Sovereign wealth funds (swfs) are the new rage by which foreign governments are converting their depreciating U.S. debt
holdings (e.g. U.S. treasuries) into investment funds to take advantage of other investment opportunities.
China holds around $1 trillion worth of these depreciating dollars and has set up its first swf, which is currently capitalized at $200 billion. Middle Eastern nations also hold hundreds of billions of U.S. dollars. So do the Russians.
It is estimated that current swfs hold $2.5 trillion available to be deployed. Just China’s “$1 trillion on hand … is enough to buy a controlling interest in all 30 of the Dow Jones industrials,” noted the Daily Reckoning (May 29, 2007). That includes Boeing, ExxonMobil, Citigroup, General Electric, Microsoft, JP Morgan Chase, Wal-Mart, General Motors, plus 22 more of America’s biggest and best companies.
Because the dollar has fallen so much, American companies and infrastructure have become favorite targets of these swfs.
And the Europeans—well, they have a euro that now buys one and a half dollars, which is 80 percent more than it did at its low seven years ago. So they get a pretty good deal by investing in the U.S. too.
During 2006, foreigners spent $147.8 billion snapping up U.S. businesses, up 77 percent from 2005. According to the United States Department of Commerce, Europeans led the way, spending an astounding $109.9 billion—almost twice what they did in 2005.
Although year-end data for 2007 is not yet available, with the dollar falling as fast as it is, the takeover trend will probably continue. In November, Abu Dhabi spent $7.5 billion purchasing a 4.9 percent stake in America’s largest banking conglomerate (Citigroup) becoming Citi’s largest shareholder. Saudi billionaire Prince Alwaleed Bin Tala is said to be
Citigroup’s third-largest shareholder.
In October, China’s Citic Securities announced it had acquired a 6 percent stake in America’s fifth-biggest securities firm—Bear Stearns Cos. In May, the state-controlled Saudi Basic Industries Corp. agreed to buy the plastics unit of General Electric Inc. (an essential supplier to the U.S. military). The list goes on and on.
All told in 2007, as of this writing, some 800 U.S.-owned companies were subject to foreign buyouts.