Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Grand Sale of American Assets Such as 5% of Citicorp to Abdu Dhabi

Economics / US Economy Dec 02, 2007 - 12:15 AM GMT

By: Andy_Sutton

Economics Turn on the evening news in most cities recently and you will see images of rows of homes, many for sale, many with foreclosure signs in the front yards. On weekends the tables come out and are strategically placed in the driveway heavily laden with the possessions of the soon-to-be-prior occupants of the home. These are selling off anything they can muster to scrape together rent for the next roof over their heads, the next car payment, or the next VISA bill. Most observers look at this and have at least a pang of pity or perhaps take a moment to be thankful for their good fortune.


Somehow though, when you put this wholesale liquidation into the terms of our country as a whole, the reaction turns from one of pity and contrite thankfulness to one of pure excitement and adrenalin. Earlier this week, we got news that Citigroup, the biggest bank in the US in terms of assets was receiving a much-needed $7.5 Billion infusion of cash from the Abu Dhabi Investment Authority (ADIA). That cash will not come for free though as ADIA will receive convertible stock yielding 11% annually. The deal will result in the ADIA owning not more than 4.9% of Citigroup. Between ADIA and Saudi Prince Walid bin Talal, they will now own nearly 10% of our biggest bank.

Anyone see a problem here? Why is it that Citigroup can pay ADIA (who also happens to be a client) a return of 11% annually, while their common shareholders are only entitled to around half that? There are a number of possible conclusions that may be drawn from these facts.

First, Citigroup was desperate; more so than anyone can imagine.

Second, ADIA recognizes that a fall in the value of the dollar diminishes the purchasing power of their dollar holdings and is looking for ways to be compensated.  Numerous reports stated that one of the main drivers behind the decision to make the investment is the recent fall in the dollar. Foreigners, sitting on trillions of dollars are scrambling to find suitable investment vehicles to cover the loss of purchasing power the dollar's fall has caused.

Third, foreign investors have been and continue to realize that their chances of getting paid back with actual products are slim and figure they'll simply buy the cow instead of waiting for the milk. More than likely, it is a combination of all three.

Predictably, Wall Street reacted positively with the news of the deal touching off a two-day 500 point rise in the DOW Jones Industrial Average. I must be a royal party pooper, but I don't see anything good coming of this. This certainly isn't the first time foreigners have bought a stake in American companies. Recent deals include:

  • French telecommunications equipment maker Alcatel's $13.4 billion takeover of Lucent,
  • The U.K's National Grid buyout of New York's KeySpan for $11.8 billion,
  • Saudi Basic Industries' $11.6 billion purchase of GE Plastics,
  • At the beginning of November, Canada's Toronto-Dominion Bank announced an $8.5 billion deal to acquire Commerce Bank,
  • In May, China spent $3 billion for a 10-percent equity stake in New York's Blackstone Group,
  • During September, Blackstone's competitor, Carlyle Group, sold a 7.5 percent stake to the government of Abu Dhabi for $1.35 billion,
  • Also in September, the government of Dubai agreed to purchase 20 percent of NASDAQ.

As a country, we are now akin to the family whose home has been foreclosed on. We are liquidating assets to make good on prior debts. While some will argue that this inflow of capital is a good thing and has been going on for many years, what I feel they fail to recognize is the pattern of acceleration in our debt accumulation and therefore the acceleration in the sell-off of American property, companies, resources, and other assets to cover the difference.  This is another one of the drawbacks to the falling dollar that you will not hear about on the evening news. And yes, unlike popular opinion and the general consensus, it is a drawback.

In typical fashion, the mainstream press is presenting a rather one-sided view of the Abu Dhabi story and the underlying fundamentals. The contention is that we have them over a barrel because they can't just exit the dollar. They would lose too much wealth in the process. While this might be somewhat true in the very short term, the real consequence is that eventually the title for the United States of America will be in the hands of foreigners. Who will have who over the barrel then?  In a high stakes drag race much like the show 'Pinks', we are trying to beat a Lamborghini with a tricycle.

For those individuals who are interested in specific companies and recommendations, please contact us. Due to a growing number of requests, we are going to begin offering, among other services, a paid newsletter that will profile specific recommendations on companies and industries. For a nominal fee, subscribers will receive a monthly newsletter that will discuss current issues in personal finance, investment, macroeconomics and related strategies designed to navigate today's difficult financial landscape. All interested parties should visit www.my2centsonline.com for forthcoming information or email us at info@my2censtonline.com Tomorrow's investments…Today.

By Andy Sutton
http://www.my2centsonline.com

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. He currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar.

Andy Sutton Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in