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Saturday, 5 January 2008
A Reader Writes "Can you help end dispute?"

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I enjoy receiving emails from readers.

However, I just received a note and I am not sure whether I mis-spoke or not in the blog, so let me share this email with all of you and if any of you can add to this discussion, please just leave a comment or email with your thoughts at bobsadviceforstocks@lycos.com.  

As an amateur, I am capable of mis-speaking or mis-stating my own observations of the fact.  If you do ever catch me doing that (some time back I posted the wrong chart with a stock!), just let me know and I shall try to make amends as soon as possible.

Anyhow, Shannon wrote:

"hey,
 
I may have misinterpreted newmentioning china perchase of naztac last year...tried to find out and ended up on your site..did i tell a friend wrong about hearin' cpurchase of stockco? every time i search it comes up china instead of dead end..can you help end dispute/thanku"

 

 
Shannon, thank you for writing.  I hope that I didn't make any mistakes in what I wrote.  My concern about foreign ownership is something that every nation must address when it has an imbalance of trade.  That is, if we purchase more imports than sell exports to other nations around the world, the effects will include the drop in the value of our currency, the dollar.
 
For those of you who haven't noticed the news on the balnce of trade, this tidbit was released December 17, 2007 by the United States Bureau of Economic Analysis:
 
"The U.S. Current-account deficit--the combined balances on trade in goods and services, income, and net unilateral current transfers--decreased to $178.5 billion (preliminary) in the third quarter of 2007 from $188.9 billion (revised) in the second quarter.  Increases in the surpluses on income and on services and a decrease in the deficit on goods more than accounted for the decreases.  An increase in net unilateral current transfers to foreigners was partly offsetting." 
 

Thus, we have a growing and significant balance of trade deficit in America.  And this trade imbalance is one of the prime movers in the decline of the dollar.  As reported in the Wall Street Journal:
 

"Messrs. McKinnon and Hanke are right that there is a common interest in maintaining the stability of the dollar but jawboning to convince foreign governments and their central banks to support the dollar will not solve the problem.

The best way to support the dollar is to balance our trade. The economic literature is full of the gains from trade that accrue to all trading partners, but every example to prove such gains shows trade to be in balance. Our goal should be free and balanced trade with emphasis on balance."

Another impact of our poorly managed trade situation is the 'recycline' of these exported $'s into ownership of our own manufacturing base.  Warren Buffett, along with Carol J. Loomis commented on this as far back as November 10, 2003, in a Fortune Magazine article available online:

"In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce--that's the trade deficit--we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.

To put the $2.5 trillion of net foreign ownership in perspective, contrast it with the $12 trillion value of publicly owned U.S. stocks or the equal amount of U.S. residential real estate or what I would estimate as a grand total of $50 trillion in national wealth. Those comparisons show that what's already been transferred abroad is meaningful--in the area, for example, of 5% of our national wealth.

More important, however, is that foreign ownership of our assets will grow at about $500 billion per year at the present trade-deficit level, which means that the deficit will be adding about one percentage point annually to foreigners' net ownership of our national wealth. As that ownership grows, so will the annual net investment income flowing out of this country. That will leave us paying ever-increasing dividends and interest to the world rather than being a net receiver of them, as in the past. We have entered the world of negative compounding--goodbye pleasure, hello pain."

In fact, that is exactly what has been happening in America as we have been finding ourselves selling, and yes even seeking to sell our own asset base as our 'farm' is under distress.

Dubai is moving ahead with its investment in 19.9% of the NASDAQ.  

As reported the other day:

"January 2, 2008 (FinancialWire) Nasdaq Stock Market Inc. (NASDAQ: NDAQ)
has received approval from the Committee on Foreign Investment in the
United States to give Dubai's state-owned bourse a stake in the U.S.
electronic exchange.
The New York Stock Exchange completed its acquisition of Paris-based
Euronext this year to form NYSE Euronext (NYSE: NYX).
The approval is the first step in allowing the Nasdaq to continue with
its plan to acquire Stockholm-based exchange operator OMX. The new
exchange will be known as Nasdaq OMX Group Inc.
Borse Dubai Ltd. will own a 19.9 percent stake in Nasdaq, though its
voting stake will be capped at five percent. It will also receive
Nasdaq's stake in the London Stock Exchange.
Nasdaq will make an investment in Dubai International Financial
Exchange, which is owned by Borse Dubai.
CFIUS is a committee with representatives from 12 federal agencies
established to review how acquisitions of American assets by foreign
companies might affect national security."

Other notable 'recycling' of dollars includes the $7.5 billion investment in Citigroup by Abu Dhabi:

"ADIA is the world's largest sovereign wealth fund with assets of $875 billion, derived from the country's oil surpluses. The fund, which will take no role in Citi's management, will buy securities that convert into 235.6 million shares starting in 2010 and yield 11% in the meantime -- almost double the bank's normal bond yield, and 4% higher than its shares' current dividend yield. Between March 15, 2010 and Sept. 15, 2011, the securities will convert to Citigroup shares within a $31.83-37.24 price range. "The structure of the deal suggests that Abu Dhabi is very bullish, effectively participating in the upside beyond $37.24, and sharing in the downside below $31.83," said George Nikas of Deutsche Bank. The purchase will make Abu Dhabi Citigroup's largest shareholder, followed by LA-based Capital Group Co. and Saudi billionaire Prince Alwaleed bin Talal."

Foreign investment in America is occurring at a torrid pace.

As reported:

"Merrill Lynch & Co., Morgan Stanley, Citigroup Inc. and Bear Stearns Cos., based in New York, sold $20 billion in stakes to bolster capital eroded by credit-market losses. International purchases of U.S. financial assets totaled $114 billion in October, the Treasury Department said Dec. 17, the fastest pace in five months."
 
In regards to China, where we have a massive deficit that is growing--
 
In the year 2000: $(83.8) billion
    2001: $(83.1) billion
    2002: $(103.1) billion
    2003: $(124.1) billion
    2004: $(161.9) billion
    2005: $(201.5) billion
    2006: $(232.6) billion
    2007: $(213.5) billion
 
These dollars also need to be recycled.
 
In 2006 it was reported that China owned $339 billion in U.S. Treasury Bills.  Not Chinese investors, and not investors from Dubai, and not investors from Abu Dhabi, but the actual governments of these countries are buying America.
 
In May, 2007, it was reported that China would invest $3 billion in Blackstone Group, amounting to approximately 10% of this asset management and hedge fund company.
 
My concerns about this series of rather rapid changes in our domestic corporate ownership involves questions about actual sovereignty of our nation.  We are well aware of the role that corporations play in our government .

Recent Supreme Court decisions have extended Constitutional Rights to Corporations.   What will this mean when more and more United States corporations are partially owned not just by non U.S. Citizens, but by arms of foreign governments?
 
I do not know if I have answered your question.  But I am sure I gave you some food for thought for this gloomy weekend following one of the worst trading starts to a new year since 1932.
 
Bob 

 


Posted by bobsadviceforstocks at 9:37 AM CST | Post Comment | Permalink
Updated: Saturday, 5 January 2008 10:51 AM CST

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