Pay backs are gonna be hell.
Posted on 3/18/2006, 12:01:21 PM by ex-Texan
The United Arab Emirates is planning to switch 10pc of its foreign reserves from dollars to euros in the first sign of fall-out from Washington's snub to Dubai Ports World last week.
Sultan bin Nasser Al Suwaidi, the governor of UAE's central bank, said the plan was designed to achieve a better balance in the $19.1bn reserves of the oil-rich Gulf federation, almost entirely held in dollars.
"This policy initiative has nothing to do with the controversy over DP World's bid for P&O operations in the US," he said. In the same breath, however, he denounced the move by the US Congress to block the Dubai group from taking control of six American ports on security grounds, warning it would drive capital away.
"It is against the principles of international trade. People will look at investment opportunities in the US through new binoculars," he said.
The UAE has been a close ally of Washington in the fight against terrorism, so the shrill tone on Capitol Hill - bordering on anti-Arab hysteria - has been deeply wounding. There are fears it could lead to a withdrawal of petrodollar funds from the US, much like the Saudi-driven capital flight after the terrorist attacks of 9/11.
"Dubai's difficulties are going to cause Arab countries to invest less in the United States," said Mohab Kamel, a trader at Kara Energy in Geneva. "The kick in the teeth by Washington is not reassuring for Kuwait and Saudi Arabia, which have a more fundamentalist attitude," he said.
The next move could be a decision by Emirates Airlines - the region's top carrier - to opt for Europe's Airbus A350 in a $7.5bn order for passenger jets expected next month instead of Boeing's 787 Dreamliner.
The IMF forecasts that the Gulf region will rack up a current account surplus of $275bn in 2006, giving it huge clout in the global capital markets.
By some estimates, the recycling of petrodollars has eclipsed the Asian central banks as the chief source of foreign financing for the US deficit, now over 7pc of GDP. Exact figures are elusive as Middle East holdings of US Treasury bonds are mostly disguised through purchases in London and the Caribbean.
David Lubin, an economist at HSBC and author of a report on Gulf petrodollars, said Washington could prove to be the victim of its recourse to "asset protectionism".
"It has been a particularly unpleasant incident and it may well have longer-term consequences since the US relies on foreign inflows to fund its current account deficit. This sort of move will make it even more dependent on easily-reversible portfolio flows," he said.
The IMF's Middle East director, Mohsin Khan, said that central banks in the Gulf region play a secondary role in recycling petrodollars.
What really matters is the investment strategy of the giant oil funds, such as the secretive Abu Dhabi Investment Trust now worth well over $200bn.
"They are still going into US-denominated assets, and the proportion of the assets held in dollars is not changing much - Gulf investors are not dumping dollars," he told the Middle East Economic Digest.
The moment they do, however, the long-awaited slide in the US dollar could start with a vengeance.
"What really matters is the investment strategy of the giant oil funds, such as the secretive Abu Dhabi Investment Trust now worth well over $200bn.
"They are still going into US-denominated assets, and the proportion of the assets held in dollars is not changing much - Gulf investors are not dumping dollars" . . . The moment they do, however, the long-awaited slide in the US dollar could start with a vengeance.
Let me see if I understand the full implications of UAE's economic policy: They are shifting 10% of their foreign reserves into Euros immediately. Iran is starting its oil bourse officially next week. The UAE is right next door to Iran. OPEC controls most of the oil money in the region. Abu Dhabi controls $ 200 billion worth of investments that are currently held in USD. Right now, Gulf investors are not dumping dollars for Euros.
If the U.S. dollar falls against the Euro it is a good thing for America, right? That means people will be buying more of our goods, right? Of course, Americans do not buy goods made here in the U.S. anymore. Because we are addicted to cheap foreign made goods as sold by companies like Wally World. What do we actually manufacture here in the U.S. today? Er, uh, televisions? Tires? Gasoline? More American companies have been sold to foreign corporate owners during the past six years than ever before. But my government is looking out for me.
Oh, dear me, is there something going on here that I do not understand? Sounds a bit like the early stages of a global trade war to me. [Learn more?] Anyway, I'm just a geezer.
carolyn
I recall a last year Warren Buffett shorted the dollar for the euro. He lost $1 billion.
Yes, Buffet lost $1 billion, but that was right on the heels of his shorting the dollar and making $3 billion.
So, he is still $2 billion ahead.
What really matters is the investment strategy of the giant oil funds, such as the secretive Abu Dhabi Investment Trust now worth well over $200bn.
maybe they realize there is an end in sight for oil (their sole income) as we have used it over the last century, and are getting nervous
Well I would guess people had better get a bike or a horse which ever one they have room for...LOL!
Yes. this is the opening salvo. Just waiting to see if Congress actually understands the implications of a truly global market driven economy with "REAL" free trade. This port deal indicates to me that congress/politicians (yet again) speak with forked-tongues.
Good idea! Kudos, Carolyn. There is so much disinformation out there. My b.s. meter goes into the danger zone every time I turn on the tube. Can you believe that Katy Couric is gonna be on CBS News? Guess we can all look forward to in depth interviews with Tom Cruise this year, huh?
The UAE is interested in making money.
They'll do what makes them the most money regardless of the petty politics going on.
Pay backs are gonna be hell.
Interesting interpretation from Norway, my FR friend. Kudos to you as well.
Keep in mind that the free traitors love cheap labor, since they perceive that one factor as the key to their God, "Lower Prices To Consumers". A declining dollar means that real wages (as opposed to nominal, unadjusted wage numbers) will decline in comparison to the rest of the world.
Of course, this means that the American middle class will be hurt, and badly. It may mean a certain amount of social upheaval, possibly including an H. Clinton Presidency in 2008.
But, what does that matter? Wages will have been forced lower.
Had we been wiser, and protected our domestic producers, we would not suffer what is surely to come. But the free traitors were at work, burrowing at the foundations of our economy, until we produce nothing. We'll pay a price. But better now than later, when it would be still worse.
I like economy. I studied economy in the US and have many good American friends that I still keep in touch with. My best friend from the college days is a good republican.
*PING* !
The "shrill tone" from Capitol Hill was only an echo of anti-Arab concern (not "hysteria") from the vast majority of Americans - and is well deserved.
UAE has been an ally ... but ONLY recently and ONLY in the WOT and the war in Iraq. They may be an "ally", only for now. They were not just a few years ago and they may not be tomorrow.
UAE and all of Islam are not an ally in defense of our ideals and values of freedom, liberty, democracy and religious tolerance.
Boo hoo hoo.
My heart bleeds for UAE.
I think the conventional wisdom is that if people don't want to be holding as many dollars or things that are more or less equivalent to dollars, such as Treasury Bonds, then there will be less demand for them; bond prices go down and interest rates go up.
If our government could make an honest and balanced budget then this wouldn't be as much of an issue.
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