Andy Xie: Europe’s is a money distribution problem

Europe has an enormous productive capacity, Greece included. Debt introduces a money distribution problem that becomes a flashpoint during periods of economic weakness because the inability of large debtors to pay imperils both the debtor, the creditor and everyone whose income is derived from those sources. If the debtors are large enough as in the sovereign debt crisis in the euro zone, you get a systemic crisis that often leads to depression.

The European sovereign debt crisis is all about apportioning losses between debtors, creditors, and taxpayers from debts that simply cannot be repaid in real terms

China will help Europe if it is recognised as a ‘market economy’

In China’s fight against the United States as an alleged currency manipulator, it is now trying to draw in the embattled euro zone. Agence France Press says that the Chinese are willing to contribute to the leveraged EFSF now set to be proposed by the EU at today’s summit. But only if they receive the EU’s blessing as a market economy

China May Add Fuel To Commodity Rally

The press is reporting that China plans to set up new investment funds that will put some of its $3 trln in foreign reserves to work in energy and precious metals. The PBOC is also reportedly studying a proposal to set up some sort of currency fund that would help stabilize the yuan exchange rate. No further details were given on either plan in terms of size or timing. The story comes on the heels of official comments last week suggesting unhappiness with the size of its foreign reserve holdings. As we noted, PBOC advisor Xia said China only needs $1 trln of foreign reserves and that the rest should be used to accelerate strategic investments. This is a bit different from PBOC Governor Zhou’s remarks, who simply said foreign reserves have exceeded a “reasonable” level, and that the management and diversification of holdings should be improved as “the build-up could cause big risks.”

Norway’s Oil Fund: Realizing Full Potential in a Fiat Currency World

The financial climate has changed radically from when Norway’s Oil Fund was established in 1990. Norway has built up its savings since then by selling enormous quantities of oil and gas, and employing many thousands of workers. By coincidence, an even larger sum of $600 billion recently has been created overnight – electronically on computer keyboards, by the U.S. Federal Reserve Board as part of Chairman Ben Bernanke’s Quantitative Easing policy (QE2). This money has been provided to spur bank liquidity, in hope that they can earn their way out of the losses they suffer from their bad mortgage loans and other gambles.

The aim of these banks is the same as that of Norway’s Oil Fund: to make money. As the financial press has noticed, nearly the entire $600 billion has been sent abroad – to the BRIC countries and raw materials exporters in strong balance-of-payments positions, whose economies are not as “loaned up” as those of the United States and Europe, where Norway invests most of its money. So while Norway is putting its money into these countries, their financial managers are jumping ship – sending electronic dollars and euros to the economies that use their own sovereign wealth funds in the opposite way from what Norway is doing.

Brazil Underscores Commitment To Weakening BRL

By Win Thin Brazil announced that it is allowing its Sovereign Wealth Fund (SWF) to trade currencies and currency derivatives (futures).  The SWF is managed by the Treasury, and so this gives the authorities another channel through which it can try to affect the exchange rate.  In his interview with the FT over the weekend,

Norway Buying European Peripheral Bonds

Norway’s government pension funds is the second largest sovereign wealth funds in the world with around $450 bln under management. Abu Dhabi is thought to have the largest sovereign wealth fund. The finance minister indicated that it has bought peripheral European bonds (Spain, Greece, Italy and Portugal. Ireland was note cited). Although many observers are

China sovereign wealth fund diversifies into a massive loss

We have seen absoultely catastrophic losses at the world’s Sovereign Wealth funds in the Middle East, Singapore, Norway, you name it. Add China to this list. China’s State Administration of Foreign Exchange diversified its money out of Treasuries and agency debt at absolutely the worst time, running into a buzz saw as equity markets tanked. Now they are sitting on huge losses

Will sovereign wealth funds pour yet more money into the West?

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

Bailouts: catching a falling knife

This post from January 2009 explains why banks do not increase lending capacity when uncertainty about the level of existing loan losses already on their balance sheet makes them worry about future loan losses. Credit wariness will be the order of the day meaning new credit will be restricted amid doubt about the creditworthiness of potential borrowers. Given the still anemic growth in credit, this is something to keep in mind

Abu Dhabi sovereign wealth fund loses $125 billion

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

Lehman tried to sell a 50% stake to foreign governments

Lehman Brothers is obviously desperate to avoid Bear Stearns’ fate. The FT is reporting that Lehman held secret talks with foreign investors to sell up to 50% of the company. Previously, I thought one investor might be the Korea Investment Corporation, but it turns out the investors are the Korean Development Bank and Citic of

Germans to SWFs: keep your hands off our companies

With sovereign wealth funds (SWFs) trolling the world for decent places to park their overflowing coffers of cash, the Germans have decided to stop them before they start. The German government has approved legislation that would enable it to prevent foreign buyers from taking big stakes in key domestic companies. The measure applies to investments