For quite a while now the evening news has had a bit of a "Groundhog's Day" feel to it. Talk of the falling dollar and pictures of housing areas with "foreclosed" signs on many of the homes and a makeshift market in the lawn so that former home-owners can gather enough money for their next roof or to make next months credit card payment.
Many of us can be grateful we are so blessed, yet quickly turn around and jump for joy at the opportunity we have to take advantage of this circus we call our economy.
A month or so ago, one of the leading financial institutions in the US received a $7.5 billion dollar influx of cash from the Abu Dhabi Investment Authority. And on top of that, the ADIA will receive convertible stock that will be returning them 11% annually on their generosity (FYI: U.S. shareholders of Citi earn roughly 5% on their investment). The ADIA now will own 4.9% of Citi. I actually read somewhere that between the ADIA and the Saudi Prince there is 10% ownership of Citi.
The resulting market reaction to this, is that those who were smart enough not to get caught in the sub-prime trap are throwing the money they didn't lose into an imploding market. They may think that the ADIA investment was proof that the only exit for the foreigners that hold a sinking U.S. currency, is to minimize it's damage, re-invest in our economy and fuel further expansion.
While this thinking may hold a bit of truth, OUR benefits are short-term. And just like the individuals experiencing housing woes, America will be selling it's assets to anyone willing to part with a worthless dollar.
I found a few recent happenings that may have investors licking their short-sighted chops:
*French telecommunications equipment maker Alcatel's $13 billion takeover of Lucent Technologies,
*Beginning of November, Canada's Toronto-Dominion Bank announced an $8 billion deal to acquire Commerce Bank,
*The U.K's National Grid buyout of New York's KeySpan for $12 billion,
*This past spring, China spent $3 billion for a 10% equity stake in New York's Blackstone Group,
*Saudi Basic Industries' $11.6 billion purchase of GE Plastics,
*In May, China spent $3 billion for a 10% equity stake in New York's Blackstone Group,
*In September, Blackstone's competitor, Carlyle Group, sold a 7.5 percent stake to the government of Abu Dhabi for $1.3 billion,
*Also in September, the government of Dubai agreed to purchase 20% of NASDAQ.
My humble assessment and word to excited investors is......save it! And before you put all of our belongings on the lawn for liquidation to cover your margin debt, don't be stupid. Just look around. Invest in what you know, not what Money magazine and CNBC tells you are good investments and ignore the calming words of the government/federal reserve
(Those largely responsible for our current economic outlook). Mis-information sells, steals, and kills. Reading more than the news would be a great start, be it in investment matters or otherwise.
While it is fact that governmental fiscal mismanagement has contributed to the current problems with the economy, let's not forget an important factor I like to call "personal blame". People spent more than they had. Coupled with the Federal Reserve issues, it turned out to be a giant mess.
You're absolutely right. This is not just a Fed problem, our consumer lifestyles with no regard for our future status is becoming more prominent. "We want it now, and we'll fix it later if we have to", that seems to be the thought process of many Americans. We all need to be more aware of the role we play in American economy. Americans have a negative savings rate. We need a bit of economic responsability at the individual level. Thanks for pointing that out.