainstream media (MSM). This is a little blurb on a story I caught a few days ago about all those military talking heads on the networks in the lead-up to war in Iraq. It seems those Generals were in cahoots with the Bush administration all the while. We were being manipulated and misled in the run-up to the war. Anyone who still trusts what they see and read in the MSM after reading this needs to wake up. Caveat emptor!

Read the New York Times article here. (warning: it is long).

It is ironic this article runs in the New York Times given their complicity in NOT uncovering Bush’s deceptions five years ago.

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• Kill All The Storytellers
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• The Bush Administration steps up its secret moves against Iran
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I was talking to a friend yesterday about the apathy of this generation of youth on key political and social issues. I said that if the Generation of ‘68 had gone through what this generation is going through they would be occupying the College Dean’s Office and burning something down. This generation seems to take everything with barely a whimper. I said it is because they aren’t being forced to sacrifice. No one is paying for our foreign wars. No one is being drafted.

My friend pointed out that no one gets to see what’s going on either. She reminded me, for example, that the war in Vietnam was in America’s living room daily. The horror, the screaming children, the dead bodies, and the caskets bringing home the American dead were plainly there for all to see. And Americans were horrified.

This morning I happened on a blog which noted the same absence of journalism in Iraq. We don’t see the war. We don’t feel the pain of our troops or the Iraqi people. It has no visceral effect on us. Therefore, as my friend said, the injustices of the war are lost on us unless we have loved ones in it. The blog ends with the line:

“To blind the people, you only have to do one thing: Kill all the storytellers.” Very true.

Read it here.

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• Black humor on Wall Street circa 1930
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In a previous blog entry, I critiqued the Democratic debate that was held this past Wednesday in Philadelphia. In my critique I mentioned that Hillary Clinton sounded very hawkish, frighteningly so. I’d like to expand on that theme for a bit.

First, regarding Iraq, it is clear to me that Hillary Clinton made a politically calculated decision to support the resolution to invade Iraq because not doing so, would make her seem weak on national security. Regardless of her other motivations — and remember she never read the National Intelligence Estimate about Iraq — she needed to be a hawk on Iraq. If you think back to 2002, she had been in the Senate for just under two years and was already considering a run for the presidency. Her name was bandied about as a contender for the 2004 Democratic nomination. Therefore, she needed to start building a track record from day one in the Senate.

At that time, the Senate was controlled by the Republicans, so she couldn’t gain a good track record for sponsoring bills as a very junior Democratic Senator. Therefore, she needed to show her mettle and substance in other ways. National defense was one of those ways. For years, pundits had claimed that the Democrats were weak on national defense and were unelectable as a result. Her husband was criticized in the same way, having reduced our military size in the 1990s. She must have been clear that she needed to be a hawk in order to have credibility on national defense. Hence, her vote in 2002.

Fast forward to the primary election in 2008 and we can see that it is impossible for her to recant on her vote because it would play into Obama’s call that she had been tested on the most important foreign policy decision in her career and had failed. She could not be deemed “ready to be commander-in-chief on day one.” Therefore, she is being forced to nuance the vote. That said, she still feels a need to show foreign policy meddle. Why else would she lie about Tuzla.

Yet, in the debate, she made what I consider to be a number of outrageous statements about potential changes in U.S. Foreign Policy if she were elected. The most outrageous was this concept of the U.S. offering an “Umbrella” of protection to Middle Eastern countries who forswear nuclear weapons. She was suggesting that we would attack Iran if they attacked Egypt or Saudi Arabia, much as we would retaliate for an attack on a NATO member. Well, NATO members are ostensibly stable democracies with few threats. The Middle East is an unstable region where such an Umbrella policy would be a disaster. This concept gives the entire Middle East a free ride with the U.S. as enforcer. I was stunned.

The second most ludicrous statement involved “massive retaliation.” She used the phrase “massive retaliation” to describe our response if Iran attacked Israel. Again, I find such commitments scary with unforeseen future consequences. No reasonable President should want to lock themselves into a commitment for massive retaliation defending nations in the Middle East. Obama was much more circumspect here, noting that such an attack would provoke a response. However, Obama did not say anything about “massive retaliation.”

From where I sit, those two statements — combined with her intransigence on a pullout timetable — make her foreign policy agenda a very negative point against her being President of the United States.

Related posts:

• Hillary Strangelove
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Recently I have been toying with the idea of voting for John McCain if it became a McCain-Clinton general election. As much as I may like John McCain’s apparent straight talk, some of his recent positions seem like major flip-flops and others seem dangerous.

I will continue to gauge McCain, but I have to say that fiscal conservatives like myself are disappointed that he has taken a tax and spend position to governance like the Bush administration. In general, he is moving closer to being a continuation of the Bush Administration. Very disappointing compared to the man who campaigned in 2000.

Here is where I see him on key policy issues:

1. Foreign Policy: Gut it out in Iraq, play brinkmanship with Iran. While I was opposed to the war in Iraq, I was willing to be convinced about staying on given the right tactical argument for maintaining a limited presence without a timetable. Now, McCain’s “100 years” quote is being distorted out of all context by the Democrats. But his position on Iraq shows him to be inflexible and likely to stay the course. That’s not encouraging. Even less encouraging is his hawkish stance on Iran. While Iran was always a bigger threat than Iraq to begin with, the U.S. can ill afford to attack a third Muslim nation in its quest for hegemony, pre-emption or whatever mindless excuse we might use.

2. Civil Liberties: I am not aware that McCain has any inclination of repealing or rolling back the Patriot Act, which is a huge curb on U.S. Civil Liberties.

3. Economic Policies: Continued under-regulation. No support for homeowners. McCain defends the laissez-faire approach. Fair enough. But, this is a major crisis and laissez-faire was inappropriate for 1929. It’s in appropriate for 2008.

4. Taxes and Budget: Maintain the tax cuts for the wealthy. While I agree with the premise that lower taxes are beneficial, I am not a proponent of massive deficit spending. Moreover, if anyone needs a tax cut, it would be the middle class. Again, McCain seems to be moving into Bush territory here, a real flip flop for the former fiscal conservative.

McCain is in a tough position because he is trying to solidify his base in order to get out the vote if Obama is the Democratic nominee (he doesn’t need to worry if Clinton is the nominee because the base will be energized to defeat her.). But, in so doing, he risks alienating moderate and swing voters who liked the John McCain of 2000 a lot more than the John McCain of 2008.

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• Hillary’s saber-rattling
• Pennsylvania goes to Clinton
• The Bush Administration steps up its secret moves against Iran
• Now Obama is back to not being good enough?
• Hillary Clinton has shown she lacks character

Earlier today in the news, it was revealed that our top man in the military in the Middle East, William J. Fallon has asked to retire and resign from his post (see story)

This story may seem innocuous and of little to no consequence at a time of huge news coverage: Eliot Spitzer, Geraldine Ferraro, Barack Obama, Hillary Clinton, Mississippi Primaries, etc. But, this could be the critical event to pave the way for America’s next war: the War against Iran.

Please read the Esquire article below:
Esquire Article

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